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October 8, 2010
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Brazil's President Luiz Inacio Lula da Silva will send a bill to Congress tomorrow to create a sovereign wealth fund, Finance Minister Guido Mantega said.
Initial financing for the fund will come from 14.2 billion reais ($8.8 billion) in spending cuts made this year to combat inflation, Mantega said in testimony before the lower house's finance committee. Mantega said last month the government would boost its budget surplus before interest payments to 4.3 percent from 3.8 percent of gross domestic product.
Once inflation eases, Mantega said the fund may buy dollars in operations similar to the central bank's and fund government and private Brazilian investments abroad through the state- controlled development bank.
Royalties from recent offshore oil discoveries might also find their way into the wealth fund, Mantega said.
``These oil discoveries will bring numerous advantages for Brazil, because they belong to the people and not private companies,'' said Mantega.
Petroleo Brasileiro SA, the government-controlled oil company known as Petrobras, said in November it found 5 billion to 8 billion barrels of oil in the Tupi field, the largest oil discovery in the Western Hemisphere in three decades.
Mantega said it was premature to discuss how the royalties will be spent since production at Tupi and adjacent oil fields is still a few years off. Still, he said it was Lula's hope the money could be used to fund a massive investment in education.
`Inflation Monster'
Mantega said the government is combating inflation, now at a two-year high, and claims that the country faces an ``inflation monster'' are exaggerated.
``Sounding alarms about inflation can turn contagious,'' he said.
Annual inflation that accelerated to 5.58 percent in May was still within the government's target range of 2.5 percent to 6.5 percent and one of the lowest in the developing world, Mantega said.
Instead of pursuing anti-inflationary measures to curb consumer demand that powered first-quarter growth of 5.8 percent, the government wants to stimulate investment so supply can keep pace, Mantega said.
``We can take measures to reduce the fever a bit without killing the patient,'' Mantega said, adding that record reserves, low inflation and strong growth insulate Brazil from the worst effects of the U.S. economic slowdown.
The Central Bank has raised interest rates twice since April to 12.25 percent from a record low 11.25 percent. Policy makers are expected to increase rates to 14.25 percent by year- end, according to a June 27 survey of 100 economists by the central bank.
By Joshua Goodman
Source: Bloomberg (www.bloomberg.com)
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