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Brazil looking to combat faltering currency values

June 5, 2013

Despite its status as the world's sixth-largest economy, Brazil's market has experienced certain difficulties of late. According to The Wall Street Journal, the nation's government is looking to enact measures that will make it more favorable for foreign investors, whom it had previously alienated through its tax on foreign investment, first instituted in 2010. While the elimination of the tax does have the potential to ease the minds of some, the impact of this action may not be as significant as the country's Finance Minister, Guido Mantega, is hoping. 

The considerable inflation in Brazil and concurrent weakening growth of its economy are major issues for the nation, and may well be subjects of discussion among those reaching out to Brazilian colleagues and friends using an international calling card. According to Quartz, the current inflation rate stands at 6.5 percent. In 2010, before the implementation of the foreign investment levy, this figure was a notably lower 5 percent. Rising prices are a principal cause of trepidation among foreign businesspeople, who not too long ago considered investment in the Brazilian economy to be quite a shrewd decision.

Elimination of the aforementioned tax is being accompanied by an increase in the benchmark interest rate of Brazil's central bank - the figure is now 8 percent. However, Quartz reports that this measure constitutes a double-edged sword. Any further increase in this rate could be detrimental to economic growth.

The Wall Street Journal's Moneybeat blog states that Brazil's weakening currency and inflation are issues that must be addressed in a manner that accounts for all aspects of the problems. The source characterizes the investment tax elimination as little more than a quick fix, because it only facilitated a brief jump in the value of the Brazilian real.


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