The Financial Times released an article this week, “The Fund should help Brazil to tackle inflows,” criticizing the International Monetary Fund’s (IMF) negative reaction against Brazil’s foreign inflow tax. The contributors, senior scholars Arvind Subramanian and John Williamson from the Peterson Institute for International Economics, wrote:
“This response is disappointing not because it is wrong, but because it reflects business as usual in terms of the IMF’s intellectual approach to financial globalisation…Instead of continuing to throw cold water on such measures, the Fund should view this as an intellectual opportunity. It could continue to be supportive of countries in their pursuit of more open capital flows as a long term, structural objective. However, it must regonise that surges in capital inflows can pose serious macroeconomic challenges that may require a different cyclical response.”
Subramanian and Williamson suggested that the IMF move away from a rigid approach and instead give practical guidance that recognizes the ground level situation of the countries with which it works. (Read full article.)
Dr. Danny Leipziger, a professor of International business at George Washington University, disagreed. He stated, “Brazil’s imposition of a financial import tax is not about capital markets opening in a weak country facing a hostile world, since Brazil is the B in Bric. Nor is it about the International Monetary Fund or its theology.”
Dr. Leipziger outlined five reasons to question Brazil’s decision to adopt a foreign inflow tax, which can be read in his comment to the Financial Times here.
Mr. Marcelo Giufrida, president of the Brazilian Financial and Capital Markets Association (ANBIMA), also commented on Brazil’s foreign inflow tax. He said:
“We agree that the government is wise to worry about the impact of excess global liquidity before it is too late. But we could not disagree more with your conclusion that a 2 per cent tax on portfolio inflows is a sensible policy response. While in theory such a tax has the potential to put sand in the wheels of hot money inflows, the harsh reality is simply that it has not worked in the past.”
To read the rest of Mr. Giufrida’s response, click here.
For more information on Brazil’s foreign inflow tax, see:
Financial Times, “Fatal Attraction.”
Financial Times, “Brazil sets 2% tax on capital inflows.”
Bloomberg, “Brazil to impose tax on foreign inflows”
AOL Video: “In-Depth Look – Brazil To Impose Tax On Foreign Inflows”
