Brazil yields to traders pouncing on gains: currencies

March 14, 2013

Joseph Ciolli & Ye Xie – Bloomberg, 03/14/2013

Efforts by Brazil to tame inflation are providing foreign-exchange traders with the biggest returns in the world by purchasing reais with funds borrowed in dollars.

Investing in real forward contracts funded by the greenback has gained 5.3 percent this year, the most of any of the 44 other currencies tracked by Bloomberg. Wagers that Brazil’s currency will rise outpaced those expecting a decline by an average of $5.6 billion this year, data from the Sao Paulo-based BM&F exchange and compiled by Bloomberg show. As recently as September there were net bets against the real.

Finance Minister Guido Mantega, who popularized the term “currency war” in 2010, told Bloomberg News last month he’s abandoning the strategy that drove the real down 19 percent in two years as the government shifts its focus to containing inflation. The central bank signaled on March 6 that it’s ready to raise interest rates from a record low 7.25 percent after dropping a pledge to hold borrowing costs steady for what it had called “a prolonged period of time.”

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Mantega says currency war he named eases as Brazil recovers

February 27, 2013

Andre Soliani & Joshua Goodman, Bloomberg, 02/27/2013

As the currency war intensifies in the developed world, the Brazilian official who coined the phrase says for his country it’s softened.

Brazil succeeded in reducing swings in the real after letting the currency depreciate 19 percent in the two years ending in December to protect local manufacturers from foreign competition, Finance Minister Guido Mantega said in an interview. Now with the real hovering around 2 per dollar, Brazil is abandoning policies to depress the exchange rate even as Japan weakens the yen and the U.S. sticks to policies Mantega has said spurred the start of the currency war.

“We haven’t resolved it, but we neutralized, softened the currency war issue that other countries are facing,” Mantega, 63, said at Bloomberg’s headquarters in New York. “We are in Brazil in a transition to a more solid, competitive and efficient economy.”

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Global currency war could get nastier, warns Brazil’s Mantega

February 8, 2013

Alonso Soto and Luciana Otoni – Reuters, 02/08/2013

Brazilian Finance Minister Guido Mantega told Reuters European countries should focus on reviving their economies with more investments, rather than trying to weaken the euro to protects jobs as France has suggested ahead of next week’s meeting of G20 economic powers.

“We will continue to have this currency problem unless the global economy takes off,” Mantega said in an interview late Thursday. “The solution here is to make their economies more dynamic and jolt them out of stagnation.”

More than two years ago Mantega used the term “currency wars” to describe the series of competitive devaluations adopted by rich nations to bolster their exports amid the global slowdown to the detriment of emerging market nations.

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Brazil minister says global currency war is intensifying

February 24, 2012

Tom Murphy & Luciana Magalhaes – WSJ, 02/24/2012

A global “currency war” will intensify this year as the world economy slows, Brazilian Finance Minister Guido Mantega said, adding that Brazil is “well prepared” to defend its currency against unwanted appreciation.

“Global economic growth in 2012 will be below that of 2011,” Mr. Mantega said ahead of his participation at a meeting of finance and monetary officials from the Group of 20 nations this weekend in Mexico City. “One of the results of the slowdown is that the global currency war is intensifying.”

As developed economies have aggressively eased monetary policies in a bid to revive their sputtering economies, their currencies have weakened. That, in turn, has made their exports more competitive and has prompted investors to move money into higher-yielding assets—in many cases in emerging markets such as Brazil, where economic growth and base interest rates are considerably higher.

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Miracle mileage from a hobbled economy

January 4, 2012

Mario Osava – IPS, 01/04/2012

Suape Industrial Port Complex in the Northeast is in a process of constant expansion. Credit:Mario Osava/IPS

In 2011, Brazil’s economy grew by less than half the 7.5 percent it attained in 2010. However, this result would be miraculous in any other country with the barriers to productivity and competitiveness that prevail in Brazil.

The base interest rate of 11 percent is the highest in the world in real terms, and the tax burden amounts to 35 percent of GDP, much higher than in the rest of Latin America and closer to that of European states, but without providing a similar level of social welfare.

Moreover, the enormous bureaucratic apparatus is a hindrance to business, and costs are also raised by the precarious transport infrastructure and the high price of energy, contradicting the official discourse on modest electricity costs based mainly on hydroelectric power.

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Brazil’s 2011 trade surplus highest in four years

January 3, 2012

Hector Velasco – AFP, 01/02/2012

View of the port in Rio de Janeiro in 2010 (AFP/File, Antonio Scorza)

Brazil’s 2011 trade surplus soared 47.8 percent to nearly $30 billion, compared with the previous year, the highest since 2007, with record exports and imports, official data showed Monday.

