IMF Backs Inflow Tax to Counter Currency Pressure

The International Monetary Fund supports the adoption of a tax on capital inflows to stem the excessive appreciation of currencies in some Latin American economies, said Nicolas Eyzaguirre, the director of the fund’s Western Hemisphere department.

Latin American economies should consider “carefully designed” taxes to avoid volatility in their currency markets, he said. The taxes would be appropriate where fiscal policy “discipline” is in place, he said.

“In the cyclically more advanced economies in the region, the immediate task is to begin to withdraw stimulus policies,” Eyzaguirre said.

Brazil in October slapped a levy on foreign purchases of equities and fixed-income securities in a bid to restrain the real’s rally.

After gaining 33 percent last year, the best performance against the dollar among the 16 most traded currencies tracked by Bloomberg, the real has lost 0.7 percent in 2010, the ninth-best performance.

Noting the “high liquidity and high commodity prices” in Latin America’s biggest economy, “Brazil is one that should consider all the instruments in the toolkit,” Eyzaguirre said.

In trading yesterday, the real gained 0.4 percent to 1.7565, strengthening for a fourth straight week.