Brazilian SWF: on or not?

Rumours of the government's intentions to create a sovereign wealth funds have been circulating for months. The plan appeared to be gaining traction when Guido Mantega, the finance minister, said on 5 May the fund could be established by the end of June. "The sovereign fund is a more efficient way to use the excess dollars that come to Brazil," he said.

The fund, which was expected to have between $10 and $20 billion in assets under management, would differ significantly from other sovereign wealth funds that have emerged in recent years. The government indicated on a number of occasions that its key function would be to curb the appreciation of the real, and increase the availability of foreign exchange to private sector corporations in Brazil.

Following Mantega's comments, attention turned to the unresolved question of whether the sovereign wealth fund would be capitalised by the central bank's burgeoning foreign exchange reserves or through a fiscal transfer associated with the country's primary budget surplus.

Although Mantega recently indicated that the funds would most likely come from the fiscal surplus, the debate remains open, as the future of the fund remains in balance.

Local media reports suggest that concerns expressed by officials over the rationale for the fund may now be shared by Luiz Inacio Lula da Silva, the president, who observers argue is having second thoughts about the its desirability. Lula is believed to be weighing up the merits of the creating the fund against those of early repayment of outstanding debt.

Mantega said on Friday that the bill for the creation of the fund will be sent to the president this week, and following his possible approval be put before the country's parliament.