Guido Mantega, the Minister of Economy of Brazil warned this Tuesday, August 5, that the sustained appreciation of the local currency, the real, against the US dollar has reached "a limit" and if the real continues to advance, "it could ruin our external accounts."
"If the Real keeps advancing on the US dollar, we're lost," said minister Mantega during a seminar on economic development sponsored by the Getúlio Vargas foundation in the city of Sao Paulo.
On Monday in Brazilian money markets the US dollar closed trading at 1.56 reais, which represented a 0.19% appreciation over last Friday. So far this year the Brazilian currency has advanced almost 10% against the US dollar.
"We expect the real to stop advancing. It must move towards a more stable and desirable level. We're on the limit and if it continues, our external accounts will be ruined," said Mantega.
Nevertheless he argued that the sustained appreciation of the real against the US dollar, pushed by several years of record exports "have helped to reduce inflationary pressures."
Last week, Brazilian President, Luiz Inácio Lula da Silva, announced a package of US$ 9 billion in subsidized financing, 7% annually, to help those manufacturing sectors which have suffered most because of the sustained depreciation of the American currency.
When Lula took office in January 2003 the US dollar was selling at 3.90 reais. Since then it has strengthened, particularly in the last four years, to the range of 1.60 reais.
Although there was some speculation when Lula first took office given his socialist and union leader background, he surprised most analysts with a most orthodox approach towards economics and particularly inflation which have been behind the performance of the Brazilian currency.