UPDATE 3-Brazil to address currency through trade, taxes

*Brazil’s Mantega:No new foreign exchange measures for now

*Spending cuts still being decided

*Focus on trade protections, taxes
(Recasts; adds economist comments, byline)

By Raymond Colitt and Isabel Versiani

BRASILIA, Jan 4 (BestGrowthStock) – Brazil’s new government will
address the damage caused by its strong currency by enacting
tax breaks and new trade protections, rather than attempting to
artificially weaken the exchange rate, Finance Minister Guido
Mantega said on Tuesday.

With the real (BRBY: ) trading near a two-year high, Mantega
said the government would act to protect local manufacturers
but does not plan any new taxes on foreign investments or other
capital controls unless the currency strengthens further.

Instead, Mantega said President Dilma Rousseff’s new
government would focus for now on helping exporters by passing
targeted tax breaks and taking unspecified measures to “combat
disloyal competition” from trade partners.

Reuters reported last week that Rousseff was planning
palliative measures such as tax breaks and selective tariff
increases, which could serve as a substitute for new capital
controls. [ID:nN30113578]

“We’re in a currency war,” Mantega said, repeating a phrase
that he first used last year, and has since spread to many
other emerging markets suffering from strong currencies. “There
are an infinite number of steps we can take … to help.”

Economists said the new strategy was a welcome sign that
Rousseff’s new government will not resort to unorthodox
economic policies that could inadvertently obstruct desirable
forms of foreign investment — such as funds needed to prepare
Brazil for the 2014 World Cup and 2016 Olympic Games.

“It was good to hear Mantega recognize this (currency
appreciation) is part of a global trend,” said David Beker,
head of Latin America economics for Bank of America. “They’re
becoming much more selective and dealing with the consequences
of the real rather than the actual rate.”

The real (BRBY: ), which had weakened in afternoon trade on
expectations Mantega would announce new measures, pared its
losses slightly on the news and closed 0.79 percent weaker than
Monday’s close at 1.664 per dollar.

Economists agree cuts in government spending would be the
best way to weaken the currency over time and Mantega said
austerity measures were on the way. However, he said the
government was still studying where to make cuts and would work
to control expenses in January in the meantime.

Some Latin American countries have moved more aggressively
to brake steeply stronger currencies, which have pressured
exporters and threatened to erode trade and current account
balances through the region.

In Chile, the central bank said late on Monday it will buy
$12 billion in U.S. currency to tame the peso (CLP=: ), which has
appreciated more than 17 percent against the U.S. dollar since
the end of June. [ID:nN30113748]

(Additional reporting and writing by Brian Winter and
Luciana Lopez, Editing by Diane Craft)

UPDATE 3-Brazil to address currency through trade, taxes