Brazil doubles tax on foreign investors

    Brazil has doubled the tax on foreign investors buying local bonds or making deposits in fixed returns…

    As emerging economies globally struggle to cope with hot investment inflows that have pushed up their currencies, Finance Minister Guido Mantega said the so-called IOF (financial operations tax) will rise to 4% from 2% starting Tuesday. However the measure does not include risk capital (i.e. stock exchange) and foreign direct (productive) investments.

    Finance ministers and central bankers are expected to focus on what Mantega has called an "international currency war" at an International Monetary Fund meeting in Washington this week.

    With Brazilian interest rates among the world's highest at 10.75%, foreign investors are pouring cash into the country in search of steep returns.

    "There's growing interest from foreign investors in Brazil and this latest decision is geared to avoid the appreciation of the Real and harm to our exports", said Mantega. "We are concerned that a steep increase in the value of the Real hampers exports and floods the domestic market with cheap prices".

    Since the second half of 2009 the Brazilian government has been assessing "additional complementary measures" given the "excess" of US dollars in the market which trigger complaints from exporters because of loss of competitiveness.

    Since Lula da Silva took office in 2002 the Brazilian currency has appreciated 108.84% against the US dollar, from 3.53 to the current 1.69.

    Source: Merco Press