In a Recession, Brazil Gets Stimulus Package Just in Time for the Elections

Port of Santos, in BrazilFinance Minister Guido Mantega presented on Monday a package of tax measures aimed at stimulating Brazil’s economy less than a month ahead of the presidential election. 

“We want to make Brazilian industry more competitive and reduce juridical insecurity,” he said after meeting in São Paulo with representatives of the powerful CNI business confederation.

The changes include extending to all industries a reduction in the rate of tax on overseas profits from 34% to 26%. Until now, that benefit has been available only to firms in construction, services, food processing and the beverage sector.

Mantega also announced that a program providing subsidies to exporters of manufactured goods is to be made permanent, with the levels of support adjusted on an annual basis.

The tax breaks are part of a stimulus program adopted by president Dilma Rousseff as she seeks a second four-year term in the October 5 balloting.

Brazil, Latin America’s largest economy, is currently in a technical recession after two consecutive quarters of negative growth.

A report released Monday by the Organization for Economic Cooperation and Development said Brazil’s economy would grow by just 0.30% this year as the world’s largest economies recover at a slower rate than initially expected.

Brazil’s GDP expanded by 7.5% in 2010, but the economy posted tepid growth of 2.7% in 2011 and just 1% in 2012 before rebounding with a gain of 2.3% in 2013.

Positive Forex

US dollar inflows to Brazil was higher than outflows by US$ 4.151 billion last week. As a consequence, the foreign exchange flow is back to positive, after posting deficits of US$ 3.056 billion in August and US$ 1.9 billion in the first week of September.

In the first two weeks of September, the foreign exchange flow was positive by US$ 2.251 billion. The figures have been released this Wednesday (17th) by the Brazilian Central Bank.

Month-to-date through September 12th, the bulk of the foreign exchange surplus originated from a US$ 1.406 billion surplus in export and import operations.

Financial operations (investment in bonds, profit and dividend remittances and foreign direct investment, among other operations) posted an US$ 845 million surplus.

Year-to-date through September 12th, the foreign exchange flow ran a US$ 1.551 billion surplus. Over this period, financial operations had a US$ 2.322 billion deficit and trade-related foreign exchange operations had a US$ 3.873 billion surplus.

MP/ABr

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