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Brazil May Offer Tax Cuts to Encourage Long-Term Lending by Banks

Brazilian bankThe Finance minister of Brazil, Guido Mantega has just informed that foreign-based companies operating in Brazil should consider sending some profits home as the exchange rate is unlikely to remain as favorable as it is now. 

“This exchange rate won’t remain so favorable for companies that repatriate profits and dividends to their headquarters,” Mantega told reporters Monday at an event in São Paulo. “We cannot facilitate the appreciation of the currency.”

Another Brazilian top official, Economic Policy Secretary, Nelson Barbosa said that the inflation target index could be gradually reduced beginning 2012, since it impacts on the appreciation of the currency.

The Brazilian currency strengthened 33.6% last year, the most among 25 emerging market currencies tracked by Bloomberg, on the back of economic growth and rising demand for the country’s commodity exports. A stronger currency buys more dollars when companies transfer reais from Brazil.

GDP may have expanded between 0.5% and 1% in the second quarter, Mantega said. Brazil’s GDP may grow 6.5% to 7% this year and in the following years to 2014 should average 5.8%, he added.

The Brazilian economy in the first quarter expanded 9%, over the same period of 2009 and 2.7% over the fourth quarter of last year.

Mantega also said that Brazil’s widening current account deficit is a transitory problem caused by the worldwide economic slump. The country may take as long as two years to narrow the current account deficit, Mantega said.

The minister however did not advance whether the government is planning to adopt measures to curb the currency’s gains.

Brazil’s current account deficit in the year through July widened to a record 43.8 billion reais (US$ 25 billion), the central bank said last week. The Finance Ministry estimates the deficit will increase to 45.9 billion reais this year almost double the 24.3 billion reais deficit in 2009. The gap will further widen to 56 billion reais in 2011.

During the next month and a half, the government may announce incentives such as tax cuts to induce domestic banks to increase long-term lending, Mantega said.

Brazil may “slowly” reduce its inflation target beginning after 2012, Nelson Barbosa, economic policy secretary at the Finance ministry, said Monday in São Paulo. He argued that the inflation target affects the country’s exchange rate.

Brazil currently targets inflation of 4.5%, plus or minus two percentage points.

Mantega also underlined the strength of the Brazilian economy by recalling that it is performing under “normal conditions,” when presidential elections are only a month away. He also emphasized that inflation and government expenditure are under control in spite of the deficit increase in the last few months.



  • Show Comments (5)

  • João da Silva

    [quote]As of August 30, their gold reserves were worth 147 billion dollars
    using a price of 42,22 dollars per ounce. [/quote]

    Did they say in [i][b]which year [/b][/i] of August 30th, the gold price was 42.22 dollars/ounce?;-):D;-)

  • ch.c.

    1) Ron Paul pretends that a lot of gold is missing in the U.S. Treasury safes. He goes as far that eventually Fort Knox is EMPTY !
    Oooouchhh !

    No doubt that most everyone will pretend BS Ron Paul. Right ?

    2) It also happens that no later than yesterday the U.S. Treasury published their official gold reserves (published only once every three years) and stated that :
    As of August 30, their gold reserves were worth 147 billion dollars
    using a price of 42,22 dollars per ounce.

    – using the US Treassury numbers, it means that the USA should have (rounded) 3,5 billion ounces of gold. Right or not ?
    – 3,5 billion ounces equal to 113’000 TONS (rounded).
    – as per most available sources and estimates, the USA have 8000 tons of gold reserves

    Therefore where are….where are… where are the other 105’000 TONS….if they exist at all ???????

    Unless of course the US Treasury maths experts have goofed by a factor of 10, and meant 14,7 billion dollars at 42,22 not 147 billion dollars at 42,22.
    Because if they did not goof, it would mean that their 3,5 billion ounces of gold are worth (rounded) 4,3 TRILLION DOLLARS AT CURRENT MARKET PRICES !

    More stinky and smelly there is NOT !
    Because if right they are and did not goof, it would mean basically that they have all the Gold Reserves ON EARTH since man produced gold. And that no one else on earth outside of the US Treasury, be they Central Banks, or jewels gold owners HAVE GOLD AT ALL !

    Hip…hip…hip Hurrah for the United States of Arnarchy !


  • ch.c.

    Hope you didn’t give this lecture to the potential buyer
    Of course WE DID !
    Would you not tell your next Home buyer to care for your dear home you are selling to him ? No difference !

    By the way, final contract signed yesterday August 31st. Now waiting for the CASH by the end of this week/early next week max. !


  • João da Silva

    [quote]Anyway our JV doesnt want to rappatriate ONLY the profits and dividends, but EVERYTHING with the sale of our whole assets in
    Brazil. [/quote]

    May I remind you that I said it was a smart move in the other thread?

    [quote]Up to the next owner to care for the profits, dividends and value of HIS assets. [/quote]

    Hope you didn’t give this lecture to the potential buyer.;-):D;-)

  • ch.c.

    “We cannot facilitate the appreciation of the currency.”
    What a lie, as usual.
    Would suffice to put interests rates LOWER.
    It is not by providing the World Highest Interests Rates…after inflation, that a currency weakens !
    Unless there is a crisis and foreigners rappatriate their foreign currencies into their local currencies.

    Anyway our JV doesnt want to rappatriate ONLY the profits and dividends, but EVERYTHING with the sale of our whole assets in
    Up to the next owner to care for the profits, dividends and value of HIS assets.


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