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Brazil May Cut Taxes to Aid Investment, Mantega Says

Brazil May Cut Taxes to Aid Investment, Mantega Says

Brazil’s government is considering tax breaks to stimulate long-term lending for infrastructure investment, helping to reduce the lending burden on the state development bank, Finance Minister Guido Mantega said.

Mantega, in an interview in Sao Paulo, said that among the measures being considered is to cut income taxes for investment in debentures and to develop a secondary market for them. He said the measures will be ready before President Luiz Inacio Lula da Silva leaves office in January.

The development bank, known as BNDES, needs to reduce its dependence on government funding, and private banks should step up long-term lending needed to boost Brazil’s economic growth potential, Mantega said. Of the 700 billion reais ($397 billion) invested in Brazil in 2010, about 120 billion reais will come from the federal government and state-controlled companies and 130 billion reais with loans from BNDES, he said.

“We want to stimulate the private sector so it can supply credit that has been the responsibility of BNDES,” said Mantega, a former head of the Rio de Janeiro-based bank. If the government hadn’t provided BNDES with 200 billion reais during the global credit crisis, “Brazil would’ve suffered the same fate as other economies” and contracted 3 percent, he added.

Yields on interest-rate futures contract maturing in January, the most traded on Sao Paulo’s BM&F exchange, rose six basis points, or 0.06 percentage point, to 10.94 percent at 3:44 p.m. New York time.

The real, whose 33 percent appreciation last year was the biggest among major currencies, has fallen 0.8 percent against the dollar this year to 1.7587 reais per dollar.

Growth Slowing

Latin America’s biggest economy will expand 0.5 percent to 1 percent in the second quarter, and 7 percent from a year ago, Mantega said.

Mantega, 61, would not comment on the central bank’s decision to raise interest rates this week by a less-than- expected 0.50 percentage point, though he said Brazil’s economy is already growing at a slower pace.

Central Bank

The central bank signaled it may leave the Selic unchanged for the rest of 2010 after policy makers increased the benchmark rate to 10.75 percent from 10.25 percent on July 21, surprising 48 of 51 analysts surveyed by Bloomberg who expected a third straight 75 basis-point increase.

Following the central bank’s rate decision, Budget Minister Paulo Bernardo said that “inflation is back under control” and there is no need for another increase before Lula steps down in January.

Brazil’s $1.6 trillion economy is showing signs of slowing, after expanding 9 percent in the first quarter, the fastest pace in 15 years. Brazil created fewer jobs and collected less tax revenue than expected in June, while retail sales and industrial output missed estimates in May.

Consumer prices fell 0.09 percent in the month through mid- July, the first drop in four years, the statistics agency said this week. Annual inflation slowed to 4.74 percent, the lowest since February, while still above the bank’s 4.5 percent target.

Mantega today said he expects GDP to expand 6.5 percent to 7 percent this year. That’s below the median 7.2 percent estimate in the latest central bank survey.

BNDES Lending

Mantega said it’s possible to wean BNDES off government funding and use tax breaks to stimulate long-term investment.

“BNDES needs to rely more on the market and less on the government,” he said.

The Rio de Janeiro-based bank lent 137.4 billion reais last year, more than double the 64.9 billion lent in 2007, as credit and investment dried up during the global financial crisis. Lending jumped 41 percent to 46 billion reais during the first five months of this year compared with the same period a year ago.

The $11 billion Belo Monte hydroelectric dam in the Amazon rain forest is among the projects that could benefit from the development of a debenture market in Brazil.

“It’s better to stimulate the private market than to insist with the state-controlled banks,” Roberto Padovani, chief economist at Banco WestLB do Brasil SA, said in a phone interview from Sao Paulo. “Subsidized loans by BNDES end up curtailing incentives for the private banks to increase loans.”

BNDES’s key interest rate for loans, known as TJLP, is 6 percent, or 475 basis points below the central bank’s 10.75 percent benchmark lending rate.

