Recent Defensive Measures Adopted by the Brazilian Governmen

The Finance Minister and the Central Bank of Brazil (Banco Central do Brasil – Bacen) continues to act jointly to sustain the value of the national currency (Real) vis-à-vis other foreign currencies in the exchange market, specially in light of the constant depreciation of the United States Dollar and the Chinese Yuan, which adversely affects the Brazilian production.

On January 5, 2011, the Board of Directors of Bacen decided to adopt a prudential measure regarding the selling exchange position of the local financial institutions in order to improve the operation of the at sight exchange transactions market and reduce the Brazilian Financial System selling position, which in December of 2010 reached the aggregate amount of US$ 16.8 billion.

Bacen Circular No. 3520, of January 6, 2011, created a compulsory deposit to be made by all the banks (commercial, multiservice, development, investment, exchange or savings banks) authorized to deal in foreign exchange in Brazil, at the rate of 60% over the result of their daily selling exchange position exceeding US$ 3 billion or their respective equity reference value (patrimônio de referência – RF), whichever is lesser. This compulsory deposit will have to be paid in cash and will not be entitled to any remuneration whatsoever. A 90 day-term was granted to allow the banks to adequate themselves to the new rule, which will be valid and enforceable as of April 4, 2011.

The second measure adopted by the Brazilian Government to sustain the value of the Real was announced by the Finance Minister after its publication in the Official Gazette of the Union (Diário Oficial da União – DOU) and relates to the authorization given to the Brazilian Sovereign Wealth Fund (Fundo Soberano do Brasil – FSB) to purchase and sell foreign exchange and to make exchange transactions, including by means of derivatives agreements, with the purpose of investing abroad in special deposits at a remunerated account in a federal financial institution incorporated outside Brazil1. The Secretariat of the National Treasury of the Ministry of Finance was duly authorized to enter into an agreement with Bacen, because Bacen will act as FSB´s operational agent for all these exchange transactions2. This authorization is contained in Resolution No. 2 of the Decision-Making Council of FSB, dated September 7, 2010, which was only published in the DOU in January 10, 2011.

Furthermore, in line with the same strategy, on January 13, 2011, the Brazilian Monetary Council (Conselho Monetário Nacional – CMN) authorized Bacen to reinitiate the reverse exchange swap auctions, whereby Bacen offers liquidity in the futures market to those financial institutions interested in reducing their selling positions in United States Dollars at the Brazilian Exchange (BM&FBovespa). In this type of operation, Bacen assumes the exchange variation risk and pays to the financial institution a remuneration determined by the SELIC rate3.


1. No financial limit was imposed for any such transactions, although the current value of the total assets presently corresponds to R$ 18.7 billion, as determined by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM). Nowadays, 90% of FSB assets is represented by units (quotas) of the Fiscal Fund of Investments and Stabilization (Fundo Fiscal de Investimentos e Estabilização – FFIE) and the proceeds so invested have been substantially used to acquire shares of Petrobras and Banco do Brasil. These assets do not have immediate liquidity but FSB may at any time receive funds arising out of federal public debt bonds´ issues.

2. Banco do Brasil is and will continue to be the financial institution in charge of the management of FSB.

3. The SELIC rate is the average interest rate on overnight inter-bank loans collateralized by government bonds that are registered with and traded on the Settlement and Custody Special System (Sistema Especial de Liquidação e de Custódia – SELIC).

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