Wealth Fund Remnant From Brazil Boom Days Is Set for Demiseby
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.