In the second half of 2011, the world economy entered a new
phase of severe difficulties. This manifested itself primarily
in an even greater slowdown, with a risk of recession in the
developed countries and the loss of dynamism in a large number
of emerging economies. The impact of this current crisis, which
originated in the financial cataclysm of late 2008, is already
visible in the latest economic data.
But this scenario has taken on aspects that are all the more
worrying because of the economic policies adopted by developed
countries to combat the crisis. Europe, the United States and
Japan have only made use of highly expansionary monetary
policies in their attempts to overcome the adverse
Monetary policy is not sufficient to promote the recovery of
economic growth, despite its contribution to calming market
fears and avoiding a fresh disaster in the world economy.
Fiscal policies are needed to stimulate investment and
Aside from its limited impact on economic growth, the
approach developed nations have adopted has caused collateral
damage in emerging countries: a genuine currency
tsunami, with an impact on foreign exchange rates and the
creation of financial bubbles.
A large part of the liquidity injected into the European,
American and Japanese banks is destined for the financial
market of solid and safe economies such as Brazils.
Investors take advantage of the tremendous financial
opportunities, above all in the interest rate differential, to
conduct arbitrage and speculative operations. They also bet on
the currency valuation in an attempt to increase their gains
with interest rate arbitrage.
The result is a trend to value the real at a level that is
unhealthy for our economy. Up to the beginning of March, the
Brazilian currency gained 11% year on year, ahead of the
Mexican peso, which gained 8.9%; the New Zealand dollar, with
8.5%; and 8% for the South African rand. Only the yen lost to
the US dollar: 4.3%. With the measures Brazil recently adopted
to deal with the problem, we eliminated a degree of the
variation in the currencys valuation, and the real moved
to levels that are less damaging to the industrial sector.
An overvalued real is harmful to the Brazilian economy,
especially to the manufacturing sector, which loses
competitiveness with countries that have currencies that are
The Brazilian government will not stand idly by in this
currency war. We have an arsenal of measures which we are ready
to use that are capable of stopping or neutralizing the
overvaluation of our currency and stemming the excess inflows
of foreign capital into the country.
Since 2009, when we noted an upturn in the flow of foreign
capital, the government has been successfully adopting measures
to combat a rise in the real. That year, for example, we
established a 2% IOF (Tax on Financial Operations), levied on
the entry of foreign capital applied in fixed and variable
income assets in.
Last year, we applied a 1% IOF tax on operations carried out
on the derivatives market on contracts that result in an
increased currency exposure from the sales.
In 2012, we attacked again. In March, we extended to five
years the period for charging the 6% IOF levied on loans taken
out by Brazilian banks and companies. Until February, the
taxable period was two years.
On another front, the Central Bank has expanded its
activities in the foreign exchange market. With high
international reserves, the monetary authority can intervene in
the foreign exchange market at any moment, whether in the cash
market through daily spot auctions, or in the fixed term and
futures markets(through swap contracts).
Besides this, the Central Bank reduced to 360 days the
period for operations categorized as advance payments on
exports. In January and February, there was a 46% increase in
the influx of dollars through this method. Last year, the
annual total was US$ 54.4 billion.
The numbers show that the measures the Brazilian government
has adopted to contain the excessive inflows of foreign capital
have been effective over time. Without those actions, the
dollar would certainly have fallen below R$ 1.40.
Brazils stance has been smoothed by the backing of
multilateral bodies, including the International Monetary Fund
(IMF), which recently recognized as legitimate the actions of
emerging countries to control the flow of foreign capital and
protect their economies in the face of foreign exchange rate
fluctuations that deviate from an equilibrium over the
It is important to reiterate that the Brazilian government
does not work with an ideal exchange rate or with exchange rate
bands. We have a floating exchange rate regime and it is
beneficial to us that it remains that way.
But the government of Brazil, faced with a situation of
excess global liquidity, cannot accept capital flows which have
nothing to do with economic fundamentals and which are
prejudicial to our industry.
Guido Mantega is Brazils Minister of