Brazil to Create $20 Billion Sovereign Fund

Brazil seeks a better use of its $200 billion foreign cash reserve

To support Brazilian investment abroad, the country is creating a $20 billion sovereign fund. It will also "absorb excess dollars in the market," Economy Minister Guido Mantega said.

The fund may be operational by the end of June, Mantega said, adding that it would work through the government's Brazilian Development Bank.

The decision comes as Brazil seeks to better use its foreign cash reserves, which now amount to nearly $200 billion on the back of a booming national economy and strengthening national currency against the dollar. Mantega stressed, however, that the new sovereign wealth fund would not derive its money from the reserves.

Brazil's planning and budget minister, Paulo Bernardo, said the fund would soon start work helping Brazilian business abroad. It is especially focused on other parts of Latin America and Africa, where financing is often hard to come by.

There is some criticism of the fund. "Everything indicates that this is a bad idea that will bring unnecessary and grave risks into the fiscal, monetary and exchange arenas, without addressing the best interests of Brazilian companies," said former central bank governor Gustavo Loyola, today the head of a financial consulting firm called Tendencias.

Copyright Agence France-Presse, 2008

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