Fed Chairman Refutes Brazil Saying US Measures Boost Global Economy

Federal Reserve chairman Ben Bernanke has defended the central bank’s measures to bolster the US economy. Brazil has said US monetary easing to keep interest rates low and weaken the dollar has hurt emerging economies. And IMF chief Christine Lagarde warned on Sunday of consequent asset bubbles developing in emerging nations.

But Bernanke said that measures taken by the Fed and other central banks boosted global growth.

The Fed has maintained a low interest rate policy for several years and pledged to keep them low at least until 2015. Likewise it has pumped about 2.3 trillion dollars into the US economy to bolster growth. There have also been huge stimulus measures in Europe and Japan.

Critics say such moves, especially by the US, drive down the value of the dollar and spark capital flows into emerging nations.

Speaking in Tokyo, where the IMF and World Bank held their annual meetings, Bernanke said: “The linkage between advanced-economy monetary policies and international capital flows is looser than is sometimes asserted.”

The Fed’s measures not only strengthened the US recovery, he said, “but by boosting US spending and growth, it has the effect of helping to support the global economy as well”.

Last Friday, Brazil’s Finance minister, Guido Mantega, warned that his country would take “whatever measures it deems necessary” to fight the problem which he has described as the “currencies war”.

“Emerging markets can’t passively endure large and volatile capital flows and currency fluctuations caused by rich countries’ policies” Mantega said in Tokyo. He added that “advanced countries cannot count on exporting their way out of the crisis at the expense of emerging-market economies”.

“Currency wars will only compound the world’s economic difficulties”, he emphasized.

In a speech at the end of the IMF meeting, Ms Lagarde said: “We have seen several bold initiatives by major central banks certainly that the IMF highly praises and values as major contributing factors to stability.”

But she acknowledged that “there are diverging views within and across countries about important issues including the management of capital flows”.

Ms Lagarde said monetary easing “could strain the capacity of those economies to absorb the potentially large flows and could lead to overheating asset price bubbles” and “disagreement might be unavoidable but we must not forget that we all have a stake in global financial stability”.

“Given the cross-border spill-over effect of monetary policy decisions, central banks may need to step up their international dialogue and co-operation”.

Brazil Prepared

Brazil’s central bank president Alexandre Tombini refuted on Monday arguments that the US expansionist monetary policy do not harm emerging countries such as Brazil.

Speaking in Tokyo to Japanese investors and after underlining the recovery of the Brazilian economy, Tombini addressed Fed chief Ben Bernanke statements on Sunday at the IMF annual assembly, in which he argued that the US stimuli measures help the world economy.

“Quantitative easing only generates an over supply of dollars and impacts directly on Brazil’s macroeconomic policies” said Tombini who argued that the excessive inflow of capital to Brazil presented challenges for the financial stability of the country and makes controlling inflation far more difficult.

He recalled that Brazil was forced to adopt measures to control the negative effects of excessive liquidity and affirmed that Brazil will continue to protect itself from the influx of short term capital.

“At the end of 2010 and in the first half of 2011 inflows were so great in intensity and velocity that they ended propping the growth of credit. At the time we were trying to contain inflation and that capital influx only worked against our objective. We don’t want Brazil to become a market that devalues other currencies, and we are prepared for that with lower rate interests and a less strong real”, said Tombini.

The minister was the main speaker at a seminar sponsored by the Brazilian chamber of commerce in Brazil where he explained that the slowing of the Brazilian economy was part of the world crisis cycle. However he insisted that the economy would again expand in 2013 and that inflation is under control.

“The pessimist outlook for the world economy helps to keep mid-term inflation down”, said Tombini adding that with the global economy growing at a slower pace than in previous decades, “pressure on commodities prices will diminish overall”.

The banker said that the latest IMF growth estimates for Brazil in 2012 and 2013 did not surprise the Central bank. But he pointed out that the risks of a shock as was the bankruptcy of Lehman Brothers in 2008 are far less than they were six months ago.

Direct Japanese investments have been growing steadily for years and in 2011 reached the record figure of 7.5bn dollars.

Finally Tombini outlined the policies implemented to ensure GDP growth: lower interest rate; greater liquidity; improved finance conditions for families and companies, plus fiscal incentives.

“We are consistent with recovery” he emphasized recalling all the opportunities in infrastructure that the coming World Cup in 2014 and Olympics in 2016 represent for Japanese investors.

Brazil good at global PR, but loses ground as an IMF group leader
A good one and a bad one for Brazil: The New York Times announced on Sunday that it will launch an online edition Portuguese language edition in 2013 given the country’s growing global clout, but on the other hand Brazil’s nine nation constituency at the IMF will lose a member, Colombia that will join Mexico.

