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Brazil turns lender to IMF in 10 bln dlr bond buy

October 6th, 2009
Brazilian Finance Minister Guido Mantega

Brazilian Finance Minister Guido Mantega

Brazil on Monday turned lender to the International Monetary Fund for the first time, sealing a 10-billion-dollar purchase of IMF bonds that reflects the emerging nation’s rising world clout.

“We have gone from being debtors to creditors,” Brazilian Finance Minister Guido Mantega told reporters in Turkey’s biggest city, Istanbul, in remarks spotlighting the shift in the global financial landscape.

He said that Brazil would spend 10 billion dollars (6.8 billion euros) on buying IMF bonds to boost the fund’s resources.

“This is a historic moment for us. It is the first time in history that Brazil is lending resources to the IMF and therefore to the international community,” he said on the eve of IMF and World Bank annual meetings that begin Tuesday in Istanbul.

Mantega said that the bond purchase would “provide substantial immediate financing to the fund.”

In June, Latin America’s biggest economy said it would buy 10 billion dollars of new bonds, which are denominated in special drawing rights (SDRs), the fund’s asset unit based on a basket of four currencies — the dollar, euro, pound and yen.

The deal marks a sharp turnaround from 2002 when Brazil obtained an IMF loan of 30.4 billion dollars, the biggest in the history of the IMF, to avoid a massive debt default.

Mantega recalled that the IMF had approved the loan when the country was in the throes of financial turmoil amid fears about the imminent presidency of Luiz Inacio Lula da Silva, a former leftist union leader.

But Lula applied a tight budget to restore economic stability and Brazil repaid the rest of the IMF loan, 15.57 billion dollars, two years early, in December 2005.

Mantega said his country was “tapping part of its reserves” to buy the IMF bonds, following an appeal by the IMF managing director.

IMF chief Dominque Strauss-Kahn had called earlier for a “substantial increase” in resources from members to promote stability in the global monetary system amid the worst recession since World War II.

Mantega said the Brazilian central bank would buy the IMF notes over a period of two years and underscored the purchase did not reduce the country’s reserves, saying “it’s only a change in assets.”

He noted that Brazil had decided to buy IMF bonds, which can be sold to other countries, instead of lending money to the fund directly.

“This contribution is an expression of Brazil’s willingness to play a greater role in the fund and support the institution and its objectives,” he said.

The IMF is forecasting that Brazil’s economy will grow by 3.5 percent next year after contracting 0.7 percent this year.

Brazil is the third of the emerging-market powerhouses known as the BRIC countries — Brazil, Russia, India and China — to finalize a pledge to buy the IMF’s first bonds to governments, which were launched on July 1.

The combined bond purchase of Brazil, India and China is one-sixth of the total 500 billion dollars pledged by the G20 largest rich and emerging-market economies in April to triple the IMF’s resources.

The IMF announced in September it had obtained the 500 billion dollars needed, counting the BRIC interest in bonds. The bonds have not yet been issued.

China was the first to seal a deal at 50 billion dollars, followed by India at 10 billion dollars. Russia has expressed interest in a 10-billion-dollar purchase but has not confirmed it.

Emerging economies are leading a tentative global recovery and gaining a greater say in economic policymaking through the Group of 20 (G20) as well as plans for more voting rights in the IMF and World Bank.

“One of the legacies of this crisis may be a recognition of changed economic power relations,” World Bank president Robert Zoellick said in Istanbul.

“A multipolar economy less reliant on the US consumer will be a more stable world economy,” he added.

The IMF’s Strauss-Kahn made similar comments, saying that “emerging economies are becoming more and more the real partners.”

by Antonio Rodriguez

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