Sending and receiving money abroad got easier

. Jun 09, 2020
Brazilian Central Bank gives TransferWise thumbs up Image: Alongzo/Shutterstock

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We’re covering the Central Bank and its decision to greenlight TransferWise as an exchange brokerage. Yet another debt renegotiation program being discussed in Congress. And the government’s idea for a new cash transfer initiative.

Central Bank gives TransferWise thumbs up

After a two-year evaluation process,

Brazil&#8217;s Central Bank has authorized British fintech TransferWise to operate in the country as an exchange brokerage. The international money transfer service, most recently <a href="">valued</a> at USD 3.5 billion, has operated in Brazil since 2016, but has always had to use a Brazilian bank as an intermediary. Now, the company promises to reduce its fees from an average of 1.5 percent to somewhere closer to its global 0.74-percent average.</p> <p><strong>Why it matters.</strong> The decision by the Central Bank should foster competition in Brazil&#8217;s highly concentrated banking industry. With something of a homegrown hegemony, local banks can afford international fees as high as 13 percent. </p> <ul><li>For some institutions, fees account for up to <a href="">25 percent of their revenue</a>.</li></ul> <p><strong>How it works.</strong> According to TransferWise, its fees are lower than traditional banks because it uses a system of compensation among local bank accounts —&nbsp;using domestic currencies. In Brazil, one of the company&#8217;s top 5 priority markets, TransferWise claims to have sent over BRL 26 billion to overseas accounts.</p> <p><strong>Sending money abroad. </strong>Unlike South American counterparts such as Argentina and Ecuador, where U.S. Dollars are readily accepted, Brazil is quite closed as far as financial transactions are concerned. Only Brazilian Reais (BRL) are accepted countrywide, meaning that currency exchanges may pose somewhat of a challenge for the uninitiated. </p> <ul><li>Money can be sent abroad from Brazil by way of financial institutions certified by the Central Bank to operate in foreign exchange markets. At the beginning of the year, reporter Natália Scalzaretto compiled a guide on <a href="">how to transfer money to and from Brazil</a>.</li></ul> <hr class="wp-block-separator"/> <h2>Covid-19 debt-renegotiation program is necessary. But should Brazil do it?</h2> <p>Trying to save companies from a coronavirus-induced bankruptcy, federal lawmakers are talking about launching a new debt-renegotiation program for firms with overdue tax bills. With GDP expected to fall up to 8 percent this year — according to the latest World Bank projections — there is a consensus in Brasília that aiding private companies is unavoidable. However, this new program is far from being agreed upon as the best solution.</p> <p><strong>Why not?</strong> Between 2000 and 2017, there were no less than 31 debt-renegotiation programs in Brazil. At first glance, they seem to create a win-win situation: they allow companies to stay afloat and guarantee the government some much-needed revenue, as companies can start to repay part of their tax debts.</p> <p><strong>Yes, but … </strong>The constant cycle of renegotiation programs sees companies signing on to have their debts reorganized, only to halt payments until the next program comes along. A 2012 study by economist Nelson Leitão Paes, an auditor of the Federal Revenue Service, shows that only 6 percent of companies that joined the first program, back in 2000, have effectively paid off their debts with the government.</p> <ul><li>Said programs lower tax revenue by up to 1 percent of GDP over several years. And they create a culture in which dodging taxes is commonplace. Between 2017 and 2018 alone, the federal government surrendered BRL 83.5 billion in tax revenue through renegotiations.</li></ul> <p><strong>Then why do it?</strong> Two-thirds of Brazilian congressmen are business owners or self-employed — that is, the very population who benefits from these programs.</p> <p><strong>So what must be done?</strong> Several economists point toward an <a href="">overdue tax reform</a>. The Brazilian system must be simplified and reward companies and individuals who pay on time and of their own accord. Not the other way around.</p> <p><strong>Ben was wrong.</strong> Benjamin Franklin famously said in 1789: &#8220;In this world nothing can be said to be certain, except death and taxes.&#8221; Perhaps he wasn&#8217;t familiar with Brazil.