Global PR

A good one and a bad one for Brazil: The New York Times announced on Sunday that it will launch an online edition Portuguese language edition in 2013 given the country’s growing global clout, but on the other hand Brazil’s nine nation constituency at the IMF will lose a member, Colombia that will join Mexico.

In the presentation the NYT said the new Web edition will provide NYT quality content to an audience in Brazil that is educated, affluent and connected with the rest of the world. It will feature English to Portuguese translations of the best of NYT award winning journalism alongside original work by local writers contributing to NYT.

The site will include coverage of global affairs, business and culture as well as other subjects of particular interest to the Brazilian reader. The NYT will publish 30-40 articles per day on the site along with photography. About one third of the reporting will be original content designed specifically for the Brazil site. Graphics and multimedia will be introduced over time.

However the news from Tokyo was not that encouraging. Colombian Central bank head Jose Dario Uribe announced that instead of Brazil’s nine-nation constituency on the IMF 24-member executive board, Colombia will join forces with a group led by Mexico.

Banker Uribe, in an interview at the IMF meetings, didn’t say whether the decision to switch chairs was motivated by any disagreement with Brazil.

“It’s a group where there’s receptivity toward a country like Colombia, where there are great historical and commercial ties,” Uribe said of Mexico. He said details of the move will be announced later.

As part of its new group, Colombia will share leadership responsibilities on a rotating basis with Mexico, Spain and Venezuela, Mexican Deputy Finance Minister Gerardo Rodriguez said in an interview also in Tokyo.

Colombian President Juan Manuel Santos’ government has boosted ties with Mexico, which Nomura Securities forecasts could overtake Brazil as Latin America’s No. 1 economy within a decade. Currently Brazil’s 2.4 trillion dollars economy is more than twice the size of Mexico’s, according to IMF data.

Mexico and Colombia came together earlier this year to create the Pacific Alliance of the region’s most-open economies, taking distance from the Brazil and Argentina-led Mercosur trade pact, which has been raising import restrictions amid the global economic slowdown.

Colombia also followed Mexico, Peru and Chile — all members of the fledgling trade group — and implemented a free trade agreement with the US.

However Nicaragua and the Portuguese-speaking nations of Cape Verde and East Timor will be added to the constituency represented by Brazilian executive board director Paulo Nogueira Batista.

Still, the three countries combined have fewer than half of the 8,477 votes corresponding to Colombia, meaning the country’s departure will reduce Brazil’s voting share on the board. Colombia is the biggest of eight Latin American nations that belong to Brazil’s constituency, a group that also includes the Dominican Republic, Ecuador and Trinidad & Tobago.

Affirmative Action

The law which forces Brazilian federal universities to leave 50% of higher education seats to students from government schools and minorities such as blacks and indigenous became effective on Monday.

“The bill will help to compensate a historic debt of Brazil with our poorest youngsters” said President Dilma Rousseff during her weekly broadcast.

The 59 federal universities will have to make the law effective immediately and begin selecting students for the school year in 2013 added the president. The bill sets out that 12.5% of university places are reserved for blacks, indigenous and students from publish schooling and the percentage will grow sustainedly until it reaches 50% by 2026.

Affirmative action or positive discrimination means public school students have access to half of the places at federal universities (funded by the government) several of which in international ratings are considered among the country’s best academic centers, ahead of private institutions.

The initiative wants to limit access to students from private schools that usually have higher grades to those from public schools when it comes to the admission exams and end keeping most of the place in federal universities.

“Our target is to expand access to our universities and higher education federal institutes for the students from public schools, blacks and indigenous. These universities are among the best in the country and most of the time students coming from public schools have difficulties in being admitted”, said Rousseff.

But the law also contemplates that among the students from public schools admitted to the universities, to be selected according to their grades, they include sub-quotas for blacks, mulattos, indigenous or low income families.

This way half of the available places with go to students with the highest grades and that can show family income is below 1.5 minimum salary (approximately 466 dollars) no matter race, while the other half to those who allege racial criteria and will be delivered in direct proportion to the race distribution in each state.

In states such as Bahia with the greatest percentage of black population in Brazil, the criteria will favor the afro-descendents while the indigenous will be most benefited in the Amazon states, where most of them live.

According to the latest census of 2010 the majority of the Brazilian population considered itself afro-descendent, which is quite unusual for a country which started collecting stats back in 1872. The last census shows Brazilians number 190.8 million of which 50.7% Negro or mulatto, 47-7% white; 1.1% yellow and 0.4% indigenous.

Even before the current bill, 32 of the 59 federal universities already had a system that favored admission for children from poor families and 25 had racial quotas.

The bill became effective when the media reports that although yet unconfirmed by government, the administration of President Rousseff is considering extending the quota system to tests for contracting federal staff.

The quotas policy was ratified and considered constitutional this year by the Supreme Tribunal following a case in which a conservative political party campaigned against the system arguing it was ‘senseless’ in a society with such racial blending as is Brazil.