In a late Wednesday interview, Haddad revealed that the initiative, now being finalized in collaboration with the central bank, should be launched within the next 60 days.

The new measure aims to lure more foreign investment, which the government considers key to 'green' development projects core to President Luiz Inacio Lula da Silva's policy agenda. FDI in Brazil fell 36% in the first eight months of 2023 to $37.9 billion.

Currently, investors in long-term projects in Brazil with exposure to foreign currency pay taxes on currency appreciation over the course of the project - which the central bank has long flagged as a deterrent for FDI.

Haddad said he was confident that policymakers had found a tool to shield investors from currency risks keeping them away.

"I am confident that its format will be ready, or else I wouldn't be saying this. I believe it will be this year," he said during a wide-ranging interview in his Brasilia office.

A government official familiar with the discussions said the new hedging instruments would address a market gap that makes it essentially impossible to hedge currency risks in Brazil for long-term projects.

FISCAL CHALLENGES

Haddad's success this year in passing new fiscal rules to curb the growth of public debt has won him grudging respect in financial markets. But he now faces growing skepticism that he can deliver on an aggressive target to erase Brazil's primary deficit next year.

Positive views of Haddad, a former Sao Paulo mayor and 2018 presidential candidate for the leftist Workers Party, climbed to 65% of Brazilian fund managers, economists and financial market analysts surveyed by pollster Genial/Quaest in July, as the new fiscal framework cleared hurdles in Congress.

By last month, however, the same survey showed positive views had dropped to 46% of respondents, as private economists raised doubts about next year's fiscal target and called for tighter spending controls rather than relying so much on new revenue.

Adding to Haddad's challenges, congressional leaders who were key to approving the fiscal framework are now proving more resistant to the government's efforts to draw more tax revenue from well-connected industries and interests.

Haddad acknowledged to Reuters that growing headwinds in Congress could derail the agenda needed to hit fiscal targets.

For instance, he said one key new revenue measure sent to Congress in August as an executive order will now have to be resubmitted as a bill, which could delay its passage.

The measure aims to raise 35 billion reais ($7 billion) in 2024 by preventing state tax discounts from reducing companies' taxable income for federal revenue purposes.

Executive orders in Brazil have immediate validity but must be endorsed by lawmakers within four months or they expire.

Haddad said congressional resistance to reviewing executive orders is an "impasse that has not been resolved."

"It's unfortunate because, in some matters, the executive order really had to be considered due to its importance and urgency," he said. "We are facing this constraint, but we will overcome it by sending the bill with constitutional urgency."

Without that measure, Haddad said it will be "very challenging" to erase the deficit in next year's budget bill.

The minister said congressional support for reforms are even more important as economic headwinds grow, noting higher long-term interest rates in the United States and the outbreak of violence in the Middle East.

Brazil's economy grew well above forecasts in the first half of the year, lifted by a bumper harvest and strong oil and mining output, but Haddad warned that economic performance in the third quarter was "very poor."

"Even if Congress ... validates all the decisions made by the Executive so far, we will still have work ahead," he said, adding that the ministry is ready to launch new fiscal measures as needed to hit its targets.

($1 = 5.0593 reais)