This week's reduction of the IOF tax on capital inflows to
Brazil to 0% from 6% is a result of normalization - and the
government is unlikely to raise it again, Joaquim Levy CEO of
Bradesco Asset Management told LatinFinance.
"The time of normalization may be approaching," the former
Brazilian government official said. The IOF was a reaction to
crisis-fighting measures by US and other foreign governments.
Now central banks are recognizing improving growth. Minutes to
the recent Copom rates setting meeting, released this week,
note that risks are lower internationally, Levy said.
"We are going back to a more normal environment, it makes all
the sense to eliminate that measure," he said. "There is no
reason for the government to step back."
|| Joaquim Levy, Bradesco Asset
The markets applauded the government's move. Flows were
mixed this week, with some investors taking advantage of the
opportunity to take money out tax free. Others though, saw an
invitation to park more money there. The net effect in the long
run may not be big in either direction, especially with larger
factors at work.
"Do I expect a major change in flows? Probably not. For real
flows into Brazil, I don't think the IOF was the major
Volatility in the global market will likely be more of a
determining factor in decisions to invest in Brazil or not.
"The global market is more turbulent," Levy said. "US
investors and global investors are reconsidering their
allocations, if you do see major moves in the US economy - who
knows what will happen?"
The outlook for Brazil itself will also be important. The
tax cut came just days before Standard & Poor's put the
country's long term foreign currency rating on watch negative.
The ratings agency cited slower growth and continued fiscal
expansion for the move on the BBB rating late Thursday.
Levy said Bradesco Asset Management, which has more than
$140 billion in assets under management, is "relatively
bullish" on the US economy.
Still, the move is positive for some products.
"In the last year it was easier to sell funds with hard
currencies," Levy said. "For many, that was an easier way to
get exposure to Brazil. Now, I think our domestic funds will
get a lift." LF
IOF Move Double-Edged for Brazilian Issuers