Brazil and currency skirmishes

Pressure is mounting on the Brazilian government to "do something more" about the real. The Ministry of Finance has already doubled its financial transaction tax (IOF) to 4% and is mulling a number of other measures: these include further increases to the very same IOF, raising margins on futures, limiting banks' FX exposure, and discouraging short-term inflows into portfolio investments with a tax rate that falls the longer investments are held.

Itamaraty, the Ministry for foreign relations, is humming and hawing between blaming the Americans for rock bottom rates (and now quantitative easing) or the Chinese for keeping their currency low. Recent pronouncements suggest the Americans are getting more of an earful while Brazilians consider how to combat China's ever-deeper penetration into Brazil's industry (they already dominate clothes and shoes and are quickly entering machinery).

The debate has re-opened rifts between the Ministry and the Central Bank. The Ministry has long taken a dim view of the high rates imposed by the Bank arguing that they are unnecessary. The Bank is taking an altogether more sanguine approach to the currency fuss and focusing on longer-term measures with a focus on reducing interest rates to make capital inflows into Brazil altogether less attractive.

With the second round of Presidential elections slated for the end of the month and a new government only in January, coherence is not to be expected from Brasilia. The Ministry of Finance and Central Bank are pulling in different directions and Itamaraty is showing its knee jerk anti-Americanism. There is a lot of room for bad and contradictory policy decisions.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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