Rio de Janeiro – Even before disclosing the Gross Domestic Product (GDP) result in the first quarter of the year, the Brazilian minister of Finance, Guido Mantega, stated that the growth rate of the Brazilian economy is at around 4.5%, which he considered ideal for the country’s current situation. The statement was made this Thursday (26th), at a conference between the Ministry of Finance and the International Monetary Fund (IMF), in Rio de Janeiro, on the impact of capital flows in emerging economies.
Since the crisis ended, emerging nations such as Brazil have attracted large amounts of capital, which may have the beneficial effect of generating more capital for funding production sector projects and developing financial markets. Mantega, however, stressed that capital flows, whether scarce or abundant, is always a cause for concern to ministers of Finance.
“We have experienced shortage of capitals in the past. It surely is much better losing sleep over the excess than the lack of capitals, as we had in the past. But both excess and shortage are problems that must be addressed. We believe that we should continue to see a strong capital inflow in emerging countries,” said Mantega.
To the minister, right now, emerging nations must “defend themselves” and adopt more prudent macroeconomic policies. Mantega highlighted that since last year, Brazil is adopting measures to restrict credit, restrain growth and avoid an inflationary scenario, including restrictions on capital flows.
“There is no solution other than limiting the flows [of capital], in particular through tax measures that reduce the possibilities of arbitrage. We are also taking measures to prevent this surplus of capital from causing bubbles in the Brazilian economy, and from causing inflation, because some of the credit goes into credit itself, and some goes into the markets. We are not allowing for bubbles to form in the variable income market, nor in the fixed income, nor in the real estate sector.”
In the assessment of Guido Mantega, the measures have proven effective in curbing the over-appreciation of the exchange rate and the inflow of short-term capitals, without discouraging direct investment. “Investment continues to expand. In 2010, the inflow reached US$ 48.5 billion and the forecast for this year is US$ 65 billion. This goes to show that the measures are not holding investment back,” guaranteed Mantega.
To the minister, the measures have proven effective, for instance, in preventing exchange rate over-appreciation and the inflow of short-term capitals, without discouraging direct investment in the country.
“Investment continues to grow in Brazil. The measures do not scare investment away. Last year, Brazil received US$ 48.5 billion in investment, and this year the forecast is that foreign direct investment in Brazil should exceed US$ 65 billion,” said Mantega.
As solutions for greater balance among the world economies, the minister also listed the recovery of advanced countries, so as to discourage expansionistic monetary policies (which flood the world economy with currency), reforms in the international monetary system, such as the adoption of floating exchange rate policies by all countries, and reforms in the international financial system, which, according to Mantega, “underwent excessive de-regulation, which in turn led us to the crisis of 2008.”
*Translated by Gabriel Pomerancblum
