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IOF removal permanent shift: Levy 0

Jun 7, 2013

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.

   Joaquim Levy, Bradesco Asset Management  
"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."

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 deterrent."

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


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