Brazil Taxes Loans to Exporters to Stem Rally Amid Currency War

Brazilian exporters will start paying a 6 percent tax on some foreign loans as the government tries to stem a rally in the real that Finance Minister Guido Mantega says is being fueled by a currency war.

Starting today, loans under advanced payment agreements will only be exempt from the so-called IOF tax if they mature in no more than 360 days, Aldo Mendes, director of monetary policy at the central bank, said yesterday. To avoid the tax, the advanced payment will also need to be provided by the importer, he added. Previously, banks and trading companies could provide the loans without the need to pay the IOF tax.

President Dilma Rousseff’s administration yesterday also imposed a 6 percent IOF tax on foreign loans and bonds with a duration of less than three years. Rousseff said Brazil had to create tools to fight a flood of dollars that were stemming from “perverse” monetary policies implemented by developed economies, such as the European Union.

“The measure was taken at a time when the government is trying to contain capital entering the country,” Mendes said.

In the first two months of the year, exporters brought into the country $8 billion dollars in loans under advanced payment agreements, a 46 percent jump from the same period a year ago, Mendes said.

The real rose 0.2 percent to 1.7142 per U.S. dollar in Sao Paulo, after Finance Minister Guido Mantega denied plans to also tax foreign direct investment to curb the rally. The real has gained 8.9 percent this year, the second-best performer after the Mexican peso among the 16 most-traded currencies tracked by Bloomberg.

Since the beginning of the year, investors and exporters brought into Brazil $12.5 billion, compared with an outflow of $1.9 billion in December, according to central bank figures.

“The government won’t be a passive observer in this currency war,” Mantega told reporters yesterday in Brasilia. “The government will continue to take measures to prevent the real from strengthening, from hurting Brazil’s manufacturers.”

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