MercoPress. South Atlantic News Agency

Brazil cutting liquidity but preparing plan to promote exports

Guido Mantega cut requirements for “export” companies

Brazil is preparing a package of incentive but this time to promote exports which suffered significantly last year because of the global slowdown, announced Finance minister Guido Mantega in an inteview with Folha de Sao Paulo.

The measures basically would extend fiscal benefits to the export companies and for this the concept of “exporter” has been redefined.

“Currently for a company to be considered ‘exporter’ and thus have access to benefits, must ell overseas at least 60% of its production. We are going to lower this requisite to 40% thus helping to include more companies in the benefits”, said Mantega.

“We are interested in promoting credit lines for exports and fiscal incentives to benefit medium and small companies”, added Mantega since big corporations are more flexible in taking advantage of these measures.

Brazilian exports last year totaled 153 billion US dollars, which represented a 21.8% contraction compared to 2008, and the first drop in a ten-year sustained export boom. Trade surplus reached 25.3 billion USD (up 1.6%) which was the result of a strong contraction of imports, which added to 127,6 billion USD, down 25%.

Meantime Central Bank president Henrique Meirelles anticipated that Brazil is likely to see around 45 billion USD in foreign direct investment this year and faces a current-account deficit of 50 billion.

With historically low interest rates and high investor demand for Brazilian assets, the economy has been walking the line between robust growth and heightened inflation.

After enacting a range of stimulus measures during the global economic crisis, Brazil has already started moving toward monetary tightening and last month statutory reserve requirements for banks were raised by two percentage points in a first step toward reducing “excess liquidity.”

Meirelles acknowledged that the move effects monetary policy but denied reserve requirements were being raised in place of higher interest rates.

With investor interest in Brazil still robust, Meirelles said that “strong flows of investment are expected,” even though “too much exuberance is not always good.”