Problem is weak dollar, not yuan: Brazil

By Walter Brandimarte

NEW YORK (BestGrowthStock) – The weakness of the dollar, and not of the Chinese currency, is becoming the main cause of global economic imbalances, Brazil’s finance minister said on Monday, adding that Latin America’s largest economy may take action to stop its currency from appreciating in the future.

Guido Mantega said he left a G20 meeting this weekend in Washington “very worried” about a plan by rich countries to boost their exports via weaker currencies, which could lead to unsustainable current account deficits in emerging economies.

“They want to rebalance their economies at our expense. That is not possible and we will not accept that game,” Mantega told reporters in New York after a presentation to investors organized by the Brazilian-American Chamber of Commerce.

“The main problem is the dollar. A weak dollar feeds the carry trade. People come here (to the United States) to borrow cheap money to invest in Australia or other higher-yielding countries,” he said.

The Group of 20 rich and developing countries need to better coordinate their foreign exchange policies, or each country will have to defend their own interests, Brazil’s finance minister said.

BRAZIL TO KEEP BUYING DOLLARS

To contain excessive currency gains, Brazil will continue to buy dollars for its foreign reserves and does not rule out additional measures, Mantega said.

He apparently contradicted early comments made by Central Bank President Henrique Meirelles, who advised Brazil’s next president, who will take office in 2010 after elections this year, to refrain from “artificially” weakening the currency.

Last year, Brazil imposed a 2 percent financial tax on foreign investment in fixed income as part of a strategy to reduce dollar inflows and curb the appreciation of the real, which strengthened more than 30 percent in 2009.

But a prolonged period of lower interest rates in the United States and Europe, in contrast to an expected increase in rates in many emerging countries such as Brazil, continues to support dollar inflows into fast-growing emerging economies.

Mantega said Brazil’s strategy is to coordinate a common foreign exchange strategy with the BRIC countries, which include Russia, India and China.

The minister said he is planning a trip to China to discuss those issues and, in comments that should be well received by Chinese authorities, described the Chinese trade balance as “more balanced now.”

China’s strategy of maintaining a weak yuan, he added, is a “defensive policy against the dollar,” he added.

DON’T MANIPULATE FX, MEIRELLES SAYS

Mantega’s comments on possible new measures to curb the currency appreciation contrasted with earlier comments by Central Bank President Henrique Meirelles, who told the same conference that an “artificial” devaluation of the currency could bring inflation.

“It’s important that the next government keep inflation on target,” Meirelles said. “If you try to manipulate the foreign exchange rate, try to lower it artificially, evidently inflation goes up, and you have an inflation surprise.”

Some investors are concerned that the next Brazilian president could seek to devalue the real to boost the competitiveness of the industrial sector.

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(Reporting by Walter Brandimarte; Editing by Jan Paschal)

Problem is weak dollar, not yuan: Brazil