Brazilian Capital

How will affect the Bovespa in Brazil capital tax 21 October 2009 the Brazilian stock market could not yesterday digest the news. While version had thrown out to run a few days before, the announcement on the night of Monday by the Minister of Finance of Brazil, Guido Mantega in the imposition of a tax on the income of capitals of 2%, caused the sharp fall of the Bovespa reached 2.88%. The fall in the Brazilian stock market reflects the change in the expectations of its evolution before the reduction which is expected, will involve the new tax on the volume of foreign capital which will be admitted to the country. The tax over financial operations (IOF) as it has become known, has no tax collection purposes as it became clear from the Government. The reason is more healthy and limit the volume of capital inflows that increase the risk on the economic stability of the country and promote the very negative, exchange rate appreciation for the Brazilian industry. This tax to capital alien governed exclusively for financial trading or in deposits by instalments, and was developed jointly between members of the Treasury and the Central Bank of Brazil.

The joint elaboration of measurement shows also the coordination and the consensus that exists in the design of economic policy in Brazil, an item which undoubtedly gives you consistency and strength. The strong influx of capital that has experienced the Brazilian economy this year is reflected clearly in the stock market and the real quote. This situation, which in principle should generate satisfaction among Brazilians because it represents a clear external signal of confidence generated by the economy of Brazil, is of concern because of the risks of generation of a bubble in the value of assets. I do not think that we avoid the valorization of the real. Brazil is a strong economy and a strong currency, said Mantega and probably be right.

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