Brazil has no plans to launch a sovereign bond dedicated to the Amazon, Treasury Undersecretary for Public Debt Otavio Ladeira told Reuters, and will instead finance the protection of the world’s largest rainforest through its new sustainable bonds.
The question of how to finance the protection of one of the world’s most vital natural resources has become increasingly urgent and will be at the heart of the upcoming UN biodiversity conference COP16 in Colombia in October, as well as the COP29 climate conference in Azerbaijan in November.
Bankers have raised the idea that an Amazon-focused bond could raise $10 billion or more at an extremely low cost to the cause, but Ladeira told Reuters that was not necessary.
Brazil will instead use money from its sustainable bonds, earmarked for stocks and projects related to environmental or social issues, which it began selling on the international market late last year.
“Because it’s regular and predictable, it’s better (to go that route) than opening up different fields like Amazon bonds,” he said, explaining that bonds also require a lot of extra reporting work.
“Our strategy is being built slowly in terms of sustainable bonds: we issue sustainable bonds, $2 billion a year, no more, no less. Use of proceeds: half environmental, half social.”
Covering more than 6 million square kilometers – more than half of it in Brazil – the Amazon absorbs vast amounts of greenhouse gases that cause global warming and is home to more than 10 percent of all known animals and plants, the highest density of species anywhere on Earth.
Some of the money raised from these bonds has already been allocated to programs in the Brazilian Amazon, Ladeira said, although finding eligible expenses isn’t always easy and money isn’t necessarily the most important issue.
In its first year, the current Brazilian government has reduced Amazon deforestation by 50 percent simply through better coordination of resources, which costs very little, Ladeira said.
INVESTMENT GRADE TARGET
The government may also consider issuing euro-denominated bonds if Brazil manages to regain investment grade in the coming years.
Brazil lost the coveted status granted by rating agencies in 2015 after falling commodity prices and fiscal easing under then-President Dilma Rousseff.
More pragmatic policies adopted in recent years under President Luiz Inácio Lula da Silva, coupled with a historic tax reform, have led to improvements, but Brazil remains two levels below investment grade – and its debt levels are still rising.
The government has “a strong determination” to return to investment grade by 2026, Ladeira said. “It’s nice to have this goal, this goal that makes us work hard on multiple dimensions.” He acknowledged, however, that it could take longer.
Asked whether the potential market volatility surrounding the U.S. presidential election in November is a concern for countries like Brazil, he said the government has reserves to weather any turbulence.
“The amount of (our) debt outstanding in the last quarter of the year is very small,” Ladeira added. “We are prepared.”
Source: Terra
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