1 Alexandre Schwartsman March 2004 Financing Brazilian Trade

2 Recent developments in the trade front

3 Peculiarities of FX regulation in Brazil  Brazilian law requires exporters to repatriate proceeds of their foreign sales  A detailed ritual specifies how trade transactions should occur  Exporters (and importers) need to celebrate FX contracts with financial institutions before or after the shipment  Export proceeds must be deposited in the account of a Brazilian bank abroad  The bank then repatriates the hard currency and provides domestic currency for exporter  “Export surrender” is the basis of Brazilian FX regulation  In response to these requirements a complex and sophisticated control system was put in place

4 Foreign trade requirement controls - 1  The Federal Revenue Service controls shipment and inflow of exports and imports through SISCOMEX, an online register system  SISCOMEX data are then transferred to the Central Bank in a daily basis  Banks input FX contract data into Central Bank own system (SISBACEN), which includes SISCOMEX reference  The Central Bank then checks the consistency of the data

5 Export process and controls

6 Foreign trade requirement controls - 2  Exporters can sign FX contracts up to 360 days before shipment  Settlement of FX contracts is defined by either the credit in the exporter’s bank account abroad, or by another payment instrument  Export FX contracts must be settled up to 180 days after shipment

7 Export financing recovery – total flows

8 Export financing recovery - balance

9 Financing exports  Alternatives for export financing:  Anticipated payments  Pre and post export financing (ACC and ACE)  Public financing  Private financing with interest rate equalization  Self-financing  ACCs and ACEs are the most important sources of export financing, and both are tightly related to the controls discussed before, in particular the FX contracts

10 Share of ACCs in export financing

11 Financing and controls: ACCs - 1  Pre-export financing (ACC): bank can advance to exporter the proceeds of the sales associated to a particular FX contract (up to 360 days)  From a legal standpoint ACC is not financing, but an advance  In case of bankruptcy of either the exporter or the intermediary, advances are not included in the assets to be shared among different creditors  Hence, proceeds associated to the exports in question are destined to the amortization of the trade financing line underlying the ACC  This feature is likely to be maintained in the new bankruptcy law  Post-export financing (ACE) shares the same features, except that it takes place after the shipment (180 days limit)  In addition to the lower credit spread, ACCs and ACEs are exempt from income and financial taxes  Not by chance, ACCs and ACEs represent the most relevant mechanism of export financing

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13 Monitoring  Since the end of 1998 the Central Bank closely monitors inter-bank credit lines, including trade related lines  This monitoring covers about 90-95% of these lines, specifying:  Creditor  Type of credit (exports/imports/loans/etc.)  Country  Currency  Value  Cost  Maturity  In addition to that, the Central Bank keeps the registers of both investment and loans

14 Trade finance lines survey

15 Complete trade financing lines statistic

16 Balance of payments monitoring  As a rule, the Central Bank has a very accurate online system of balance of payments monitoring  The Central Bank discloses monthly data on the entire balance of payments (some 300 plus different lines related to the current and financial accounts)  In practice, these data are available on a daily basis  The requirement that exporters repatriate the hard currency is the main responsible for the complex monitoring system

17 Some conclusions  The detailed regulation and control of the Brazilian FX market implies some costs to the private and public sector  These costs notwithstanding, balance of payment statistics are very good and can be obtained very fast  Hence, monitoring of trade financing lines, for both prudential and balance of payments reasons, takes place on a daily basis, with online information  Reform proposals of the FX regulation should try to preserve as much as possible the reliability and speed of the data