Stênio Ribeiro
Reporter - Agência Brasil

Brasília - Brazil's international reserves ended the month of June with an inventory of US$ 62.670 billion, US$ 711 million less than May's record-breaking total of US$ 63.381 billion. The difference reflects the appreciation of the dollar in June as a result of uncertainties surrounding the interest rate trend in the United States. This also had an effect on the Central Bank's (BC) policy of reconstituting its international reserves.

Despite the reduction, the level of international reserves in foreign debt titles and currencies remains elevated. This is the consequence of the positive performance of the trade balance, contributing to successive surpluses in the foreign account balance, together with purchases made by the BC.

Taking advantage of the favorable conditions represented by the dollar's depreciation in relation to the real, the BC purchased US$ 21.6 billion in 2005 and US$ 14.454 billion in the first five months of 2006 in order to reconstitute its reserves.

As a result, the level of reserves is presently comfortably higher than it was when it reached its previous peak of US$ 60.1 billion in December, 1996, before the vertiginous losses caused by the international financial crises involving the Asian Tigers in 1997 and Russia in 1998, as well as trade deficits in the subsequent years, to the point where the reserve stock was down to US$ 33 billion at the end of 2000.

The situation only began to improve after the exchange rate was allowed to float in January,1999, and the trade balance initiated a gradual process of recovery. Export growth, which was modest at first, intensified in 2002, and the country has enjoyed trade surpluses since 2003.

This activity helped add to the country's international reserves, although it also contributed to the depreciation of the dollar in relation to the real.

The current reserve level could have been even higher if Brazil had not repaid US$ 15.4 billion to the International Monetary Fund (IMF) at the end of last year and US$ 2.6 billion to the Paris Club in January of this year and, two months ago, redeemed US$ 6.5 billion worth of Brady bonds issued in consequence of the debt moratorium declared in the 1980's during the Administration of ex-president José Sarney.

Translation: David Silberstein