LatinFinance - September/October 2017 - 55

CHINA
INTERVIEW

A new bilateral fund managed by Brazil and China has billions of dollars
to invest. But, as the foreign affairs secretary at Brazil's Planning Ministry says,
the exact strategy is still being defined. By Mick Bowen

Ready to invest

hen Brazil and China earmarked $20 billion for investments in June
this year, it was the first time that either
government had participated in a bilateral
fund with another country. President Michel Temer had discussed forming an investment fund with China when he was vice
president, before he took over from former
President Dilma Rousseff. The plans faltered
for a while, but both sides picked up the
negotiations in the middle of last year and
signed the official documents to create the
fund just a few months ago.
China's investment fund for Latin America, known as the CLAI Fund, will put in $15
billion, while the Brazilian government will
provide the remaining $5 billion. Brazil's
national development bank BNDES and
the federal savings bank Caixa Econômica
Federal will manage the fund, but other Brazilian banks will also be allowed to handle
the money.
"If a prospective borrower prefers to
work with another Brazilian bank, then that
bank can also take part. We did it that way to
create more competition and to improve the
financing conditions," says Jorge Arbache,
the foreign affairs secretary at Brazil's Planning Ministry.
Now the Brazil-China Fund, as it is called,

has started to receive investment pitches
and it could select the first project to finance by the end of the year. LatinFinance
recently spoke with Arbache about plans
for the fund.
LatinFinance: When will the BrazilChina Fund start operating?
Jorge Arbache: The fund is already
operating. For the first year, the fund will
focus primarily on infrastructure projects,
but not exclusively. The fund will pay more
attention to infrastructure projects, but it
will also analyze other projects. If they are
interesting enough, they can be selected
[for financing], but infrastructure is the
priority for the first year.
This fund is completely innovative. For
Brazil, it is without precedent. China has
16 funds around the world, but all of them
are unilateral. Only China is in those funds
and only China decides where to put the
money. The Brazil-China Fund is the only
partnership that China has that uses this
model. It is something new for the Chinese. The management is evenly split. The
Chinese and the Brazilians have the same
votes. This fund can serve as the inspiration for more partnerships between China
and other countries.
LF: And not between Brazil and
other countries?
JA: Not unless it is another country with
a lot of money to invest. In all honesty,
other countries, developed countries of
course, have talked to us about the possibility of creating something similar, but
there is still nothing concrete. This fund
has certainly attracted attention from other
countries.

LF: Which countries?
JA: I can't say which ones, but they are
European countries.
LF: For the infrastructure investments this year, will the fund finance
just concessions and public-private
partnerships (PPPs), or will it finance
any project?
JA: The working plan for the first year
has two points. First, there are infrastructure projects that are in more advanced
stages of development, but they are not
necessarily PPPs. Second, there are the
projects in the [Brazilian government's
Investment Partnerships Program] PPI that
have already been auctioned. So you have
one part that is PPI and another part that is
not PPI.
LF: What about any projects that
were awarded during the previous administration and still have not received
financing? Can they get money from the
fund?
JA: In theory, yes. The fund is looking
for returns. The money from China comes
from the country's international reserves.
They're looking for higher returns than
US government bonds. So a projects has
to have a reasonable rate of return. It's the
same for the local banks, which are also
looking for good returns.
If these concessions offer good returns,
just like other projects that have applied for
funding, then they can be considered. It's
important that the projects stand up from
the bank's point of view - the bank is going
to analyze it before it signs anything - but
it also has to be interesting to both governments.
September/October 2017 L ATINFINA NCE.COM 55

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