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Brazil hopes FX hedge program will spur $20 bln in green projects

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Brazil hopes FX hedge program will spur $20 bln in green projects

By Marcela Ayres and Bernardo Caram

BRASILIA, Feb 28 (Reuters)Brazil will present its credit lines with long-term currency hedges to global investors and hopes its blended finance line alone will unlock up to $20 billion in foreign investment for sustainable projects, Treasury Secretary Rogerio Ceron said.

Bankers and policymakers at G20 finance meetings in Sao Paulo have hailed Brazil’s new hedging program, first reported by Reuters last week, as a potential breakthrough for financing climate change solutions in emerging markets – but few have ventured an estimate about how much investment to expect.

In an interview with Reuters late on Wednesday, Ceron said the Treasury expected a blended finance line combining private and public-sector capital to have a multiple between 5 and 10: “In other words, for every $1 billion I invest in the program, I can leverage between $5 to $10 billion,” he said.

“We are talking about starting the program with $1 to $2 billion. In the best-case scenario, if everything goes very well, spectacularly, we could reach something close to $20 billion in fundraising. But if it stays in the middle, $10 billion is already a great success.”

The degree of success will depend on banks offering the blended finance line to investors in conjunction with funding through foreign capital markets.

The new Brazilian program also has a contingent liquidity line, providing cash for sustainable development projects in times of sharp currency devaluation; a credit line for banks to develop products for currency hedging; and a line for structuring projects aimed at ecological transformation.

The Treasury is preparing roadshows to present the full array of measures, which should be ready for the market in a couple months, said Ceron.

The package also hinges on an executive order, expected from President Luiz Inacio Lula da Silva in the coming days.

Ceron said it is impossible to estimate the precise impact of the measures on foreign direct investment (FDI) in Brazil, which dropped 17% to $62 billion last year.

But he predicted that the full currency hedging platform, including $3.4 billion in derivatives contracted by the Inter-American Development Bank (IDB) and offered via Brazil’s central bank, could change the outlook for foreign investment by the end of Lula’s term.

“I am completely confident that we will create a program that will be a legacy for the country. In three years, we will look back and say it made a difference,” he said.

IDB President Ilan Goldfajn said at the program’s launch on Monday that it could be a benchmark for similar initiatives in other countries.

Reporting by Marcela Ayres and Bernardo Caram
Editing by Brad Haynes, Alexandra Hudson

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