* Rousseff lashes out at rich nations' monetary policy
* Brazil extends IOF tax to 3-year foreign loans
* Mantega warns of more measures if real remains strong
* Brazil's currency gains despite new measures
(Adds additional measure on trade financing in paragraphs
By Alonso Soto and Tiago Pariz
BRASILIA, March 1 Brazilian President
Dilma Rousseff slammed rich nations on Thursday for unleashing a
"tsunami" of cheap money that threatened to "cannibalize" poorer
countries such as her own, forcing them to act to protect
struggling local industries.
Rousseff's words amounted to some of the highest-profile
criticism to date of efforts by the European Central Bank, the
Bank of Japan and others to spur their economies through low
interest rates and cheap loans.
Without naming specific countries, Rousseff said these
measures have damaged emerging-market nations such as Brazil by
unleashing a wave of capital inflows. That has made their
currencies overvalued and their exports more expensive.
Her speech, to construction executives, came hours after
Brazil announced the extension of a tax on foreign loans. The
move was designed to weaken the real but it
strengthened instead, highlighting the difficulties Rousseff
faces as global investors, flush with cash from the cheap
lending, race to invest in Brazil's high-yielding assets.
Brazil has been battling the effects of a strong currency
for years but had enjoyed somewhat of a reprieve in recent
months as the financial crisis in Europe made global investors
more averse to risky assets. With Europe's problems now abating,
the real has rebounded more than 8 percent this year.
"We have a currency war that is based on an expansionary
monetary policy that creates unequal conditions for
competition," said Rousseff, who is a career economist.
"We will continue to develop (our) country by defending its
industry and ensuring that the strategy used by the developed
countries to exit the crisis does not cannibalize emerging
markets," she said.
"Currency war" is where countries seek to achieve a lower
exchange rate to protect exports.
Rousseff's speech, which echoed words earlier by her Finance
Minister Guido Mantega, appeared to be a coordinated effort to
express dismay as central banks in the developed world keep
interest rates at record lows and pour cheap cash into markets.
Banks snapped up 530 billion euros in low-cost loans offered
by the European Central Bank on Wednesday as authorities there
try to resolve a debt crisis that threatens the survival of the
On Feb. 14, Japan's central bank boosted its asset buying
and lending scheme, under which it buys government and private
debt and lends cheap funds against various types of collateral,
by 10 trillion yen ($130 billion), to 65 trillion yen.
FURTHER MEASURES POSSIBLE
Some of Brazil's problems are homegrown. The country has
been a sponge for global liquidity in large part because it has
some of the world's highest interest rates.
Brazil warned it would take further measures to stop the
real strengthening. "The government will not stand by as the
currency war rages on," Mantega told reporters in Brasilia.
A presidential decree published on Thursday extended a 6
percent tax known as the IOF on overseas loans with maturities
of up to three years. The tax was previously charged when
companies in Brazil took foreign loans maturing up to two years.
Analysts questioned the effectiveness of the move. The real
strengthened 0.47 percent to bid at 1.711 per U.S. dollar on
Thursday in volatile trading.
"This will have a moderate effect on the currency because
the debt issuance of Brazilian companies has mostly been above
10 years," said Newton Rosa, an economist with SulAmerica
Investimentos in São Paulo. "You have plenty of liquidity in the
markets and lower risk aversion."
Brazil has a long history of tweaking the IOF tax to try to
limit or woo capital inflows. Mantega said the government did
not plan to raise the IOF tax on foreign purchases of local
stocks but stressed it has plenty of policy options at hand.
Another would be using Brazil's sovereign wealth
fund to buy dollars on the spot foreign exchange market, though
Treasury Secretary Arno Augustin suggested this week that such a
move is unlikely soon.
More radical steps could also be on the horizon. One
possibility would be charging a "toll" on capital coming into
Brazil disguised as foreign direct investment but which
ultimately ends up parked in financial instruments instead of
the real economy, Valor Econômico reported on Thursday, citing
unnamed government sources.
The central bank late on Thursday said it would impose
tougher limits on some type of trade financing to arrest the
real's gains. Aldo Mendes, the central bank director in charge
of monetary policy, told Reuters export prepayment loans will be
exempted from taxes for maturities shorter than 360 days.
For transactions with longer maturities, borrowers will pay
a 6 percent IOF tax. When asked if the measure was to intervene
in the currency market, Mendes said "Yes. Export cycles last
typically no longer than 360 days."
Mantega, however, ruled out taxing foreign direct
investment, saying that foreign investors remain welcome.
Central bank President Alexandre Tombini sounded the alarm
bells this week by saying that foreign investors are returning
in droves to emerging-market assets to seek higher returns as
the global economic outlook improves.
He reiterated that the bank was ready to intervene in the
foreign exchange and derivatives markets whenever necessary.
Thursday's presidential decree chapters also contained a
bevy of other details on the mechanics of credit operations. here
(Additional reporting by Hugo Bachega in Brasilia and Patricia
Duarte and Guillermo Parra-Bernal in São Paulo; Editing by Brian
Winter, Todd Benson, James Dalgleish and Michael Perry)