The management of exchange regimes is of extreme importance to the economic prosperity of all countries, however the diversity of same greatly affects world trade and the attraction of foreign investors.
With a view to promoting international trade and exchange stability, the Bretton Woods Treaty (or International Monetary Fund Agreement) was celebrated in 1944, with Brazil as a signatory.
The so-called “standard clause” of the treaty solidified the principle of free convertibility of currencies (convertible currencies), not permitting the imposition of restrictions on international monetary transfers by treaty members.
However, as this could not be guaranteed by all country signatories of the treaty, a “transitory clause” was agreed upon whereby these countries were allowed to have non-convertible currencies.
Brazil, adhering to the transitory clause, has a non-convertible currency, subject to exchange control, which is a restriction.
Just as the United Kingdom, the majority of signatory countries adhered to the standard clause. Brazil is still an adherent to the transitory clause and, although the Brazilian government has an exchange monopoly, guarantee of the value of the Real is no
possible. Therefore, there is a great exchange risk, as the instruments of protection against devaluation are limited and there is no elimination of risks.
This represents for Brazil a barrier to its development and a significant international disadvantage.
It is hoped that the Brazilian Government will announce its adherence to the standard clause of the Bretton Woods Treaty, adopting the system of free monetary convertibility which will bring benefits such as the free purchase and sale of dollars, increase in foreign investment, and the capture and remittance of foreign currency overseas without so many restrictions.
Until such time as the total extinction of exchange restrictions is announced, the Brazilian Government has been liberalising the market in some specific areas.
In October 1999, individual foreign investors could operate in the agricultural futures market without being subject to exchange operations. For that purpose, the BM&F, which is today one of the ten largest derivatives markets of the world, maintains a dollars account in New York, by means of which investors may operate in the Brazilian market, effecting payments in dollars.
Provisional Measure n. 1.991 of 13.01.00, established that international investors in agricultural futures, from jurisdictions that impose a rate of at least 20a/o on capital gains, are exempt from the application of the Brazilian rate (approximately 10%). Brazilian authorities intend to avoid that investors of countries with a more favourable tax regime or tax havens get benefits from the exemption, which has resulted in a great increase of interest by foreign investors in this market.
The same mechanism of maintaining a dollar account in New York could eventually be used so that foreign investors may invest in the Brazilian capital markets. However, the Government still requires that foreigner investors use Brazilian currency in accounts situated in Brazil.
Central Bank Resolution n. 2.644/99 determines conditions so that only companies for the implementation and development of oil and natural gas transport projects and companies for the generation and transmission of electric energy may maintain accounts in foreign currency in Brazil.
Other institutions such as embassies, international agencies recognised by the Brazilian Government, foreign companies of international aerial transport, institutions that act in the floating exchange rates market, tourist agencies etc. may also maintain foreign currency accounts in the country. In this sense, it is important to emphasise what occurs in reinsurance market in Brazil. While the privatisation of IRB (Brazilian Reinsurance Institute) is expected, this agency has an overseas account without the interference of the Central Bank and is responsible for foreign currency payment in for reinsurance operations abroad.
Law n. 9.932 of 20.12.99 determined that these payments shall be effected in foreign currency and subject to rules to be defined by the National Monetary Counsel and the National Private Reinsurance Counsel.
Everything indicates that the Government is already analysing new norms applicable to insurance, to mechanisms for foreign investment, and to the total elimination of exchange restrictions, however the lack of convertibility in Brazil makes it unfeasible for foreign investors to act in the Brazilian market and, moreover, the exchange risk in the Country represents a great obstacle to the international competitiveness. Thus, the total elimination of exchange restrictions is primordial to the reality of Brazil attaining its economic maturity and having a greater presence in the international market.
Lawyer admitted in Brazil, England and Wales and Portugal. GATT and WTO panelist. Brazilian government ad-hoc representative for the Uruguay Round of the GATT. Post-graduation professor of the law of international trade.