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Brazil Finance Minister: Geithner Vows He Won’t Let Dollar Fall

Thursday, 21 October 2010 03:09 PM

U.S. Treasury Secretary Timothy Geithner told Brazil’s Finance Minister Guido Mantega yesterday that the U.S. won’t allow the dollar to weaken, Mantega said.

Mantega said he and Geithner agreed to act jointly with the Group of 20 nations to find a solution for the dollar’s depreciation. Geithner also said in a telephone conversation that the impact of Federal Reserve policies is being “overestimated,” Mantega told reporters in Brasilia today.

“He said he doesn’t intend to allow a devaluation of the dollar,” Mantega said. “He assured me that the policy is not to weaken the dollar, but on the contrary, to strengthen it.

“I then asked him about the Fed’s policy and he said that this policy’s impact is being overestimated,” Mantega said.

Brazil’s finance minister said he told Geithner that a firm stance by the U.S. against further weakening in the dollar would “create conditions to open a negotiation” with other countries seeking to reduce volatility in their currencies, and may help reduce pressure on China to strengthen the yuan.

“Otherwise it’s hard, to weaken the dollar and to want a revaluation of the yuan,” Mantega said.

G-20 policy makers are convening in South Korea amid concern countries are pursuing weaker exchange rates as a route to stronger economic growth, either by selling their own currencies or by discussing monetary easing, as the U.S. and U.K. have done. The moves risk a protectionist backlash that curbs global growth, with emerging markets including Brazil and South Korea already stiffening capital controls to stem the rise of their currencies.

Dollar Flows

Massive amounts of dollars are flowing into emerging markets in search of higher returns, leading to what Mantega has called a “currency war.” Brazil on Oct. 18 raised to 6 percent from 4 percent a tax on some foreign investments and yesterday closed a tax loophole in the country’s derivatives market in a bid to stem the inflow of dollars.

Geithner said Oct. 18 that “no country can devalue its way to prosperity” and the U.S. will “work very hard to make sure that we preserve confidence in a strong dollar.”

The Brazilian real has gained 36 percent against the dollar since the end of 2008, the third-strongest performance among the 16 major currencies tracked by Bloomberg. The real fell 1.2 percent today to 1.6982 per dollar at 1:40 p.m. New York time.

Finance chiefs from the Group of 20 are planning to say members will refrain from “competitive undervaluation” of their currencies in a bid to soothe trade tensions, an official from a G-20 country said today, citing a draft statement and speaking on condition of anonymity.

‘Satisfactory’ Growth

Finance ministers and central bankers will say after talks conclude in Gyeongju, South Korea, on Oct. 23 that they want a “more market-determined exchange rate system that minimizes adverse effects of excess volatility and disorderly movements in exchange rates,” the official said.

Brazil’s gross domestic product may grow 7.5 percent this year, up from a previous estimate of 7 percent, the Finance Ministry said in a report published on its website today. The ministry also raised its forecast for average growth between 2010 and 2014 to 5.9 percent, from 5.7 percent.

Consumer prices may rise 5.1 percent this year, the ministry said, raising its July forecast of 5 percent.

Brazil’s economy is growing at a “quite satisfactory” level after slowing in the second quarter, Mantega said.

“The use of installed capacity fell and inventories rose,” Mantega said. “So there’s no inflationary pressure from the demand point of view.”

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U.S. Treasury Secretary Timothy Geithner told Brazil s Finance Minister Guido Mantega yesterday that the U.S. won t allow the dollar to weaken, Mantega said. Mantega said he and Geithner agreed to act jointly with the Group of 20 nations to find a solution for the dollar s...
Thursday, 21 October 2010 03:09 PM
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