Wealth Fund Remnant From Brazil Boom Days Is Set for Demise

  • Government to sell assets to help finance budget deficit
  • Shares of Banco do Brasil slump after plan is announced

Eight years after it was founded, Brazil’s sovereign wealth fund is poised to finally serve its country -- by shutting down.

Acting President Michel Temer said Tuesday that the government plans to withdraw about 2 billion reais ($560 million) in assets and use the proceeds to finance a ballooning budget deficit as his economic team tries to end Brazil’s worst recession in a century. Banco do Brasil SA, the state-run bank and the sovereign fund’s biggest stock holding, slumped to a two-month low after the announcement.

The withdrawal will most likely mark the end for a fund that never quite fulfilled its purpose of investing in “strategically interesting” projects in Brazil and abroad. The Fundo Fiscal de Investimentos & Estabilizacao, which was also designed to lessen the blow of economic crises, was created with 19 billion reais by then-President Luiz Inacio Lula da Silva in 2008, and the government has slowly drained it in recent years. Suspended President Dilma Rousseff’s administration tapped the fund at least twice, including a 12.4 billion-real withdrawal in 2012, fund filings show.

"The goal was to build a significant fund with the pre-salt profit, but it’s paralyzed now," Temer said in a speech today, referring to proceeds from massive, ultra-deep water oil fields being developed by state-run crude producer Petroleo Brasileiro SA.

The fund held 2.32 billion reais in Banco do Brasil shares as of April 30, making it the lender’s fifth-largest shareholder, according to data compiled by Bloomberg. The rest of the fund’s assets were invested in real-denominated government debt. It also previously owned shares of Petrobras, as the oil producer is known.

Banco do Brasil shares dropped 5.4 percent to 16.09 reais as of 3:53 p.m. in Sao Paulo, reaching the lowest price since March 2. Finance Minister Henrique Meirelles also said that the share sale will be done in a "careful way" to minimize the impact on the stock price.

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