</p> <hr class="wp-block-separator"/> <h2>Guedes promises revamped Bolsa Família</h2> <p>Economy Minister Paulo Guedes has told Congress that the government will launch a new cash-transfer program to replace the world-renowned Bolsa Família. Mr. Guedes promises that his initiative, called Renda Brasil (Income Brazil), will be broader and &#8220;more inclusive&#8221; than Bolsa Família.</p> <ul><li>Bolsa Família gives money to families with children of up to 17 years old attending school. For each kid, the household receives BRL 41 (USD 8.50) — to a cap of BRL 205 per family.</li><li>Mr. Guedes&#8217; idea would be to include informal workers, too. They would get the money through a &#8220;negative income tax.&#8221; That is, they would have to declare their income in the informal economy —&nbsp;getting rebates for each Brazilian Real declared.</li></ul> <p><strong>Why it matters.</strong> Bolsa Família has lifted millions of families out of extreme poverty. Extending the benefit to informal workers — who were the hardest-hit by the pandemic — could be a game-changer.</p> <p><strong>Emergency salary.</strong> The new program would be much cheaper than the BRL 600 emergency salary created during the pandemic. The three-month benefit will be extended for an extra two months —&nbsp;but installments will be halved to just BRL 300. The continuation of some sort of stipend for vulnerable populations is seen as vital by many economists — including many in Brazil&#8217;s mainstream libertarian camp.</p> <p><strong>Political gain.</strong> The emergency salary increased President Jair Bolsonaro&#8217;s popularity among lower-income voters, compensating for his loss of support among better-educated ones. If successful — and that is a big if, considering the economic depression Brazil is set to face — it could help Mr. Bolsonaro <a href="">crack the Workers&#8217; Party&#8217;s electoral strongholds</a>.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Data transparency.</strong> The Supreme Court has ordered the government to return to its original Covid-19 data disclosure models — forbidding the Health Ministry from hiding total tallies of confirmed infections and deaths. Since last week, the Bolsonaro administration has made access to coronavirus data difficult in an effort to avoid the image problems a botched response to the pandemic has caused. Later on Monday, officials announced that daily numbers would be made available to the public by 6 pm.</li><li><strong>Guns.</strong> The Brazilian Army is reportedly about to strike a partnership with <a href="">gunmaker</a> SIG Sauer Inc. The deal comes after intense lobbying by Congressman Eduardo Bolsonaro, the president&#8217;s third-eldest son. Back in April 2019, Mr. Bolsonaro <a href="">posted</a> on Twitter a photo with the firm&#8217;s representatives, saying that SIG Sauer Inc was keen on opening a factory in Brazil. For years, the Bolsonaro clan has talked about &#8220;breaking the monopoly&#8221; of the national gun market, dominated by local producer Taurus.</li><li><strong>Oil and gas.</strong> State-controlled oil company Petrobras has presented unions with a plan to return to work its activities. Labor representatives say the company has not zeroed in on a date, but that the resumption of work would include employees in so-called high-risk groups. One trade union has accused Petrobras of mirroring the federal government&#8217;s stance on Covid-19, &#8220;hiding infections [among workers] and trying to end social isolation.&#8221; According to the Mines and Energy Ministry, almost 1,100 Petrobras employees have tested positive for the coronavirus.</li><li><strong>UN.</strong> The United Nations&#8217; International Fund For Agricultural Development (IFAD) will invest around USD 43.5 million in Brazil&#8217;s poorest region, the semi-arid backlands of the Northeast. The money aims at mitigating the effects of the pandemic, and will mostly be invested in ongoing family agriculture projects. IFAD has been present in Brazil since the 1980s and has funded projects involving over 300,000 families.</li><li><strong>Probe.</strong> Supreme Court Justice Celso de Mello granted the Federal Police an extra 30 days to conclude its probe on whether President Jair Bolsonaro tried to illegally meddle in the corporation. The investigation started late in April, after former Justice Minister Sergio Moro resigned, claiming Mr. Bolsonaro wanted to appoint a police chief that would leak confidential information to him. The president must give testimony to the Federal Police, but can choose to do so in writing.

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