Tags: Geithner Brazil Burdened by Others’ Currencies

Geithner: Brazil Burdened by Others’ Currencies

Monday, 07 Feb 2011 10:48 AM

U.S. Treasury Secretary Timothy F. Geithner said Brazil is getting a disproportionate share of capital inflows because other countries keep their currencies undervalued.

“Investors around the world see Brazil growing at a faster pace and offering higher rates of return relative to other major economies,” Geithner said in a speech in Sao Paulo today. “But these flows have been magnified by the policies of other emerging economies that are trying to sustain undervalued currencies, with tightly controlled exchange-rate regimes.”

Geithner didn’t specify the countries. In a report to Congress on Feb. 5, the Treasury Department said China had made “insufficient” progress in allowing its currency to rise and said the yuan remains “substantially undervalued.” The report on foreign-exchange markets also said South Korea needs more exchange-rate flexibility.

Net private capital flows to developing countries expanded 44 percent in 2010 to about $753 billion, according to a World Bank report last month. The nine countries that attracted the bulk of capital flows were Brazil, China, India, Indonesia, Malaysia, Mexico, South Africa, Thailand and Turkey, the report said.

Exchange Rates

“Brazil and other emerging economies with flexible exchange rates and open capital markets have borne a disproportionate share of both the benefits and burdens of these capital flows,” said Geithner, who was also scheduled to meet with Brazilian President Dilma Rousseff in Brasilia during a one-day visit to South America’s largest country. U.S. President Barack Obama plans to visit Brazil next month.

A 38 percent rally of the Brazilian real in the past two years, combined with the fastest growth in more than two decades, has increased imports, prompting the government to take measures to temper the currency gains. The central bank has begun offering reserve currency swaps and buying dollars in the spot and forward currency markets.

The administration of Rousseff, who took office Jan. 1, has “deep concerns” over the strength of the real and may take trade measures to protect domestic manufacturers from cheap imports, Trade Minister Fernando Pimentel said Feb. 4.

Major Economies

Emerging economies such as Brazil need, “just as we do, the support from the policy choices of other major economies,” Geithner said in the speech at Fundacao Getulio Vargas university in Sao Paulo.

“As countries with large surpluses act to strengthen domestic demand in their economies, open their capital markets and allow their currencies to reflect fundamentals, we will see more balance in the flow of capital, less upward pressure on Brazil’s currency, and more robust growth in Brazil’s exports, especially manufacturing exports,” he said.

Geithner, 49, said the U.S. and Brazilian economies “are in a much stronger position than we were two years ago.” The two countries’ economic interests are “fundamentally aligned,” he said.

Geithner, responding to questions from students and faculty, said China is “beginning to relax the controls on the use of the currency outside China, but they´re in the very beginnings of that strategy.”

Growth Disparity

A disparity in economic growth rates around the world creates new challenges, he said.

“The U.S. is sort of in the middle, between what you’re seeing in China, India and Brazil and then what you’ll see in Europe and Japan,” he said. “The most effective way to deal with those challenges is to ensure we are building a global system that allows adjustments to happen more smoothly over time.”

A stable and strong U.S. is important to the global economy, Geithner said. “You want to see the U.S. growing in a way that’s sustainable over time, and that’s what we’re trying to do.”

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U.S. Treasury Secretary Timothy F. Geithner said Brazil is getting a disproportionate share of capital inflows because other countries keep their currencies undervalued. Investors around the world see Brazil growing at a faster pace and offering higher rates of return...
Geithner Brazil Burdened by Others’ Currencies
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Monday, 07 Feb 2011 10:48 AM
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