Dilma Rousseff, Brazil’s president elect, has arrived in Seoul, the capital of South Korea, after a flight of more than 24 hours from Brazilian capital Brasília, with a stopover in Germany. Upon arriving she announced that she would not hold a news conference until the arrival of Brazilian president Luiz Inácio Lula da Silva who will reach Korea tomorrow.
Lula, Dilma and the minister of Finance, Guido Mantega, who accompanied Dilma on her flight, are prepared to discuss the problem of the currency war and the effects of devaluation that threaten to cause an economic crisis at the G-20 summit.
Brazil’s position is in favor of joint action to combat currency manipulation. Isolated measures by individual nations are frowned on and seen as detrimental to the international economic order on the whole.
Brazil is concerned about currency maneuvers, especially in the United States, China, South Korea and Japan, and has already taken action to protect the value of the real by raising taxes on foreign investments.
This G-20 summit has a political meaning for Brazil as it is the last for Lula and the first for Dilma. She arrives in Seoul accompanied by two aides: Helena Chagas, a journalist (who was formerly the Director of Journalism at EBC) and Anderson Braga Dorneles, her private secretary (formerly an advisor to the presidential Chief of Staff – Casa Civil),
Both Chagas and Dorneles were part of Dilma’s victorious presidential campaign team.
The main issue at the G-20 summit for Lula and Dilma is the currency war and its consequences. As a result of the depreciation of currencies in some countries, especially the United States and China, most Brazilian exports have lost price competitivity and imports have soared. Brazil is actually running a trade deficit with the United States at the moment for the first time in years.
Meanwhile, other countries such as South Korea (the G-20 summit host) and Japan, just to name two, struggle to deal with the crisis. Japan intervened in exchange rate markets in September and South Korea is reportedly contemplating surtaxes on investments or even a devaluation.
Brazil’s ministers of Finance, Guido Mantega, and Planning, Paulo Bernardo, besides the president of the Central Bank, Henrique Meirelles, along with a number of specialist in economics, have come out strongly in favor of joint action by the international community against currency manipulation, while eschewing isolated measures by individual countries because they are seen as not only ineffective, but even counterproductive.
Brazil’s delegation hopes that a decision will be reached at this G-20 summit on some form of joint action so as to reduce tensions and avoid an eventual world economic crisis.
Brazil became further concerned about the currency issue last week, when, immediately following the American midterm elections, the Federal Reserve went ahead with a second round of quantitative easing (QE2), which will flood the market with US$ 600 billion over time.
The aim is to drum up demand, boost production and create jobs in the US, but the result will be a further depreciation of the dollar, a further strengthening of Brazil’s currency, the real as well as other currencies such as the Japanese yen and the South Korean won, and a further deterioration of Brazil’s international trade, undercutting its competitiveness, especially exports of manufactured goods.
Brazilian authorities have expressed concern with the possibility of the currency war aggravating poverty in poor nations and causing a vicious cycle of retaliations.
Lula and Dilma, along with the minister of Finances, Guido Mantega, who will be in Seoul as well, are also very interested in renewed discussions at the G-20 level on world trade within the framework of the Doha Round negotiations.