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
"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
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