Prepared for the event of a United States default if no agreement is reached in the US congress on the debt ceiling Brazil intends to implement a US$ 30 billion tax relief program to prop Brazilian industry competitiveness. The announcement was made by Brazilian Finance minister Guido Mantega.
Over the weekend Brazilian president Dilma Rousseff, cabinet chief Gleisi Hoffmann and other top officials held an “exceptional and urgent” meeting in anticipation of the announcement of a package of measures in support of Brazilian industry and another in the event of a US default by next August 2, deadline for the US Congress and the White House.
“Brazil is one of the countries best prepared to face the possible consequences of the crisis triggered in the event of a US default,” said Mantega who anticipates if that is the case it is most probable “that there will be a flight of capital to the United States.”
“Strangely enough, we believe investors will look to ‘flee from risk’, which will be extensive to the whole world economy, with billions of dollars returning to the US,” but this will not happen because “common sense will prevail,” said Mantega who is confident an agreement on the US debt ceiling will be reached by August 2.
“The truth is we really don’t know if the US will reach a default situation, it would be absurd, you never know. But we are prepared with tough measures to confront such a situation,” added Brazil’s Finance minister.
Brazil is among the five main holders of US debt and one of the measures anticipated is a considerable tax reduction for Brazilian industry that has been loosing competitiveness and markets (domestic and overseas) by the strong appreciation of the local currency or ‘super real’ which makes the country’s products dearer and imports cheaper.
Actually the tax relief program for Brazilian industry has long been in elaboration following demands from domestic manufacturers and exporters and it is no coincidence that the date anticipated and chosen for the announcement (first week of August) will take place in coincidence with the international turmoil because of the US Congress-White House impasse.
In a short statement following the exceptional and urgent weekend cabinet meeting, President Dilma Rousseff said Brazil to face the challenge and ensure development.
“Have no doubts that we are and will be capable of defending the Brazilian economy from all internal and external threats and retain our economic growth and social inclusion capacities,” said the President quoted in the official news agency Brazil.
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