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Brazil joins Russia, China in eyeing IMF bonds
Updated: 2009-06-11 09:23

SAO PAULO -- Brazil is looking to buy $10 billion in IMF bonds, Finance Minister Guido Mantega said on Wednesday, joining China and Russia in seeking to use the new instruments to diversify dollar-heavy currency reserves.

"This support is important to help end the international financial crisis," Mantega said, adding that a trade surplus and $204 billion in reserves has positioned Brazil to help the International Monetary Fund boost lending to other emerging economies.

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Chinese officials have also expressed interest in buying as much as $50 billion in IMF bonds, while a Russian central bank official on Wednesday said his bank would reduce US Treasury holdings to invest in the IMF notes instead. Russia now holds about $120 billion, or 30 percent, of its hard currency reserves in US Treasuries and said it would redirect up to $10 billion to the IMF.

India also plans to buy some of the notes, although it has not yet said how much it will spend, Mantega said, according to the Agencia Brasil news agency.

The announcements come just a week before the BRIC nations -- Brazil, Russia, India and China -- gather for talks in Russia, where they are widely expected to discuss alternatives to the US dollar as the global reserve currency.

Commodity exporters like Brazil and Russia are particularly vulnerable because most raw materials including oil, soy and minerals are priced in US dollars, making it even more likely that a weak greenback would slash their export income.

Russia is looking to diversify that risk with a move to IMF bonds, analysts said.

"They need to spread the risk out," said Ron Smith, chief strategist at Alfa Bank, one of Russia's biggest private lenders. "They've been doing some diversification for the past several years measuring everything against the dollar-euro basket."

In a statement from the Washington-based lender on Tuesday, IMF managing director Dominique Strauss-Kahn welcomed news of China's interest, saying its investment would "boost the Fund's capacity to help" emerging economies weather the world crisis and "benefit all members by facilitating an early recovery of the global economy."

He said the bonds will offer "a safe investment instrument with reasonable return," but gave no other details, noting only that IMF staff will present plans to the board to allow the bond issue "as early as possible."

The bonds, which have yet to be issued, will be denominated in special drawing rights, an artificial currency used by the IMF.

Leaders of the so-called Group of 20 nations, which include the four BRIC powerhouses, agreed at a London summit in April to boost contributions to the IMF by as much as $500 billion to help it increase lending to nations battered by the global downturn.

The bond issue is part of the effort to meet that goal, said a spokesman for the fund in Washington. He was unable to give any other details and declined to be named.

In Brazil, Mantega echoed Strauss-Kahn on Wednesday, saying that his country's $10 billion loan would help troubled economies recover, reviving global trade and ultimately benefiting net exporters including Brazil.

"Brazil is facing solid conditions to loan to the IMF. In the past, the opposite was true: the fund loaned to Brazil," said Mantega, who has lobbied for reforms that would boost developing countries' voting rights within the IMF. It was not clear if a bond purchase would change that.

The IMF has lent Brazil billions of dollars in the past, but the country became one of the fund's creditor countries for the first time this year.

The majority of Brazil's foreign reserves are held in dollars.