UPDATE 1-Brazil to launch FX hedge platform for ‘green’ investments

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BRASILIA, Dec 1 (Reuters) – Brazil’s finance ministry and the Inter-American Development Bank will launch a foreign-exchange hedge platform aimed at smoothing volatility for investments under the country’s green transition plan, the Brazilian government said on Friday.

Reuters had

first reported

in October that Brazil’s government was preparing to introduce currency hedging instruments to attract more long-term investments from abroad, in an effort to reverse slumping foreign direct investment.

The finance ministry said in a statement that the tool, which is expected to be available from 2024, has an initial potential for FX hedges of $3.4 billion, but that amount could increase in the future.

The program will include FX swaps, credit lines providing liquidity for investments in foreign currency and hedging mechanisms to protect investors from tail risks related to potential “extreme depreciation,” the ministry said.

Brazil’s government considers FX risks as one of the largest hurdles faced by emerging countries in their quest for foreign investments.

“This instrument aims to minimize the impacts of unexpected FX movements triggered by extreme economic events, which could have a negative impact on the decision to invest in countries like Brazil,” Finance Minister Fernando Haddad said.

The hedge instrument will be available for investments in areas such as reforestation, infrastructure aimed at preventing environmental disasters, low-carbon agriculture, green hydrogen and the energy transition, according to the government. (Reporting by Bernardo Caram; Editing by Kylie Madry)