Forex Official Blog

Brazil plans to sell treasury bonds to finance sovereign fund after Senate nixes funding

Brazil will sell treasury bonds to finance its new sovereign wealth fund, circumventing a legislative hurdle that had limited its cash supply, a treasury official said Friday.
The bond issue will allow Brazil's government to deposit 14.2 billion reals ($5.9 billion), or 0.5 percent of gross domestic product, into the fund by January, Deputy Treasury Secretary Cleber Oliveira said, giving no other details on the sale.
Brazil's Senate had approved the fund's creation, but refused to tap 14.2 billion reals from the nation's 2009 budget to finance it.

The sovereign wealth fund is intended to protect Brazil from future financial crises and help Brazilian companies boost trade and expand abroad. Finance Minister Guido Mantega, who proposed its creation in May, suggested that it be financed by public income in excess of the state's target primary budget surplus of 3.8 percent of gross domestic product.
Legislators debated the plan intensely, with some arguing it was unwise to store, rather than spend, so much public cash amid a global financial crisis.
But a provisional measure authorizing the bond sale was part of a law establishing the fund that President Luiz Inacio Lula da Silva signed on Wednesday.

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