Decree 2219 of May 2 1997 amends and consolidates the tax regime applicable to financial operations, the IOF. It sets new rates for exchange operations relating to foreign currency brought into Brazil.

The Decree sets the following rates of IOF on the value in Brazilian currency corresponding to the relevant foreign currency brought into Brazil:

* The previous rate of 7% is cut 2% for : investments in fixed-yield funds; interbank transactions between financial institutions abroad and banks authorized to deal with exchange in Brazil; and short-term funds available in Brazil to individuals or entities resident abroad.

* The rate is reduced to 0% on exchange operations involving: imports of services; exports of goods and services; transactions by federal, state, municipal and district government or their agencies; payments effected or received abroad by government agencies or international entities recognized by the Brazilian government; and other financial transfers from abroad.

This means that the rate is reduced to zero for operations including: currency loans for any term (previous rates ranged from 1% to 3% depending on the term of the loan) and investments in privatization funds (formerly 5%). May 6 1997 saw the biggest privatization ever in Latin America. The Brazilian government sold a 41.7% stake in the world´s largest producer of iron ore and one of the largest mining conglomerates in existence, Companhia Vale do Rio Doce (CVRD). The auction, originally Scheduled for April 29, had suffered a 10-day delay due to a flurry of protests, injunctions and legal battles aimed at suspending the bid process and stopping the transfer of control of the company.

With the sale of most of the government shares in CVRD for R3.34 billion (US$ 3.1 billion), went the rights to exploit 108 tons of gold, 41.2 billion tons of iron, 994 million tons of copper, 669 million tons aluminium and 69.7 tons of manganese. These figures mean that the company can expect to continue producing mineral for at least the next 400 years.

The winning consortium (led by Companhia Siderúrgica Nacional and made up of Nations Bank of the US, Opportunity Asset Management (an investment trust) and four Brazilian pension funds whose existing stake in CVRD left the consortium with a controlling interest in the company, successfully outbid another consortium co-led by Anglo-American, South Africa´s largest company, and Grupo Vorantim, one of Brazil´s largest conglomerates.

Shares, which sold for R32 each, represented a premium of some 20% over the minimum asking price of R26.67. The National Monetary Council´s Resolution No. 2,384 of May 22 lifted restrictions previously imposed on foreign capital investment vehicles, which are again allowed to operate in all the Brazilian derivative markets for hedging purposes. The possibility of a second term in political office, which means amending the Brazilian constitution to allow for-re-election, was put to vote in 1933,1934, 1946 and 1988, failing to win enough votes each time. On June 2 1997, however, the Senate, in its second term, has approved by vote of 62 in favour, 14 against, with two abstentions, an amendment to the constitution to allow certain political office-holders, most notably the President, to seek re-election.

The constitution at present requires the vacating from office of those candidates whose duties would be different if they sought re-election in a subsequent election, such as, for example, a mayor planning to run for governor. Therefore, President Cardoso, who seeks to run for a second term as President, will not have to vacate his office. However, it is still uncertain whether he will be to carry out all his duties during the re-election campaign.

The amendment failed to address re-election for those who hold political office in the capacity of second-in-command, such as vice-president, vice-governor and so on. The Supreme Court for Elections must address this matter within the next few days.