Brazilian Sovereign Fund authorized to purchase US dollars

The National Treasury Secretary, Arno Augustin, confirmed yesterday (February 24) that Brazil’s Sovereign Fund (FSB) may be used as an instrument to combat exchange rate volatility: “It is definitely an area of concern. The level of volatility of the exchange rate was not positive for the country during the period immediately before and after the international financial crisis (in 2008)”.

The government set up the Administrative Committee for the FSB this week, originally formed in 2008, at the peak of the global crisis, with the resources that exceeded the primary surplus target (the amount saved to pay off public debt interests). The Fund, which currently has R$16.68 billion at its disposal, was conceived to be used as a savings deposit for anti-cyclical use at times when the government’s revenue stream falls. However, the regulations concerning the Fund state that the government has authorized the National Treasury to use these resources to buy US dollars.

“The government has effectively establish a series of policies for the FSB: one being its use as a fiscal reserve, as was the case at the end of 2008, equivalent to 0.5% of GDP. The other possibility is for FSB funds to be used in the exchange rate market. As and when the government sees this as an opportune move, it will indeed act accordingly”, stated Augustin.