Brazil Says Europe Must 'Save Itself'
The Country's Finance Minister Sets Tough Conditions Before Emerging Economies Can Provide Aid
by ERIN MCCARTHY
NEW YORK -- Brazil has set a high bar for providing support to the euro zone under a potential plan that would involve other large developing nations, demanding that the common currency bloc first find concrete solutions for its sovereign debt crisis.
Europe must take concrete steps to resolve the sovereign debt problems of Greece and other countries before developing nations can offer their own assistance, Brazilian Finance Minister Guido Mantega says in an interview.
"Europe has to save itself because it has the tools to resolve the sovereign debt problem of Greece and other countries and the problem of bank weakness," Brazilian Finance Minister Guido Mantega said Tuesday.
In an interview with Dow Jones Newswires and The Wall Street Journal, Mr. Mantega echoed views expressed by Chinese officials, saying that efforts by developing countries are predicated on significant action from European authorities.
"If they don't, the emerging countries... will have little to do because the central issues aren't resolved," Mr. Mantega said.
Mr. Mantega, who on Thursday will be meeting with his counterparts from China, India, Russia and South Africa, said the group of five developing economies referred to as Brics, could complement the European efforts to help the financially troubled countries in the euro zone with funding or bond purchases.
The minister said Brazil and other emerging countries may be able to provide some financial help if the 17-member bloc's bailout fund, the European Financial Stability Facility, were to start selling large amounts of bonds.
Brazil's Finance Minister Guido Mantega during a press conference in Brasilia in August.
"We believe the European countries can do more from their side than they are doing currently," he said. "Naturally the Brics and other emerging market countries should participate in the reconstruction of the financial system and the recovery of confidence," Mr. Mantega said.
Last week, following reports that China was preparing to buy Italian bonds, Mr. Mantega announced that members of the Brics group would be talking before the G20 countries' meeting in Washington D.C. this week to discuss ways to help Europe recover. In the past, the Brics countries have struggled to coordinate policy, and it's unclear if they'll come up with meaningful assistance this time.
Speaking at a World Economic Forum meeting last week, Chinese Premier Wen Jiabao voiced support for Europe but offered no new specific help for the debt-battered continent, emphasizing China's demands that European leaders take "bold steps" to improve economic ties with the Asian giant.
Mr. Mantega denied press reports that Brazil had planned to make $10 billion of its own funds available to help the euro zone, though he acknowledged the Brazilian central bank may have purchased those bonds, but only for the diversification of its foreign currency reserves rather than as any part of an aid effort.
The minister said he doesn't believe the International Monetary Fund needs more capital to face the latest crisis in Europe, as the money injected in 2008 should be sufficient.
Mr. Mantega, who popularized the term "currency war" a year ago to describe the political impact on emerging market countries to keep the value of their exports competitive amid a declining U.S. dollar, said he doesn't believe the wars are over.
But Brazil won't follow down the same path as Switzerland, which recently said it would defend a specific level for the franc, although he acknowledged that such steps can appear seductive at first sight.
"I pray every night that I stay away from this temptation," the minister joked.
"The ideal scenario would be to have, for example, China dealing with a floating exchange policy and other Asian economies should also assume this flexible exchange rate policy without sticking to this pegged policy," Mr. Mantega said.
Meanwhile the inflation scenario in Brazil, which has long been seen as the biggest risk to its domestic economy, is "more benign" compared to last year, Mr. Mantega said.
Brazilian consumer prices climbed at a quicker pace than expected in the month through mid-September, with the consumer price index, or IPCA-15, rising 7.33% over the previous 12 months, according to data released Tuesday. That continued the recent swing above the upper ceiling of the government's target range for inflation, of 4.5% plus or minus two percentage points.
Mr. Mantega attributed the recent uptick to rising food prices, largely from seasonal effects on crops, but said inflation should be able to return to the center of the bank's target in 2012. He highlighted that among the Brics, Brazil is the only one with a positive real interest rate.
Last month, Brazil's central bank unexpectedly cut its benchmark Selic interest rate to 12% from 12.5%, in part to hamper demand for its currency, the real. Manufacturers and exporters in Brazil have suffered from the currency's seemingly relentless strength against the U.S. dollar, leading Brazilian policymakers to take various measures such as buying up dollars in the foreign exchange market and imposing capital controls on some money inflows.
"Brazil had to assume defensive measures in the exchange rate policy because it was forced to do it," because of expansive monetary policy and managed currencies in other countries, Mr. Mantega said. Though recent bouts of risk aversion have weakened the real, it will likely regain strength when the current crisis subsides, he added.
â-Matthew Cowley, Jeff Fick, Luciana Magalhaes and Stephen Wisnefski contributed to this article.
