Brazil’s Finance Ministry has announced an ambitious financial programme to protect investors from currency risks linked to sustainable projects and to buoy the country’s green investment sector.
The plan is designed to attract foreign investors to Brazilian eco schemes by mitigating risks associated with exchange rate volatility, Reuters has announced.
In the year of Brazil’s G20 Presidency, the innovative programme is said to comprise diverse initiatives and the offering of derivatives, contracted by the Inter-American Development Bank (IDB) through the Brazilian Central Bank.
The Ministry said the move was designed to encourage further green investments “which are crucial for the ecological transformation.”
Under the programme, the IDB will contribute $3.4 billion in derivatives and $2 billion in credit lines, as part of Brazil’s plan for foreign exchange hedges. It was disclosed that the $2 billion IDB contribution would be allocated specifically to the Brazilian
Climate Fund, which was also due to benefit from an additional $1 billion from the World Bank.
“If it works, and I think it will, it would be an example for the world,” IDB head Ilan Goldfajn said at a specially convened press conference.
Reuters also reported that Roberto Campos Neto, the Central Bank Governor, had emphasised that the monetary authority would purely be acting as non-risk intermediaries in the offering of derivatives.
Campos Neto underlined that it was not the Central Bank’s intention to control Brazil’s freely fluctuating exchange rate.
Reuters also reported that the government’s plan included allowing the Central Bank to extend the period for rolling over its $100 billion stock of swaps from one year to 18 months. “We do not intend to do a very long swap,” said Campos Neto.
The programme, due to be activated straightaway under Government order, will also feature “a special liquidity credit line for financing major sustainable projects.”
Reuters revealed that the Bank would be empowered to conduct operations enabling “the implementation of currency protection solutions.”
The additional Climate Fund revenues would be allocated to four different credit lines within the government’s overall foreign exchange protection plan, based on demand and other criteria, said Treasury Secretary Rogerio Ceron.
Brazil unveils FX hedge program for sustainable investments | Reuters
