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EFS Informe Especial


The Brazilian Congress is right now voting a bill authored by Senator Delcidio Amaral (member of the governing coalition of the presidents Dilma and Lula) of upmost importance for the Brazilian economy, citizens and companies operating in Brazil.

If this bill is approved (and it is likely to be) individuals and companies abroad who have money or property that has not been declared to the Brazilian IRS may include them in the declarations of 2011, base year 2010. The new federal rule, when sanctioned, will allow for the payment of a tax of 5% to 10% (payment that can be shared in installments) on the value of the goods or cash that undergo the so-called "repatriation". The objective of the new rule is to encourage the return to the Brazilian territory of funds estimated between US$ 50 billion to a US$ 100 billion in cash. The taxpayer who wants to do the “repatriation” operation will be encouraged to invest in infrastructure.

This is a smart way to legalize funds that have been unavailable for several decades, while solving two problems that affect the Brazilian economy and the new coming Dilma Rousseff’s administration. The two problems are: (1) the necessity of the Central Bank to receive U.S. dollar long-term deposits that are not to be so volatile as the Brazilian  reserves from foreign investors, (2) the overvaluation of the Brazilian currency – the Real -, whose high value now prevents the growth of Brazilian exportations.

U.S. dollars are expected to enter the country as a consequence of the new bill on the “repatriation” of these funds, as established on the bill's project being discussed by Brazilian senators. This dollars would enter Brazil through the Central Bank, which will retain the dollars that come from abroad, converting them into Reals (Brazilian currency). This process will allow this enormous wealth, which was generated in Brazil but that “lives” in hidden accounts abroad, to form a stockpile of dollars in the Central Bank, whose property will be of the Brazilian Treasury. This new bill will also align all taxpayers in the range of legality.

The “repatriated” dollars should not be confused with those that constitute the Central Bank reserves, which can leave at any time their owners want.


Our foreign exchange reserves consist mostly of dollars from foreign investors who brought their dollars to Brazil on a temporary basis, buying government bonds, stocks or speculative positions in the stock market and future commodities. These "speculative" dollars will be in Brazil only as long as profit is high, or while it is intersting to feed the Brazilian speculative financial bubbles. When things change, this money, that has no nationality, will simply go away, forcing the central bank to purchase, without any forecast, the dollars invested plus the gains.

This may happen, no matter whether the Central Bank has US$200 or US$ 300 billion in reserves, as in 1992, simply because the dollars are not owned by Brazil or Brazilians, but by international investors.

This is crucial so as to differentiate an economy without consistency from an economy with consistent basis.

The government proposal of "repatriation" of dollars creates the ideal environment for the inflow of dollars that will compose a "stock" not so much subjected to abrupt variations. The volume of dollars "repatriated", mostly, never go back to outside the country, giving stability and consistency to the Brazilian foreign exchange reserves and thus - at least in part - it justifies granting pardon to the crime of not having declared this wealth before.

Do not forget that Brazil has a huge public internal and external debt, with maturities of short and medium term. The Brazilian market does not have instruments to attract investments that generate a continuous income of investment sufficient for the next 5 years, so that Brazil would be able to pay, without a huge deficit, the debts contracted, or even Brazilian basic public services. It is either to pay debts or to invest! Both things together are almost impossible in today's Brazilian context!

For this reason the proposal of the “repatriation” of wealth is not an unorthodox  solution. This government action has not been fully accepted, because it leads to market shocks. The repatriation of dollars, not previously declared, that may have even "escaped" from the Brazilian economy, seems to be an unorthodox measure, but the remedy is more orthodox than one can imagine at the present international market scenario. The new bill being discussed would create comfortable conditions for operating the expected devaluation of the Brazilian currency. The compulsory conversion of U.S. dollars to Brazilian Reals will lead to the issuance of more Brazilian currency, as a phenomenon of accommodation of the market, therefore, far from an artificial intervention in the market (maxi devaluation of currency or a shock therapy).

Moreover, it ensures political and economic achievements gained in the implementation of floating currency exchange rates, a feature required for all major economies.

The occasion has never been so good for the government to implement such an initiative. Moreover, this new economic policy of "repatriating" funds certainly puts Brazil in the international spotlight, because it demonstrates how to identify potential speculative capital without interventionism, both interventionism and speculative capital are now regarded as enemies of the global economy.

Édison Freitas de Siqueira
Presidente do Instituto de Estudos dos Direitos dos Contribuintes

Translation: Luciano Medina Martins
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