Eco Invest Brasil - Liquidity Facility and Mitigation of Exchange Rate Volatility Effects

Eco Invest Brasil is a programme of Brazil’s Ministry of Finance under the Ecological Transformation Plan, created to unlock sustainable private investment and attract foreign capital for long-term investments. Exchange rate fluctuation has always been a challenge for foreign investment in Brazil. The Liquidity Facility acts as a financial buffer for large foreign investors, protecting their investments from sudden exchange rate fluctuations against the dollar or other currencies. If there is a sharp devaluation of the real, this mechanism comes into play to ensure that projects do not become unfeasible due to fluctuations in the currency. The facility is a contingent credit line. It provides cash during sharp currency depreciation, defined as a positive percentage deviation of the observed exchange rate from the originally projected rate. It addresses shocks beyond those covered by traditional currency hedging, which can strain project cash flows and reduce returns in hard currency. Having cover for events that could compromise project cash flow, especially in the pre-operational phase, can give additional security to lenders and so reduce the overall cost of financing. The balance of the line can be replenished in periods of currency appreciation. The intended benefits are less risk for those investing in Brazil, reduced exposure to currency crises, access for the country to major international investment funds, and safer long-term investment in infrastructure, clean energy and innovation.

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Program in development (not yet operational)