[1/5]Brazilian Finance Minister Fernando Addad speaks to Reuters in Brasilia, Brazil, on October 18, 2023.Reuters/Adriano Machado Obtaining license rights
BRASILIA, Oct 19 (Reuters) – Brazil’s government is preparing to introduce currency hedging measures this year to attract more long-term investment from abroad, Finance Minister Fernando Haddad told Reuters, as the country’s weak foreign direct investment He spoke of this as an effort to reverse investment (FDI).
Haddad revealed in an interview late Wednesday that the initiative, which is currently being finalized in cooperation with the central bank, should begin within the next 60 days.
The new measures are aimed at attracting more foreign investment and are seen by the government as key to “green” development projects that are at the heart of President Luiz Inacio Lula da Silva’s policy agenda. There is. FDI into Brazil fell by 36% to $37.9 billion in the first eight months of 2023.
Currently, investors in long-term projects in Brazil with foreign currency exposure pay taxes on currency appreciation over the life of the project, but the central bank has long warned that this is a deterrent to FDI.
Haddad said he was confident policymakers had found a way to protect investors from currency risks and keep them away.
“I’m confident that the format will be perfected. Otherwise I wouldn’t be saying this. I believe it will be this year,” he said in a wide-ranging interview at his office in Brasilia.
A government official familiar with the discussions said the new hedging instruments would address a market gap that makes it essentially impossible to hedge currency risks in long-term projects in Brazil.
financial challenges
Haddad has won grudging respect in financial markets this year after successfully passing new fiscal rules to curb the rise in public debt. But he is now increasingly skeptical that Brazil will be able to meet its aggressive goal of eliminating its primary budget deficit next year.
Adado, a former mayor of São Paulo and 2018 presidential candidate for the leftist Labor Party, had a positive opinion among 65% of Brazilian fund managers, economists and financial market analysts polled by pollster Genial/Quest in July. This is because the new fiscal framework has cleared the hurdles. in parliament.
But by last month, the survey had seen a positive view increase by 46% of respondents, as private economists questioned next year’s fiscal targets and called for tighter spending controls rather than relying too much on new revenue. %.
Adding to Haddad’s challenges is that parliamentary leaders, who were key to approving the fiscal framework, are now increasingly resisting government efforts to extract more tax revenue from highly connected industries and interests. It’s clear.
Haddad acknowledged to Reuters that stronger headwinds in Congress could derail the agenda needed to meet fiscal targets.
For example, he said one important new revenue measure sent to Congress as an executive order in August would now have to be reintroduced as a bill, potentially delaying its passage.
The measure aims to prevent state tax discounts from reducing companies’ taxable income for federal revenue purposes and raise 35 billion reais ($7 billion) in 2024.
Brazil’s executive order is effective immediately but will expire unless approved by lawmakers within four months.
Haddad called Congress’ resistance to reviewing the executive order an “unresolved impasse.”
“It’s unfortunate because some issues really required an executive order to be considered given their importance and urgency,” he said. “We face this constraint, and we intend to overcome it by introducing legislation with constitutional urgency.”
Haddad said without this measure it would be “very difficult” to eliminate the deficit in next year’s budget.
He said Congressional support for reforms is even more important amid growing economic headwinds, including rising long-term interest rates in the United States and outbreaks of violence in the Middle East.
Brazil’s economy grew much faster than expected in the first half of this year, supported by a bumper crop and strong oil and mining production, but Haddad warned that the economic performance in the third quarter was “very poor.”
“Even if Congress vindicates every decision the executive branch has made to date, we still have work to do,” he said, adding that the department has new plans as needed to meet its goals. He added that he was ready to take fiscal measures.
(1 dollar = 5.0593 reais)
Reporting by Marcela Ayers, Bernardo Karam and Lisandra Paraguas.Editing: Brad Haynes and Christopher Cushing
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