“Emerging economies have already left behind the [global financial] crisis,” according to Brazil’s sharp-tongued Finance Minister, Guido Mantega, who also blamed quantitative easing for the appreciative forces on the Brazilian real while noting that the largest Latin American economy would grow at a “sustainable” rate of 4.5% in 2011.
Mantega, who gave the Brazil Summit’s keynote speech at the New York Harvard Club, was optimistic about the strengths of emerging economies and their capacities to deal with massive capital inflows. “Job creation is [going very] fast and [Brazil] has a very strong domestic market,” explained the Finance Minister, noting that they can count on the “stimulus” that a “new emerging middle class with high purchasing power” can deliver.
Fresh from a series of meetings in Washington that included the G-20 and a summit with the IMF and World Bank, Mantega highlighted the virtues of the Brazilian economic model which has made it the seventh largest economy in the world. “Demand [in Brazil] comes from wage growth, which has grown massively, along with employment,” said Mantega, adding that households weren’t relying on indebtedness to fund their consumption. Brazil is now transitioning towards “growth through investment,” as the government attempts to shift the structure of production to become “more capable of facing the problem of a shortage of labor.” Brazil has “nearly full employment,” Mantega explained.
The Finance Minister’s most interesting points were dedicated to the problem of mounting inflation and real appreciation. The Brazilian gauge of consumer prices, the IPCA, has already gained 5.9% this year, yet, Mantega told the crowd that it is completely under control. “We are facing an old foe, inflation, caused by rising commodity and oil prices,” according to Mantega. Benefitting from massive oil and gas reserves stemming from the recent pre-salt discoveries, and its status as one of the world’s largest agricultural exporters, Brazil is in a “special situation” and it has to “moderate growth to avoid commodity-caused inflation to spread to services and other [high-demand] sectors of the economy.”
Simultaneously, Brazil has to deal with appreciative pressure on its currency as a consequence of dollar debasement. “Our problem lies with the devaluation of the U.S. dollar, and it won’t change until U.S. policy changes,” explained a defiant Mantega. The country’s banks had a hard time dealing with “excessive inflows of foreign capital,” as the ultra-loose policies enacted by the Bernanke Fed had a “very strong effect on the value of the dollar.”
“We have to face the currency war without allowing our productive sector to suffer,” noted the man who coined the now famous phrase. “If we allow liquidity to [freely] enter [the economy], it will bring the Dutch Disease to the economy,” said Mantega, referring to the decline of a nation’s manufacturing sector as the exploitation of natural resources leads to an appreciating currency and a subsequent loss of productivity. “We will continue to work to avoid losing productivity, protecting our manufacturing base,” he continued, adding that “being competitive doesn’t solve the problem of appreciation, though.”
To that end, Brazil has engaged in a series of macro-prudential measures in order to tackle both inflation and appreciation at the same time. Mantega noted that while the government has been withdrawing stimulus and attempting a smooth demand handoff from the public to the private sector, the Central Bank has been attempting to contain credit expansion by increasing deposit rates. Brazil, which is in an “enviable fiscal situation” according to Mantega, with deficits below 2%, must also train its workforce to compensate for the “shortage of labor” and face the challenges of developing twenty-first century infrastructure and transportation projects as the country prepares to host the 2014 World Cup and 2016 Olympics.
Mantega, and Brazil, are banking on the reality of what the finance minister called a “soft landing” to keep the Brazilian growth miracle going. While advanced economies face high unemployment and the hangover of deleveraging by corporations and consumers, Brazil and other fast-growing nations reckon with massive capital inflows and overheating economies. While the BRICs and other G-20 nations will lead the global recovery, their own path to prosperity is littered with risk. Mantega seems ready to face them head on.
Source: http://blogs.forbes.com
Mantega, who gave the Brazil Summit’s keynote speech at the New York Harvard Club, was optimistic about the strengths of emerging economies and their capacities to deal with massive capital inflows. “Job creation is [going very] fast and [Brazil] has a very strong domestic market,” explained the Finance Minister, noting that they can count on the “stimulus” that a “new emerging middle class with high purchasing power” can deliver.
Fresh from a series of meetings in Washington that included the G-20 and a summit with the IMF and World Bank, Mantega highlighted the virtues of the Brazilian economic model which has made it the seventh largest economy in the world. “Demand [in Brazil] comes from wage growth, which has grown massively, along with employment,” said Mantega, adding that households weren’t relying on indebtedness to fund their consumption. Brazil is now transitioning towards “growth through investment,” as the government attempts to shift the structure of production to become “more capable of facing the problem of a shortage of labor.” Brazil has “nearly full employment,” Mantega explained.
The Finance Minister’s most interesting points were dedicated to the problem of mounting inflation and real appreciation. The Brazilian gauge of consumer prices, the IPCA, has already gained 5.9% this year, yet, Mantega told the crowd that it is completely under control. “We are facing an old foe, inflation, caused by rising commodity and oil prices,” according to Mantega. Benefitting from massive oil and gas reserves stemming from the recent pre-salt discoveries, and its status as one of the world’s largest agricultural exporters, Brazil is in a “special situation” and it has to “moderate growth to avoid commodity-caused inflation to spread to services and other [high-demand] sectors of the economy.”
Simultaneously, Brazil has to deal with appreciative pressure on its currency as a consequence of dollar debasement. “Our problem lies with the devaluation of the U.S. dollar, and it won’t change until U.S. policy changes,” explained a defiant Mantega. The country’s banks had a hard time dealing with “excessive inflows of foreign capital,” as the ultra-loose policies enacted by the Bernanke Fed had a “very strong effect on the value of the dollar.”
“We have to face the currency war without allowing our productive sector to suffer,” noted the man who coined the now famous phrase. “If we allow liquidity to [freely] enter [the economy], it will bring the Dutch Disease to the economy,” said Mantega, referring to the decline of a nation’s manufacturing sector as the exploitation of natural resources leads to an appreciating currency and a subsequent loss of productivity. “We will continue to work to avoid losing productivity, protecting our manufacturing base,” he continued, adding that “being competitive doesn’t solve the problem of appreciation, though.”
To that end, Brazil has engaged in a series of macro-prudential measures in order to tackle both inflation and appreciation at the same time. Mantega noted that while the government has been withdrawing stimulus and attempting a smooth demand handoff from the public to the private sector, the Central Bank has been attempting to contain credit expansion by increasing deposit rates. Brazil, which is in an “enviable fiscal situation” according to Mantega, with deficits below 2%, must also train its workforce to compensate for the “shortage of labor” and face the challenges of developing twenty-first century infrastructure and transportation projects as the country prepares to host the 2014 World Cup and 2016 Olympics.
Mantega, and Brazil, are banking on the reality of what the finance minister called a “soft landing” to keep the Brazilian growth miracle going. While advanced economies face high unemployment and the hangover of deleveraging by corporations and consumers, Brazil and other fast-growing nations reckon with massive capital inflows and overheating economies. While the BRICs and other G-20 nations will lead the global recovery, their own path to prosperity is littered with risk. Mantega seems ready to face them head on.
Source: http://blogs.forbes.com
No comments:
Post a Comment