Hamburg (Germany) – This Friday (4th) in Hamburg, Germany, during a seminar on investment opportunities in Brazil, the Brazilian minister of Finance, Guido Mantega, replied to criticism made to the country this week by economist Paul Krugman, of Princeton University, in the state of New Jersey (United States). According to Mantega, Krugman may rest assured that the government is not going to allow for bubbles to emerge, so he will be able to go on profiting from his investments in Brazil.
Last Tuesday (2nd), Paul Krugman said in São Paulo that Brazil should be wary of excessively fast growth of foreign investment. He mentioned examples of countries that received too high a capital inflow during a certain period and entered a crisis shortly thereafter.
Guido Mantega underscored that the Brazilian government’s economic team is paying attention to exchange rate appreciation and did not rule out eventual new measures for ensuring the country’s currency stability. "We are taking care so as not to overreact. We believe that adjusting the Tax on Financial Operations [IOF] should be enough. If need be, we shall adopt further measures to guarantee currency stability."
The minister also ensured that the primary surplus targets of 2.5% in 2009 and 3.3% in 2010 are going to be met. He reasserted that the Brazilian economy will grow 5% in 2010 and that the country will be one of a few economies in the world to have a growth rate higher than 2%. Mantega stated once again that domestic market expansion was one of the contributing factors for the Brazilian recovery from the international financial crisis.
Market the saviour
In an address also made during the seminar, president Luiz Inácio Lula da Silva ascribed the Brazilian triumph over the crisis to the domestic market. He told German and Brazilian businessmen that as a consequence of the prevalence of the minimal state theory, the financial system drifted apart from the production system and started making money through speculation.
"We had what the wealthy world did not have: a virgin domestic market sustained by the poorest portion of the population, which prevented the Brazilian economy from incurring as much loss as other economies," said the president, justifying the "consumption campaign" that took place during the height of the crisis.
He also claimed that the financial system was suffering from a "near-schizophrenic condition," and that the Lehman Brothers bankruptcy exposed its frailty. Lula made an appeal for the trade agreement between the European Union and the Mercosur to be signed, so as to consolidate the overcoming of the economic crisis.
*Translated by Gabriel Pomerancblum