Brazil's government sees room to grow its share of foreign-exchange-linked debt even further following this year's planned expansion, Treasury Secretary Daniel Leal said in an interview.
The nation's economic fundamentals and stock of international reserves reduced vulnerabilities that once constrained such a strategy, Leal said on the sidelines of International Monetary Fund-World Bank meetings in Washington. Foreign-exchange-linked debt now stands at 4% of the total, a level that Leal called "very small" and sees as eventually able to surpass this year's target of 7%.
Brazil sold €5 billion ($5.9 billion) of bonds this week, the country's biggest-ever transaction in global debt markets and its first euro bond sale in more than 10 years. The move came as the nation's Treasury actively pursues diversification across markets. As part of that effort, officials are even mulling so-called panda bonds -- debt issued in China's domestic market.
Still, tapping alternative markets does not signal any retreat from the US, Leal said. "Panda bonds have a longer operational process, and while we aim to issue them this year, we won't miss a dollar window if it opens first," he said.
Investor Confidence
The shift also reflects an improved domestic economy, he said, pointing to relatively low inflation, ongoing economic growth and the government's fiscal framework as proof of resilience. The latest budget guidelines bill establishes a path toward stabilizing debt by 2030, a signal which reinforces credibility among international investors, he said.
Brazil's $368-billion stock of international reserves provides a cushion against currency shocks. External borrowing costs remain relatively low, allowing the government to extend maturities, the treasury secretary said.
Increasing foreign exchange exposure would broaden Brazil's investor base, create pricing benchmarks for private-sector issuers and support trade relationships in other currencies, he said.
It would also reverse a longstanding trend. Starting in about 2006, Brazil reduced its foreign currency share in debt and never let it to rise again out of an abundance of caution. But times are different now, Leal said.
Brazil's issuance in euros on Wednesday underscores the strategy, which Leal described as structural rather than opportunistic. The Treasury prepared the deal in advance and gauged strong investor interest during roadshows, he said.
"Investors understood what we were trying to do," Leal said, calling the transaction a "statement" of confidence in Brazil.