São Paulo – Brazilian Finance Minister Guido Mantega said today (5) that he believes that in 2010, “Brazil should be the country with the greatest business volume in capital markets worldwide.”
The statement was made during seminar “2010 Exchange Rate Perspectives”, promoted by Getúlio Vargas Foundation (FGV), in São Paulo. The event included the participation of economists from the foundation and guests.
Mantega analysed the past exchange rate fluctuation in the country, and said that stabilisation of the international financial crisis has returned to attracting capital to countries with perspectives for growth, like exporters of commodities, as is the case with Brazil.
The minister said that the reasons for return of these capitals to Brazil is the solidity of the country economy and its fundaments, the possible profitability and the lack of restrictions to foreign capital.
According to Mantega, the main problem of exchange in Brazil is not the appreciation of the currency, but volatility. “What is necessary is avoiding excessive appreciation [of the Brazilian real] for a long time, as this suffocates the economy,” he explained. “If appreciation is necessary, it must be gradual,” said the minister, pointing out that sudden appreciation of the real is bad for the country economy.
“Our currency is ten times more volatile than the dollar. It is one of the most volatile currencies in the world,” pointed out Márcio Holland, FGV-EESP professor.
One of the possible causes for the great variation of the exchange rates in the country, identified by participants of the seminar, is the lack of domestic saving, which causes Brazil to use external savings. Samuel de Abreu Pessoa, a professor at the IBRE/FGV, recalled that savings of Brazilian families answer to just 5% of Gross Domestic Product (GDP).
Mantega beat down such criticism stating that the stimulation to consumption was one of the main reasons helping Brazil leave the crisis. “In our government we adopted the strategy of prioritising growth. We have been fostering growth in the first place, and for this reason we have used a strategy of economic growth and job generation,” he said. “At a crisis like this one, you have to stimulate consumption. If you stimulate saving, the economy slumps,” said the minister.
Another measure he mentioned to contain the appreciation of the real was the establishment, in 2009, of a sovereign fund to be used in anti-cyclic activities. “The sovereign fund was authorised to buy dollars on the market with no limit.”
The fixed Chinese exchange rates were the target of criticism by the economists during the seminar. Roberto Giannetti da Fonseca, International Relations and Foreign Trade director at the Federation of Industries of the State of São Paulo (Fiesp), stated that the country’s parity policy has been stealing jobs from countries with fluctuating exchange rates. “I think we have to focus on the case of China with more attention than we are doing.”
“There is a significant step when dealing with countries with an artificial level [for its exchange rate],” at an artificially inadequate level, said Mantega regarding the matter. “There are countries with a great advantage of 30% to 40% over Brazil, due to exchange advantages,” he finished off.
According to the minister, it is also important for the country to seek greater industrial productivity. To him, “reduction in the financial and bureaucratic cost of the country is necessary”.
*Translated by Mark Ament
