Brazil’s Finance Minister Guido Mantega announced a 2 percent tax on portfolio inflows to the country, effective 20 October. The tax will cover investment inflows for equity and fixed-income securities and not direct inflows.
The motive behind the tax is to reduce the short term capital inflows thereby weakening the Brazilian real and help support Brazilian industies and exports. Brazil had seen an increase in inflows recently at the back of quickly recovering economic activity (the Brazilian economy is expected to register a 5 percent growth in 2010. In 2009, the stock market has surged) and the Brazilian real has appreciated by more than 35 percent so far in 2009. The central bank has been trying to mop up US dollars to arrest the appreciation of real but it was not succesfull. Meantime, Brazilian official reserves has now reached USD 232 billion.
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