Lula appointed Mantega to become his finance minister in 2006, after serving as budget minister and head of BNDES. The former economics professor at Sao Paulo’s Getulio Vargas Foundation has been an adviser to Lula since 1993.

Source

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  3. Brazil’s Mantega Criticizes IMF Speed on Quota Shift
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India, Brazil Back U.S. Position on Yuan Before G-20

Central bank governors in India and Brazil backed a stronger Chinese yuan, siding with U.S. President Barack Obama before a meeting of the Group of 20 nations this week.

Exports from China to India have grown faster than Indian shipments to its northern neighbor “and that obviously is a reflection of differences in the exchange-rate management,” Reserve Bank of India’s Duvvuri Subbarao told reporters in Mumbai yesterday. Brazil’s Henrique Meirelles told a senate hearing yesterday in Brasilia it was “absolutely critical” that China should let its currency appreciate.

Obama, who considers the yuan “undervalued,” is seeking to gain broader support from finance officials of the G20, who will discuss outlook for the global economy in Washington for three days starting April 22. Speculation that China may scrap the yuan’s peg to the dollar intensified this month after Treasury Secretary Timothy F. Geithner delayed a report that could brand the nation a currency manipulator.

“This meeting will be the first test by the U.S. to use a multilateral forum to press China into action on its currency,” Philip Wee, a Singapore-based senior currency economist at DBS Group Holdings Ltd. wrote in a research note yesterday.

The discussions will include a range of topics including currencies and a communiqué will be released on April 23, a U.S. Treasury Department official, who declined to be identified, said yesterday. Bank Indonesia Deputy Governor Hartadi Sarwono declined to discuss his position before the meeting and the Bank of Korea also preferred not to comment when contacted yesterday.

Giving Opinions

India will give its opinion if the issue is raised in the G20 meeting, Subbarao said. “When it is discussed we will certainly give our opinion or view on the subject,” he said.

“If China revalues the yuan, it will have a positive impact on our external sector,” Subbarao said. “If some countries manage their exchange rate and keep them artificially low, the burden of adjustment falls on some countries that do not manage their exchange rate so actively.”

China has pegged its currency at about 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years. China won’t revalue until the middle of the year when it can see evidence of sustainable growth and inflation, Win Thin, a New York-based strategist at Brown Brothers Harriman & Co. said this week. Calls for revaluation will delay the process, he said.

Twelve-month non-deliverable yuan forwards traded at 6.622, reflecting bets the currency will strengthen 3.1 percent from the spot rate. The Brazilian real has gained 28 percent against the yuan in the past year, while the rupee climbed 13 percent.

India’s Imports

India imported $14.9 billion of goods in the six months to September 2009 from China, more than double the exports from the second-ranked U.S. India shipped $3.9 billion of goods to China in the same period.

U.S. lawmakers have urged Obama to step up pressure on China, accusing officials in Beijing of keeping the currency artificially weak to gain export advantage. Chinese President Hu Jintao told Obama on April 13 in Washington that the country wouldn’t yield to “external pressure” in deciding when to adjust the yuan.

The Chinese government will decide on the valuation of its currency and is seeking a stable yuan to control speculative capital inflows, Yao Jian, spokesman for the Ministry of Commerce, told reporters April 15.

Brazil Versus China

China boosted exports to Argentina, Uruguay and Paraguay, members of the Brazil-led Mercosur trade bloc, by 7.3 percent to $4.8 billion in the first eight months of 2009 from two years earlier, while Brazilian sales to its neighbors fell 18 percent to $9.6 billion during the same period.

Chinese-made products such as tires and stereo speakers are the target of 26 Brazilian anti-dumping measures, more than any other country and nearly half of all 68 in place, according to Brazil’s Trade Ministry. Soy and iron ore accounted for 66 percent of $20 billion in Brazilian sales to China last year.

“It’s absolutely critical that China http://brasilstocks.com/wp-admin/post-new.phpappreciate its currency to ensure equilibrium in the global economy,” said Brazil’s Meirelles.

Read the original article.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net; Andre Soliani Costa in Brasilia at asoliani@bloomberg.net.