Brazil airlines in plea for government aid

Joe Leahy – Financial Times, 08/21/2013

Brazilian airlines are seeking government aid to help curb losses stemming from a weakening currency, in the first sign that the rapid sell-off of emerging market assets is beginning to hurt the country’s corporate sector.

The country’s four major airlines and their industry association, Abear, have appealed to the government for a range of tax breaks and relief from fees and high fuel costs in response to a 14 per cent depreciation in the Brazilian real against the dollar since the start of the year.

“The dam has broken,” said Eduardo Sanovicz, president of Abear, referring to the industry’s inability to further withstand rising costs from the weaker currency.

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Brazil scraps IOF tax on foreign fixed income investment

Financial Times, 06/05/2013

Now this was unexpected. Brazil on Tuesday said it would scrap the 6 per cent IOF (financial operations tax) currently levied on foreign portfolio inflows into fixed income investments.

It’s a pretty drastic move. The country only raised the IOF on fixed income investments from 4 per cent to 6 per cent a little over two and a half years ago.

At the time, the hike was intended to stem the flow of hot money that had been making its way into Brazil’s high-yielding fixed income market and curb the Brazilian real’s rise against the US dollar.

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Mantega says currency war he named eases as Brazil recovers

Andre Soliani & Joshua Goodman, Bloomberg, 02/27/2013

As the currency war intensifies in the developed world, the Brazilian official who coined the phrase says for his country it’s softened.

Brazil succeeded in reducing swings in the real after letting the currency depreciate 19 percent in the two years ending in December to protect local manufacturers from foreign competition, Finance Minister Guido Mantega said in an interview. Now with the real hovering around 2 per dollar, Brazil is abandoning policies to depress the exchange rate even as Japan weakens the yen and the U.S. sticks to policies Mantega has said spurred the start of the currency war.

“We haven’t resolved it, but we neutralized, softened the currency war issue that other countries are facing,” Mantega, 63, said at Bloomberg’s headquarters in New York. “We are in Brazil in a transition to a more solid, competitive and efficient economy.”

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Brazil should embrace a freer market

Komal Sri-Kumar – FT, 04/02/2012

Guido Mantega, Brazil’s finance minister, was in fighting spirit in a recent Financial Times interview. The government was “not going to just sit by and watch while other countries devalue their currencies to give them a competitive advantage,” he said. Mr Mantega believes that the European Central Bank’s longer-term refinancing operations and the Federal Reserve’s quantitative easing measures since the financial crisis have been designed to weaken the euro and the dollar.

The Brazilian authorities are under pressure from domestic manufacturers to weaken the real to compete with imports. The automotive lobby succeeded last September in having a 30 per cent tax levied on car imports to fight competition from Asian manufacturers. The government is also trying to get Mexican car exporters to agree to a quota on car sales to Brazil. Mexico’s freer trade practices have enabled it to withstand the Asian competition.

A slowdown in Brazilian economic growth from 7.5 per cent in 2010 to 2.7 per cent last year has given impetus to the protectionist measures. Raising the tariff wall increases the risk of retaliation by trade partners, further contributing to a global economic slowdown.

Is Brazil faking the currency war?

Jonathan Wheatley – Financial Times, 03/22/2012

Is the currency war over? It may be, if you believe a fascinating analysis by Mike Dolan of Reuters published on Wednesday. He floats the idea that the renminbi may have peaked and could soon depreciate, bringing other EM currencies down with it.

Unthinkable stuff, to many. But it does make you wonder why Brazil, the world’s chief currency warmonger, has chosen this moment to escalate the conflict, when its own currency is some way off its peak and quantitative easing in the developed world seems to be on hold or at an end.

It’s easy to understand why Brazil launched its currency war in September 2010. From late 2002 the real made enormous gains against the US dollar, making Brazilian exports much more expensive and foreign imports much cheaper. The collapse of Lehman Brothers brought some relief but by late 2010 the real was up against pre-crisis levels.

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Brazil flexes its muscle to shield industry

Joe Leahy – Financial Times, 03/19/2012

Guido Mantega, Brazil’s combative finance minister, underlines his determination to protect Brazilian industry from what he sees as unfair competition.

Even regional trading partners such as Mexico will not be spared. Brazil last week forced Mexico to renegotiate a 10-year-old car trade agreement.

“Brazil wants to revise this agreement with Mexico because it has established conditions that are unfavourable to Brazil and is leading to a huge inflow of vehicles of various brands from Mexico at low prices,” Mr Mantega told the Financia Times in his office in the Esplanada dos Ministérios in Brasília. “What we want is something just, not something unequal.”

The car dispute, in which the two countries eventually settled on a temporary three-year quota system limiting the value of vehicles Mexico can export to Brazil, was as much about a clash of economic systems as it was about car imports.

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