The Country's Finance Minister Sets Tough Conditions Before Emerging Economies Can Provide Aid
by ERIN MCCARTHY
NEW YORK -- Brazil has set a high bar for providing support to the euro zone under a potential plan that would involve other large developing nations, demanding that the common currency bloc first find concrete solutions for its sovereign debt crisis.
Europe must take concrete steps to resolve the sovereign debt problems of Greece and other countries before developing nations can offer their own assistance, Brazilian Finance Minister Guido Mantega says in an interview.
"Europe has to save itself because it has the tools to resolve the sovereign debt problem of Greece and other countries and the problem of bank weakness," Brazilian Finance Minister Guido Mantega said Tuesday.
In an interview with Dow Jones Newswires and The Wall Street Journal, Mr. Mantega echoed views expressed by Chinese officials, saying that efforts by developing countries are predicated on significant action from European authorities.
"If they don't, the emerging countries... will have little to do because the central issues aren't resolved," Mr. Mantega said.
Mr. Mantega, who on Thursday will be meeting with his counterparts from China, India, Russia and South Africa, said the group of five developing economies referred to as Brics, could complement the European efforts to help the financially troubled countries in the euro zone with funding or bond purchases.
The minister said Brazil and other emerging countries may be able to provide some financial help if the 17-member bloc's bailout fund, the European Financial Stability Facility, were to start selling large amounts of bonds.
Brazil's Finance Minister Guido Mantega during a press conference in Brasilia in August.
"We believe the European countries can do more from their side than they are doing currently," he said. "Naturally the Brics and other emerging market countries should participate in the reconstruction of the financial system and the recovery of confidence," Mr. Mantega said.
Last week, following reports that China was preparing to buy Italian bonds, Mr. Mantega announced that members of the Brics group would be talking before the G20 countries' meeting in Washington D.C. this week to discuss ways to help Europe recover. In the past, the Brics countries have struggled to coordinate policy, and it's unclear if they'll come up with meaningful assistance this time.
Speaking at a World Economic Forum meeting last week, Chinese Premier Wen Jiabao voiced support for Europe but offered no new specific help for the debt-battered continent, emphasizing China's demands that European leaders take "bold steps" to improve economic ties with the Asian giant.
Mr. Mantega denied press reports that Brazil had planned to make $10 billion of its own funds available to help the euro zone, though he acknowledged the Brazilian central bank may have purchased those bonds, but only for the diversification of its foreign currency reserves rather than as any part of an aid effort.
The minister said he doesn't believe the International Monetary Fund needs more capital to face the latest crisis in Europe, as the money injected in 2008 should be sufficient.
Mr. Mantega, who popularized the term "currency war" a year ago to describe the political impact on emerging market countries to keep the value of their exports competitive amid a declining U.S. dollar, said he doesn't believe the wars are over.
But Brazil won't follow down the same path as Switzerland, which recently said it would defend a specific level for the franc, although he acknowledged that such steps can appear seductive at first sight.
"I pray every night that I stay away from this temptation," the minister joked.
"The ideal scenario would be to have, for example, China dealing with a floating exchange policy and other Asian economies should also assume this flexible exchange rate policy without sticking to this pegged policy," Mr. Mantega said.
Meanwhile the inflation scenario in Brazil, which has long been seen as the biggest risk to its domestic economy, is "more benign" compared to last year, Mr. Mantega said.
Brazilian consumer prices climbed at a quicker pace than expected in the month through mid-September, with the consumer price index, or IPCA-15, rising 7.33% over the previous 12 months, according to data released Tuesday. That continued the recent swing above the upper ceiling of the government's target range for inflation, of 4.5% plus or minus two percentage points.
Mr. Mantega attributed the recent uptick to rising food prices, largely from seasonal effects on crops, but said inflation should be able to return to the center of the bank's target in 2012. He highlighted that among the Brics, Brazil is the only one with a positive real interest rate.
Last month, Brazil's central bank unexpectedly cut its benchmark Selic interest rate to 12% from 12.5%, in part to hamper demand for its currency, the real. Manufacturers and exporters in Brazil have suffered from the currency's seemingly relentless strength against the U.S. dollar, leading Brazilian policymakers to take various measures such as buying up dollars in the foreign exchange market and imposing capital controls on some money inflows.
"Brazil had to assume defensive measures in the exchange rate policy because it was forced to do it," because of expansive monetary policy and managed currencies in other countries, Mr. Mantega said. Though recent bouts of risk aversion have weakened the real, it will likely regain strength when the current crisis subsides, he added.
â-Matthew Cowley, Jeff Fick, Luciana Magalhaes and Stephen Wisnefski contributed to this article.