In an unprecedented move for the South American country, Brazil is planning to impose a tax to inbound investment to slow down the climb of the real. It is going to be interesting to see if this move is a wise choice by Brazilian authorities and if it can reduce speculation without damaging Foreign Direct Investment.
The tax on capital inflows, which takes effect today, will take the form of a 2 per cent levy on foreign investment in the stock market and in fixed-income securities, such as government bonds.
Guido Mantega, Brazil’s Finance Minister, said that the tax would not affect foreign direct investment into Brazil. “We will continue to encourage foreign investment. Our concern is with excessive speculative investments, short-term capital that would cause a bubble,” he said.
