Brazil is prepared for instability amid Russia-Ukraine war, says Treasury secretary

The Secretary of the National Treasury, Paulo Valle, said this Thursday (24) that Brazil is “well positioned” to face the scenario of greater volatility in the markets, after Russian President Vladimir Putin decided to attack Ukraine, intensifying the most serious military crisis in Europe since the Second World War.

According to him, it is still too early to say whether there will be a need for extraordinary actions by the National Treasury to give investors who want to seek other assets at a time of uncertainty. But the secretary pointed out that the current profile of the Brazilian debt contributes favorably to facing the situation.

“In terms of public debt, we are in a very comfortable situation. Only 5% of the debt is external, 95% of our debt is in reais, and the participation of foreigners in Brazil is just over 10%,” said Valle. .

In January, the federal public debt closed at R$ 5.6 trillion, of which R$ 249.4 billion correspond to the Brazilian external debt. Another R$565.4 billion of government bonds denominated in local currency are in the hands of foreigners.

At the beginning of the year, the Treasury announced that it already had all the dollars to pay its external debt service in 2022. The agency also has more than BRL 1.1 trillion in cash, enough to cover the entire domestic debt service for the year. .

“Brazil is well structured for some international volatility. Any measure, we will have to see over the course of events, but it is too recent to say,” said Valle.

“As the Treasury has comfortable cash, and we monitor the market permanently, we are attentive and will take the necessary measures. But I think it is early and that we are well positioned,” he added.

Whenever there is a serious political crisis, riskier securities such as equities are affected. After the invasion was announced, global stocks plummeted, while prices for the dollar, gold and oil soared after Russian troops launched an attack on Ukraine.

Interest rates on US bonds are also falling due to greater investor demand for this paper, which is considered a safer investment. Brazilian rates are on the rise due to the rise in risk aversion among market agents.

The Secretary of the National Treasury also said that the government continues to discuss focused measures to try to contain the price of fuel, despite the geopolitical crisis having boosted oil and dollar prices – factors used by Petrobras in its pricing policy.

Fuel prices had already been a reason for increasing pressure on the government to adopt measures to try to contain the effect of the rise on consumers’ pocketbooks — especially in the year in which President Jair Bolsonaro (PL) will seek re-election.

“The Ministry of Economy, together with the Civil House and Congress, has already been working on alternatives to combat this issue of fuel price pressure and we must continue these discussions,” said Valle. “Any measure has to be more focused,” said the secretary.

Palácio do Planalto and the economic team are negotiating with Congress a bill that changes the collection of ICMS (Tax on the Circulation of Goods and Services) on fuel, in an attempt to reduce its weight in the final price.

The text would also authorize the exemption of federal taxes on diesel, biodiesel and cooking gas without the need for the compensation required by the LRF (Fiscal Responsibility Law). The waiver is estimated at R$ 19.5 billion.

However, the vote on this project, scheduled for Wednesday (23) in the Senate, was postponed until after Carnival after governors opposed to approval put pressure on congressmen.

After the attack on Ukraine, the price of oil on Thursday (24) exceeded US$ 100 for the first time in more than seven years. Russia is one of the major oil producers, and a military conflict affects the oil market. In addition, sanctions imposed by the US and the European Union can also put pressure on the price of energy, directly and indirectly.

Even so, fuel prices in Brazil are unlikely to rise immediately, according to Petrobras’ Marketing and Logistics director, Cláudio Mastella. In an interview this Thursday (24th), he stated that the company will wait for the evolution of the international scenario before deciding on transfers from the soaring price of oil.

Petrobras has already been questioned for the long time without readjustments in a scenario of high international quotations. The latest increases in the prices of gasoline and diesel sold by the company were made on January 12.