The Finance Minister, Guido Mantega, announced after market hours Wednesday that Brazil was extending to 720 days from 360 days its recent 6% financial operations, or IOF tax, on local institutional dollar borrowing from offshore subsidiaries in an attempt to cut into credit expansion and dollar inflows.
Chinese financial institutions could just as easily be acquiring dollar debt through offshore banks or other global money centers, mainly through London.
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This effort is set to accelerate over the next two years if the New York State Public Service Commission approves a multi-million dollar feasibility study of offshore wind power near New York City.
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New measures were put in place this month to tax dollar-based loans from offshore institutions based on Brazil.
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On March 29, Mantega raised the financial transactions tax, or IOF, on local institutions that were obtaining dollar loans abroad through their offshore subsidiaries.
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There are limitations locally because of the measures and so the market is likely to migrate offshore to hedge its currency position to protect against dollar weakness for portfolio investments, currency speculation, and foreign trade.
This is an operational hub for multi-billion dollar investments by Daewoo International, which has offshore gas concessions, and China National Petroleum Co.
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The extraordinary downdraft in the dollar suggests big multinationals must benefit from currency translation of offshore earnings, at least through yearend.
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The entrepreneur has an idea of what they want, but no ability to do it themselves, so they go somewhere offshore and build a team and build out their product without spending a single dollar.
Last week, Mantega slapped another anti-dollar tax on the market, this time it was on institutions borrowing money from the US through their offshore accounts.
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