UPDATE 1-Brazil finance minister plans no derivatives rescue

Mon Oct 27, 2008 12:10pm EDT
(Adds finance minister comments, background)
SAO PAULO, Oct 27 (Reuters) - Brazil's government has no plans to rescue firms in distress because of bad currency bets with foreign exchange derivatives, Finance Minister Guido Mantega said on Monday.
Large Brazilian conglomerates such as the Votorantim Group, food processor Sadia (SDIA4.SA: Quote, Profile, Research, Stock Buzz) and pulp producer Aracruz (ARCZ6.SA: Quote, Profile, Research, Stock Buzz) have announced massive trading losses on derivatives contracts in recent weeks as the country's currency plunged against the dollar.
Mantega said the government will not absorb the companies' losses with the contracts.
Still, it will seek to increase lending for investments in plant expansions and infrastructure so that companies can better cope with a global liquidity crunch.
"Companies that ventured in the futures market will have to pay the price of their daring move and it won't be the government that will cover that," Mantega told journalists. "Still, the government has an obligation to offer credit and liquidity at market prices."
Brazil's currency, the real BRBY, surged 20 percent against the dollar in 2007 and it had strengthened another 14 percent in 2008 through early August, prompting many companies to bet the Brazilian currency would stay on a strong path.
Those bets turned sour as the turmoil in global markets deepened and concerns over a worldwide recession led to sharp capital outflows from emerging markets. The real has weakened 30 percent since reaching a nine-year high in early August, causing currency losses for a slew of companies. (Reporting by Carmen Munari; Writing by Elzio Barreto, Editing by Walker Simon)