Last year, exports of goods rose 26.8 percent to $256 billion dollars while imports went up by 25.7 percent to $226 billion, the foreign trade ministry said.

“Brazil has never exported or imported so much. This is a sign of the dynamism of our foreign trade,” said Tatiana Prazeres, a spokeswoman for the ministry.

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“Bigger Brazil Plan”: $16 billion in tax breaks to fight surging real and cheap imports from China

August 3, 2011

Ricardo Geromel – Forbes, 08/03/2011

Brazil’s president Dilma Rousseff has announced the “Bigger Brazil Plan.” The program cuts $ 16 billion in taxes until the end of 2012 and is focused on protecting domestic manufactures, affected by competition from Asian countries, mainly China, and recent currency appreciation.

Following a report showing that industrial production dropped 1.6% in June, Dilma Roussef unveiled the program in Brasilia, “This is the first step to boost Brazil’s competitiveness relying on innovation, demanding more added value and fighting unfair and fraudulent practices by competitors.”(To understand what the president refers to by “fraudulent practices by competitors” see:  Chinese company uses L. A. port to avoid Brazilian anti-dumping tariffs)

The program offers tax exemptions of 20% to the industries of clothing, shoemaking, furniture and software. Further, exporters of manufactured goods will receive tax credits of 0.5% of the value of their sales abroad. These tax cuts will be partially offset by an additional tax, which will vary from sector to sector, of at least 1.5 percent in sales.

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Latin America’s economies: Waging a currency war

January 14, 2011

The Economist, 01/13/2011

Having quickly shaken off the world recession, many countries in Latin America are prospering again. The region’s economies grew by an average of 6% last year, according to a preliminary estimate from the United Nations Economic Commission for Latin America and the Caribbean. This strong performance, linked in large part to the global commodity boom, has attracted big inflows of foreign cash. With that has come a familiar problem: the region’s currencies have soared in value against the dollar (see chart), making life uncomfortable for Latin American manufacturers. They find themselves priced out of export markets or struggling to compete with cheap imports. Worried governments are launching a battery of measures to try to restrain the value of their currencies. Will they work?

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The long currency war

November 17, 2010

Kati Suominen – Foreign Policy, 11/12/2010

At the end of the G-20 summit, which limped to its dispiriting conclusion Friday in Seoul, where world leaders managed only to delay dealing with difficult challenges from global imbalances to trade protectionism, South Korean President Lee Myung-bak proclaimed a “temporary end” to the so-called currency wars that have reached a fever pitch over the last two months as countries have manipulated their exchange rates to gain an edge in world markets. The currency wars are far from over.

For years, Washington and Beijing clashed over the value of the renminbi, China’s currency, with the U.S. Congress repeatedly threatening tariffs to retaliate against Beijing’s currency mercantilism. This policy of containment was not perfect, but it did secure at least token cooperation from the Chinese — who in 2005 revalued by 2 percent — while keeping Washington’s trade threats from translating into actual barriers.

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Big currency bargain risks emerging market bubble

November 16, 2010

Karim Abdel-Motaal and Bart Turtleboom – Financial Times, 11/15/2010

Guido Mantega, the Brazilian finance minister, is warning of new currency wars. Robert Zoellick, World Bank president, is arguing for a new gold standard. US policymakers suggested numerical balance of payments targets. Their Japanese counterparts are busy intervening to prevent further Japanese yen appreciation. The casual observer can be forgiven for believing currency imbalances are at the centre of the international financial crisis and their correction the salvation of the world economy. This would be an error.

The recurrent and now de rigueur shouting matches between US and Chinese policymakers on the pace of revaluation of the Chinese renminbi are in our opinion more political than anything else. The Chinese trade and current account surpluses are the mirror image of their saving/investment imbalance. The Chinese gross domestic saving rate exceeds 50 per cent of gross domestic product, very high in an absolute historical context. Any attempt to address global trade imbalances, let alone US popular discontent with the issue, must start there. The Chinese save a lot for a host of structural reasons that most economists, US and European policymakers included, clearly understand, in spite of exhortations to the contrary. The idea that major causes of high savings in China, from mass urban migration and a lack of any meaningful social security net to a 50-year-old one child policy, can be meaningfully addressed merely through a large nominal exchange rate revaluation is laughable. And if it were, in fact, possible to do this through adjustment of a relative price, the revaluation necessary would surely be on the order of magnitude of 40-60 per cent, a size even the most optimistic foreign observers cannot possibly expect the Chinese to deliver.

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