To keep the dollar down, more taxes.

The Brazilian government has decided to extend the 6% increase in the Tax on Financial Operations (IOF) to loans of up to two years taken abroad – the increase, announced last week, was previously limited to operations of up to 360 days. The measure will take effect this Thursday. According to Finance Minister Guido Mantega, the objective of the measure is to reduce the inflow of dollars into Brazil and prevent the devaluation of the dollar. “The measure aims to discourage borrowing abroad for short terms. Today, companies that borrow for investments borrow for longer terms, and we want to primarily target companies that engage in arbitrage,” said the minister in a press conference alongside Aldemir Bendine, president of Banco do Brasil.

Mantega, who assured that the price of gasoline is not rising and will not rise, and attributed the increase in the price of ethanol to harvest issues, said that the government imagined that one year would be enough to contain the appreciation of the national currency. “But the external market is very liquid. It's not that (the previous measures) didn't work. All the measures we took worked. If we hadn't taken these measures, the dollar would be at a lower rate than it is,” said the minister. In an interview given early Wednesday evening, Mantega admitted that the government does not work with an ideal exchange rate level, adding that the exchange rate is floating and will continue to float. “We know that there are countries that are taking advantage of this exchange rate situation and we want to avoid the so-called currency war,” he said.