Brazil ready to tap reserves, buy shares-Lula

Mon Oct 13, 2008 4:43pm EDT
TOLEDO, Spain, Oct 13 (Reuters) - Brazil is ready to use foreign reserves and buy bank shares if necessary to defend its financial system, Brazilian President Luiz Inacio Lula da Silva said on Monday.
Brazil has over $230 billion in reserves it can draw on and is in a stronger position to fight the international financial crisis than any of the world's large economies, Lula told reporters in Spain.
"All of this is money we can use, in the event it were necessary," Lula said during a press conference ahead of receiving a prize. "We are prepared to free up some resources in our reserves, so as long as they pay us with bonds, so that reserves are maintained."
Lula said resources would principally be for Brazilian banks that operate abroad.
Asked if Brazil's government was prepared to buy bank shares, Lula said it would depend on the situation.
"If there was a bank in a position that we considered that it was necessary, first we would get another bank to buy their portfolio, like Bank of Brazil already bought 3. And it has the ability to buy more," Lula said. "Second, if it was necessary the government would lend money to the central bank as a lender of last resort. What I think is that we should remain alert."
Lula said Brazil's central bank was ensuring the financial system did not face liquidity problems after being granted additional powers by the government.
He said Brazil was protected by strong domestic demand and a financial system that was strengthened by its 2003 crisis.
"Of all the big countries, BRICs and developed, that which faces the least risk is Brazil," Lula said, ahead of receiving the Don Quijote de La Mancha prize which is awarded to individuals and governments that spread the Spanish language.
(Reporting by Jonathan Gleave; Writing by Andrew Hay, Editing by Chizu Nomiyama)