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Fri, May 09, 2008 - Page 10 News List

Brazil to create US$20 billion sovereign fund

AFP , BRASILIA

Brazil is to create a US$20 billion sovereign fund to support the nation's investment abroad and "absorb excess dollars in the market," Economy Minister Guido Mantega was quoted on Wednesday in an interview with the Folha de Sao Paulo newspaper.

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

foreign reserves

The decision comes as Brazil seeks to better use its foreign cash reserves, which now amount to nearly US$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.

Brazilian Planning and Budget Minister Paulo Bernardo on Tuesday confirmed that the drafting of the fund was complete and the government would soon start work helping Brazilian business abroad.

The government is especially focused on other parts of Latin America and Africa, where financing is often hard to come by.

criticism

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, who now heads a financial consulting firm called Tendencias.

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