The president of Brazil, Luiz Inácio Lula da Silva, said that the G-20 group must address the issue of the “currencies war” in direct reference to the forced depreciation by some rich countries of their currencies which negatively affects the competitiveness of its trade partners, particularly in the developing world.
“All the world is aware that there’s a currency war on and that we need G20 to discuss the issue and find a solution,” said Lula speaking to journalists in Brazilian capital Brasília. The Brazilian leader is scheduled to travel to Seoul, South Korea November 11/12 for the G20 summit.
“We are going to do whatever is necessary to ensure that our Real does not keep appreciating against the so called ‘strong’ currencies thus impacting on our exports. I’ve given clear instructions to Finance minister Guido Mantega and Central bank president Henrique Meirelles to be alert the 24 hours and adopt all the necessary measures needed” to prevent the depreciation of the US dollar.
Last Monday Mantega announced that the tax on the inflow of short term foreign capital to Brazilian fixed assets will increase from 4% to 6%, to stop the ‘flood’ of US dollars appreciating the Brazilian Real.
Following the announcement the real lost most of the appreciation gained in recent weeks, but the relief was short lived and there are fears the Brazilian government could apply further measures.
“We have a reasonable trade surplus, which means we will end 2010 with a reasonable surplus, but we will take the necessary measures if this is endangered,” warned the Brazilian leader.
Mantega recently accused the US, China and Japan of artificially debilitating their currencies to increase international competitiveness while Brazil suffers the consequences of such measures, since with high interest rates to contain domestic inflation, this attracts foreign capital inflows and boosts the appreciation of the real.
“There are no miracles in economics. Minister Mantega’s measures were the correct ones, but we will adopt as many measures as necessary to prevent the real from over valuing”, he promised.
Finally, the Brazilian leader said that it’s important to remember that the problem is not Brazil: “All currencies are appreciating against the US dollar because the US needs to find a way to recover its economy.”