|The Finance Ministry's package stimulates, but there are obstacles ahead|
Positive but limited. This has been the evaluation of market professionals on the stimulus package for private-sector long-term financing, announced by the Finance Ministry on December 15. Debentures are the major target of the federal government. The incentive will come through tax relief, in order to stimulate emissions to fund infrastructure projects and at the same time, promote the secondary trading of private-sector securities. However, some flaws of the initiative are already visible.
The first is the sustainability of the package, based on a tax waiver that will cost R$ 162 million to public coffers in the first year. To experts, the incentive is an appropriate remedy, but of limited effectiveness when taking into account macroeconomic weaknesses, such as high interest rates and the difficulty of reducing public spending. "How long can we keep that tax relief?" asked Ana Novaes, a partner at Galanto Consulting. On the development of secondary market of private-sector debt, Ana recalls that the lack of liquidity is a problem in several countries. This occurs because securities trading is directly tied to the volume of emissions - a point that is tackled by the package, but with limitations.
For debentures to experience the benefits of the plan - income tax exemption for retail and foreigner investors, and reduction in the tax rate for institutions - the issuer must meet certain requirements. For example, constitute a special purpose entity (SPE), specifically focused on funding for infrastructure projects and offer securities with fixed income or yields pegged to a price index. This last requirement is an attempt to reduce the use of CDI as the primary (and almost the only) market benchmark. "On public-sector debt, you must also remove the CDI indexation, in order not to create competition (with private-sector securities)," warns Carlos Antonio Rocca of the Capital Market Studies Center.