Brazil to Launch Broad FX Hedging Program for Green Investments
Brazil to Announce New Measures for Foreign Exchange Hedging
Brazil’s government is set to unveil new measures to assist foreigners with foreign exchange hedges on their investments in sustainable development. This move aims to avoid currency and fiscal risks for the Treasury, according to sources familiar with the plan.
Plan Includes $2 Billion in Forex Derivatives for Green Investments
The plan encompasses a new channel for about $2 billion in forex derivatives, contracted by the Inter-American Development Bank (IDB) and distributed in Brazil by the central bank. This initiative is expected to leverage the IDB’s triple-A credit rating to facilitate longer-term and lower-cost currency derivatives to encourage foreign investment in Brazil’s “green” development initiatives and is anticipated to be announced in an executive order.
Comprehensive Derivatives Contract with IDB Expected
Brazil’s central bank is expected to sign a comprehensive derivatives contract with the IDB to make the program operational, said the sources.
Government to Authorize Central Bank to Roll Over Swaps
In the same executive order, the government will also authorize the central bank to roll over its $100 billion stock of swaps for longer terms, aiming to enhance liquidity and reduce currency volatility, according to one of the sources.
Other Measures for Currency Protection to be Included
Monday’s foreign-exchange package will include other measures for currency protection, including a liquidity line for structured project finance for green investments, supported by the IDB, both sources said.
Brazil Aiming to Bolster Foreign Investment in Sustainable Infrastructure
Long-term currency hedging has long been a challenge in Brazil, scaring away some foreign investors from Latin America’s largest economy. President Luiz Inacio Lula da Silva’s government has tackled the issue in an attempt to bolster foreign investment in areas such as renewable energy and sustainable infrastructure, aiming to position Brazil as a major player in climate change.
Boosting Foreign Direct Investments in Brazil
In 2023, foreign direct investments in the country (FDI) fell by 17%, to $62 billion.
