On March 29, the government announced a new decree in the Official Gazette, increasing the financial-operation tax (IOF) on overseas loans—corporate loans and debt sold abroad by banks and companies. The tax was raised to 6% from 5.38% on international bond sales and extended to transactions with a maturity of up to 360 days from the previous 90-day limit. Brazil’s central bank said the increase was aimed at curbing foreign currency loans with a maturity longer than three months; which have grown around 39% since the end of 2008. In addition, the local newspaper Folha de S.Paulo, asserted that since January 2011, the inflows of U.S. dollars into the country had reached almost US$35 billion, reflecting an increase of 42% with respect to 2010’s total inflows.
Mantega also indicated that the measure was intended to curtail speculative inflows, and that while it sought to reduce the indebtedness of Brazilian companies and banks abroad, it was not aimed at hampering long-term flows, such as loans with more than a 360-day horizon and FDI. Finally, he added that the measure would help contain inflationary pressures and credit growth.
Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE clients, Brazil’s Government Implements Macroprudential Measures.