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INTERVIEW-UPDATE 1-Brazil's Mantega warms up to China, again

Published 04/14/2011, 08:33 PM
Updated 04/14/2011, 08:36 PM
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By Isabel Versiani and Pedro da Costa

WASHINGTON, April 14 (Reuters) - Brazil's finance minister on Thursday renewed his vocal support for China in the global war of words over who is to blame for imbalances in the world economy.

In an interview, Finance Minister Guido Mantega struck a friendlier tone toward China than some comments from the government of newly elected Brazilian President Dilma Rousseff.

"The primary responsibility for the excess liquidity lies with the advanced nations, not emerging ones," he said in response to questions about China's exchange rate, which many economists say is artificially undervalued.

"Emerging countries are helping because they are pushing the international economy. So China contributes, Brazil contributes, Russia, India," Mantega told Reuters on Thursday.

He was speaking in Washington ahead of a twice-annual meeting of the International Monetary Fund.

Rousseff is visiting China this week for a summit of the BRICS group of leading emerging economies. She has made no mention of the yuan, despite sounding more critical than her predecessor, Luiz Inacio da Silva.

The comments from Mantega suggest the United States cannot count on Brazil as a firm ally in its fight against what it sees as the unfair trade advantage China gains from pegging its exchange rate to the dollar.

Mantega urged the U.S. Federal Reserve and other central banks in developed countries to reverse ultra-loose monetary policies, a change which would help push the Chinese yuan higher as well, given its link to the dollar.

"These are understandable because they are experiencing weaker growth. But they should not exaggerate on the dosage," said Mantega, who has made waves in international markets by saying the developed world is engaged in a "currency war."

"The ideal for us would be for both the dollar and China's currency to appreciate, so that we would have a new exchange rate and commercial equilibrium in the world."

Mantega told Reuters he felt moves to prevent Brazil's currency from strengthening had been a success despite a recent rise in the real to its highest levels since August 2008.

The real might now be as strong as $1.35-$1.40, instead of its current level around $1.58, without the string of taxes on foreign inflows and borrowing and other measures, he said.

Separately, Mantega, in a prepared statement that he is due to make to the International Monetary Fund's steering committee on Saturday, reiterated Brazil's stiff opposition to any restrictions on its ability to impose controls on flows of capital.

"These measures of self-defense are a legitimate response to the effects of the monetary policies adopted by reserve currency-issuing countries," he said in the statement.

Brazil was also succeeding in combating price growth even though inflation has risen to close to the 6.5 percent ceiling of the government's target range.

Mantega said: "Inflation is under control."

Turning to another issue under discussion this week in Washington, where the Group of 20 leading economies are discussing reform of the financial system, Mantega blamed commodity price spikes in part on lax regulations of derivatives trading in advanced economies.

He said Brazil would push for tougher derivatives rules, including more trading via transparent clearinghouses and imposing leverage requirements on investors using the complex securities for purely speculative purposes. (Editing by Leslie Adler)

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