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Rousseff speaks on the currency war
November 2, 2010 5:10pm
Dilma Rousseff, Brazil’s president-elect, has made her first comments on the “currency war” since winning Sunday’s election. This is the war in which Brazil’s outgoing finance minister told us the world was engaged and Rousseff, broadly speaking, stuck to the policy line he set out.In separate television interviews, she said that “manipulating” exchange rates cannot resolve anything, that she would not do anything that “created confusion”, and that international organisations such as the G20 should be strong enough to “force certain countries” to value their currencies realistically.
We can only gather from those words that she does not view as problematic the kind of capital controls introduced - and recently tightened - by the government of her mentor, President Luiz Inácio Lula da Silva.
Continuity is the watchword, but her comments leave plenty of questions unanswered. When she makes her international debut at the G20 meeting in Seoul next week, alongside Lula, she will no doubt deal with some of them.
(Rousseff has been clearer on fiscal policy: she pledged tighter controls on public spending, which could help to reduce interest rates and thus upward pressure on the real.)
The markets don’t seem overly troubled: the Brazilian currency, the real, has barely budged against the dollar since the election results (see chart).
Analysts, however, have been speculating about changes to currency policy.
Brown Brothers Harriman said in a note on Tuesday that, judging by Brazilian press reports, another change to Brazil’s transaction tax on bond investments is being considered. The change would adjust the tax rate for the length of stay.
The analysts wrote:
Other possible measures include long-term financing and tax breaks for exporters that are being squeezed by the strong real. Anti-dumping measures against China are also being considered. Note that these measures are being considered by the current administration, so clearly Lula does not want to go out as a lame duck.
In a report released on Monday, currency strategists from HSBC said that in the face of strong capital inflows “we maintain that the risk is for more and stiffer intervention measures”.
But they also said they wouldn’t make a big difference: “FX inflows into Brazil are too strong and diversified to be contained with capital controls; blame low global [interest] rates for that.”
Chinese investment soars in Brazil, with eye on resources
SAO PAULO (AFP) – Chinese investment in Brazil is expected to reach 30 billion dollars this year, according to observers -- a sum aimed at securing access to the Latin American nation's oil and other resources.
The inflow has been sudden, and dramatic.
"Up to the end of last year, the amount of Chinese investment in Brazil was tiny, less than 400 million dollars. Over the first half of 2010, it's gone over 20 billion dollars -- and it should hit 30 billion dollars this year," Charles Tang, head of the Brazil-China Chamber of Commerce and Industry in Sao Paulo, told AFP.
Two-thirds of the total coming into Brazil this year will be invested in the oil sector, to which China has privileged access after extending a 10-billion-dollar credit line to Brazil's state-owned Petrobras, and after China's Sinopec bought the Brazilian subsidiary of Spain's Repsol for seven billion dollars.
"China is investing everywhere in the world to ensure it gets the strategic resources it needs. And Brazil, obviously, is important," Tang said.
In return, Brazil gets "capital for its growth and job-creation," he explained.
"China needs the mineral resources, oil and land that Brazil has in abundance," Tang added before predicting that the relationship between the two BRIC economies "has only just begun."
In 2009, China became Brazil's top trading partner, overtaking the United States. Bilateral exchanges topped 36 billion dollars last year.
This year, they will amount to even more, based on Brazilian central bank figures showing trade reached 35 billion dollars in just the first eight months of this year.
Ricardo Anhesini, spokesman for the KPMG consulting firm in Brazil that has helped Chinese companies entering the Latin American nation's market, said there was "a large number of companies interested in selling primary resources, equipment and infrastructure."
The cities of Sao Paulo and Rio de Janeiro drew most of the companies, while others set up in other southern states which also have good transportation systems.
The approaching 2014 World Cup and 2016 Olympic Games in Brazil also were spurring Chinese investment.
"Several companies are here wanting to address the needs for the Olympics and the World Cup," seeking to profit from Beijing's experience in hosting the Olympic Games in 2008, Tang said.
Anhesini said a Chinese delegation was to visit in December to explore investment opportunities in that area.
"We're recommending they come as early as possible so they can adapt to the Brazilian way of doing business," he said.
KPMG reckons that the interest in supplying the sporting events with equipment will boost Chinese investment in Brazil between 2011 and 2013 to 223 billion dollars.
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