From what I can determine, there are both fixed and variable rate Real savings accounts. At least on the variable ones, more interest is paid for larger deposits as opposed to smaller, up to approximately 24% annually. The variable accounts appear to be linked to some sort of index, since they don’t quote a fixed rate but rather show past performance as a guide.

There are also Brazilian Government Bonds such as 8 year notes which pay about 8% currently, based on the current discount of basis points, which of course, varies daily according to good or bad economic news

Does anyone – particularly among those CH’ers who live in Brazil -- have knowledge of the risks peculiar to Brazil that are associated with these type investments? I understand there is a currency risk, that is, of the change in conversion rate to US$, but what other risks exist as to these type investments?

Also when you withdraw money from any of these instruments, does the Brazilian Government take a cut as they do when you write a check on an account there?

Are there restrictions on resident non-citizens having such savings accounts?

Not all that long ago the Brazilian government completely froze people's bank accounts. By the time the controls were released the value of the deposits had collapsed. The same thing took place in Argentina only a few years ago. This is a very real threat and one reason why interest rates are sometimes quite high on certain accounts. That and inflation which has only come under control in these countries in the last years or so. The potential for the investor, particularily the small one, to lose up to and including everything exists.

TF -- I am somewhat familiar with the situation in Argentina, and I am sure Andres who posts on CH from BA knows a lot more about it. If I am current, I believe the account holders who had accounts in US$ also had their funds reduced by the devaluation percentage. They sued and I believe about 4 months ago won in the Argentina Supreme Court. However I believe the government simply doesn't have the money to pay them so to date they haven't gotten squat. Perhaps Andres can tell us more about this.

If I remember correctly one year around 93-94 inflation in Brazil was something like 2000 percent. Do you know if it was during that period, or shortly after, that the accounts were frozen? If so, wasn't that the time Brazil converted to the Real? Was there an accompanying devaluation as the reason for the loss in value. Do you know if that action affected holders of Brazilian government bonds?

SF:

Braziian bank accounts were frozen in April 1990, under the "Plano Collor", well before the Real Plan. Since inflation was running at %2000/anum or so, that effectively wiped out everyones savings.

The Real Plan of 94 essentially fixed the Real to the Dollar (for about a year... it wasn't officially fixed liek the Arg. Peso, it was just that the govt didn't allow the Real to float). As for bondholders, the big change in the Real Plan was the abolishment of the "overnight" - these were essentially 24-hour T-bills with very high rates of return (of course, it was sold in US$10,000 chunks, so that kind of freezes out the small investor). THe "overnight" was not the CAUSE o hyperinflation, but it sure helped fuel the fire once it was going. Still, all in all, traditional bank investment instruments are NOT he way to go in Brazil (unles someone can prove otherwise giving me some specifics) - for the small investor, real estate is the way to go, see some of the stuff I posted in the Porto Alegre section for an overview.

BS

BS -- Thanks for the info. I have seen your posts in PA section, but I'm too chicken to abandon the liquidity of demand deposits/bonds.

Also if the payouts for demand deposits are truly 24% per year, for me it's pretty hard to pass up in favor of a non-liquid investment that pays 50% per year or even more. But thanks again for the info!

SF:

Well, as with any other investment, it's a tradeoff betwen risk and return. Besides, you can always rent out an apartment if you want some (not a lot!) liquid cash. Personally, I've seen the various Brazilian papers fluctuate up and down way too much... and in completely unpredictable ways - Lula farts after lunch, the bond market takes that as a sign that he's going to impose massive tarrifs on beans, the bottom drops out of the market on agri-business, foriegn investors take that as a sign to pull out of all Brazilian markets, the Real tanks, the Central Bank declares a bank holiday (read temporarily freezes all accounts) in order to stop a bank run/panic, Moody's downgrades all Brazilian paper, the IMF refuses to renegotiate Brazilian debt, and goodbye to your "liquid assets"! No thanks, real estate is a lot more solid and isn't as quickly affected by the bullshit.

Of course, you can't rely on only ONE investment vehicle - keep some money in Urugauy or Panama or the Caymans (of course, think up some bright way to keep Uncle Sam from finding it... third party offshore corporation?) just for emergencies and liquidity. You can always transfer it (as you need it) into normal checking-type accounts that you can then tap into with an ATM card.

And before you do any of this, invest in some REAL investment advice, from someone who knows how to deal with overseas assets.

Good Luck!

BS

Badseed,

I'm just curious. What section did you post the Porto Alegre information? Thanks in advance amigo.

Porto Alegre, General Discussion

Brazil's credit rating has been upgraded to investment grade which is an equivalent to "BBB-" from the S&P.

When the credit rating for a company or a country is upgraded to these levels, usually a large number of more conservative investors will enter the market. There will be a large increase in the purchase of brazilian bonds for a lot of the major global bond and pension funds. This may mean the Brazilian currency will continue to get stronger against most currencies.

(Message edited by howard69stern on April 30, 2008)

All I know is my Brazilian stocks did damn well today. And I think I have confirmed that Howard69Stern is not the guy who has a radio/television show.