Brazil will cut taxes and provide incentives to stimulate the domestic corporate debt market and supply longer-term credit for infrastructure investmenm. As part of the measures an-nounced on December 14 of 2010 by Finance Minister Guido Mantega, the state-ran development bank known as BNDES will set aside 10 billion rcuis(US$5.8 billion) to purchase longer-term debt issued by corporate borrowers, helping provide liquidity to the secondary market for the paper.
Individual and foreign investors purchasing bonds with maturities of at least four years and linked to in fra-structure projects will be exempted from paying taxes on their earnings,Mantega said. Imtitudonal buym will see their tax rates reduced to 15 percent from as high as 34 percent curtenly.
The new rules should boost local debt issuances to 70 billion realiser year, BNDES President Luciano Courinho told reporters in Brasilia.In 2010, companies raised 41 billion reals, according to the Brazilian capital markets association known as Anhima.
Latih American's biggest economy is ramping up spending on infrastrae-ture as it prepares to host the World Cup and Oiympies as well as develop the biggest oll discovery in the Americas since 1976. "The government plans ment over the next four years.
"Uae government will create a pri-vately-managed fund using about 2.2billion reals in bank reserves to pro-vide liquidity to the mcondary m~ket for the domesti-caUy-lssued bonds, said Nelson Bathosa, the seceretary of economic policy. Short-term buying and selling of the paper will no longer be levied a transaction tax.
A tax on foreign capital inflows that was tripled this year will he re-duced to its previous 2 percent for foreign-based private equity investors who want to finance Brazil's infra-stracture drive.
Brazil raised the so-called IOF tax in October in a bid to take pressure off its currency, which has strength-
ened 35 percent against the U.S. dollar since the start of 2009, the second-biggest gain among 25 emerging mar-ket currencies.
Local debt issuance by Brazilian companies is lagging behind Russia's US$27 billion and China's US$163billion in 2010. Only India, at US$18biMan, has had less corporate debt is-suance among the biggest devdoping economies, or BRICs.
Central bank President Henrique Meirelles said in Sao Paulo that the new measures are "step in thc right direction" in Brazil's bid to stimulate longer-term credit.
It's too early to say whether the new rules will achieve their intended effect, said Jankie Santa, chief cconomist at Espirito Santo Investment Bank.
"Since you'd have more iiquldlty in the secondary market, people are going to start thinking about using more and more the capital markets rather than just going to banks to fund themselves," he said in a phone inter-view fromm Sao Paulo. (Bloombtrg)
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