Brazil Taps Money from US$ 207 Billion Foreign Reserves to Fund Exports

    Guido Mantega and Henrique Meirelles

    Guido Mantega and Henrique Meirelles Henrique Meirelles, the president of Brazil's Central Bank (BC)announced Monday, October 6, that his institution is going to offer a line of credit using dollars from foreign reserves in order to fund exports.

    According to Meirelles, the Central Bank is going to purchase bonds from foreign private banks and then pay the institutions using the United States currency. After some time, the monetary authority is going to return the bonds to the banks, which will then reimburse the dollars they received.

    Meirelles explained that the operation will actually function as a loan, and will not deplete Brazilian foreign reserves, which currently total US$ 207 billion. The reason is that dollars from the reserves are going to be returned later on. "This is an intelligent way of using our reserves," he declared.

    The president at the Central Bank did not provide details on the lines of credit, such as the deadlines for the contracts and the volume of United States currency to be offered. However, Meirelles stated that the institution has US$ 23 billion available for operating in the futures exchange.

    The system is the same as with the US$ 2.5 billion that have been auctioned by the Central Bank since the international crisis worsened. Over the last two weeks, the institution sold US$ 1 billion with contracts for future repurchase.

    By injecting dollars into the market, the Central Bank will obtain the corresponding deposits in Brazilian reais, but further on it will receive the United States currency back.

    "What really takes place is an exchange of assets, which allows us to maintain the level of reserves and also feed the foreign trade system," explained the minister of Finance, Guido Mantega. The process for the US$ 1.5 billion foreign exchange swap auction, held today for the first time since May 2006, was a similar one.

    Meirelles also said that the Central Bank is prepared to take additional measures. "We have over US$ 200 billion in foreign reserves, over US$ 20 billion in the futures market, and 200 billion reais (US$ 97.3 billion) in mandatory deposits," he stated.

    In the assessment of the Central Bank chief, these funds are only available due to previous action taken by the institution, which purchased dollars in the futures market when the United States currency was depreciated.

    "Those operations were met with harsh criticism at times (because they led to greater losses by the institution), but they are important when the country needs funds, as is the case right now," he said.

    Export Credit

    The federal government of Brazil is going to increase by 5 billion reais (US$ 2.4 billion) a line of credit of the Brazilian Development Bank (BNDES) destined for pre-shipments, i.e., the shipping of goods meant for foreign trade.

    According to the Brazilian minister of Finance, Guido Mantega, the allocation of the funds should be passed by the board of managers at the bank October 6 or 7.

    Henrique Meirelles, showed concern regarding the possible consequences, to the country, of an expected overall reduction in global trade levels. "It should affect the total export volume of all countries," he stated.

    ABr

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    • Show Comments (3)

    • Falupa

      Export credits
      With the U.S. Market depreciating drastically there is a major concern as to what will happen. I would be cautious to say that there are going to be some serious problems with such a large investment now especially as the value of currency is dropping.

    • Augustus

      Economic band-aid? The Party is Over!
      CH-C, quite frankly, I fear we are all DOOMED!
      The Party is over!
      Perhaps the Chinese Government will finally emerge as the Top Dog and bring some stability… Nevertheless, even if a Valliant “White Knight” emerges with an unimaginable “Economic Magic Wand”, I fear that we shall witness not only a complete financial meltdown, but also millions (perhaps over one billion) of dispossessed individuals, riots and civil commotion across this unfortunate Planet…

    • ch.c.

      To Falupa !
      So true, but only half true !!!!!
      What about the BOVESPA and the Brazilian Currency ?
      In less than 6 months, the BOVESPA is DOWN 55 % when adjusted in US$ !!!
      Ohhh that was the day before of today !!!!!

      Who is the weakest from the TOP…………IN YOUR VIEW ?
      The USA Stock market or Brazilian Stock Market ?
      Who of the two has the biggest problem ?
      Can Brazil prints….US DOLLARS..as much as they desire ????????
      What would happen to the Brazilian currency and its buying power if Brazil prints too many of their currencies as they did so many times in their history ?????

      Hmmmmmm !
      πŸ˜€ πŸ˜‰ πŸ˜€ πŸ˜‰

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