(January 4, 2013) — Two large economies have been tapping state funds reserved for pensions and other national business as their treasury coffers have run dry.
Brazil and Spain have been revealed as taking billions from reserve funds to prop up their national finances.
In South America, the Brazilian government agreed to withdraw 8.85 billion reais ($4.3 billion) from its sovereign wealth fund at the end of last year, Bloomberg reported yesterday. The state-owned bank, Caixa Economica Federal, was also tapped for 4.7 billion reais, the newswire reported.
The money was destined to support the large-scale – but under-funded – public works that were announced last year and to boost growth in an economy that had been one of the fastest developing in the world.
In the troubled Eurozone, Spain has also been tapping state funds. Over time, the government has agreed to use around 90% of the country’s pension reserve fund to buy debt issued by itself. The move was to help avoid a bailout from the European Central Bank, the Wall Street Journal reported this morning.
The newspaper quoted official Spanish figures stating that at least 90% of the €65 billion ($85.7 billion) fund had been invested in Spanish debt. It also said the government had been withdrawing cash for emergency payments.
These moves are not unprecedented, however. Ireland saw its National Pension Reserve Fund plundered to bail out the country’s banks, which were destined for collapse after issuing billions of euros of risky loans. The fund had been worth over €23 billion before being pilfered by the government. It now contains just €6 billion.