Brazil’s 70-year-old foreign exchange laws have always been a headache for exporters. Lawmakers backing a bill to overhaul the complex rules say companies such as Brazilian aircraft maker Embraer lose up to 4% of their annual revenues because they are obliged to convert US dollar-denominated earnings from exports into reais and then back again to pay for imported components. Now two leading Brazilian senators, with the support of the country’s powerful industrialists, aim to dismantle the tough regulations, which date back to 1933, arguing that the growth of Brazil’s international trade is being held back by them.
| Brazil’s overvalued currency The real strengthening vs the US dollar |
| Source: Reuters |
One of the central tenets of the bill is that companies should be allowed to keep export dollars abroad or hold them in new foreign currency bank accounts in Brazil for longer than 210 days, removing the limit that forces exporters to convert their dollar sales into reais once a transaction has gone through. That would also permit companies to choose when to move dollars into reais depending on their judgement on the prevailing exchange rate. A provision to allow exporters to use their dollars to pay obligations overseas before bringing cash back to Brazil has the backing of the central bank, as it would help cut the “Brazil cost”, the high cost of doing business in South America’s biggest economy. Keeping dollars outside Brazil for longer periods could also help weaken the real, which has gained around 20% on the dollar in the past year, as a heavy inflow of export dollars, switched into reais, has lifted the Brazilian currency to levels not seen since early 2001. That is a worry for Brazil’s exporters, who fear that a strong currency will make their goods less competitive abroad.
Fernando Bezerra, the co-sponsor of the bill with senate president Renan Calheiros, says the law could also save money for the central bank, which has spent millions of dollars since late last year to try to weaken the real and is aware of the competitiveness issue. Brazil has managed three consecutive years of current account surpluses since 2003 after two decades of deficits and the positive balance is crucial to the country’s plans to achieve investment grade in the next few years. Trade minister Luiz Fernando Furlan supports the changes, and Bezerra and Calheiros are confident of pushing the bill through congress this year, despite presidential elections in October, which typically slow down an already notoriously sluggish parliament.
