Government warns it will not permit overvaluation of real

Speaking at the Industrial Federation in Rio (“Firjan”), Minister of Finance, Guido Mantega, declared that the government can use market intervention by the Central Bank, its Sovereign Fund and taxes (“Imposto sobre Operações Financeiras – IOF”) to halt the valuation of the Brazilian currency, the real. The minister said the government was observing international currency exchange markets and was determined to halt the valuation of the real, which has recently risen to its highest value against the dollar since November of 2009.

Mantega declared that there seemed to be an “orchestrated operation” by certain Asian countries to keep their own currencies low against those of other nations (which makes it easier for them to export). The problem, explained the minister, was that the operation was aimed at the United States and Europe, where there is an effort to increase exports and will have consequences in Brazil which also wants to strengthen exports.

Mantega pointed out that negative effects of currency overvaluation would be an increase in imports as it gets harder to export. “We are concerned about being put in a hole (“situação de inferioridade”). This is something that does worry us,” said the minister, as he went on to say that the government was analyzing the market situation with the objective of slowing down the inflow of dollars. One way to do that, said the minister, was through the capitalization of Petrobras. “If dollars come in, we will buy them all. We will not allow an excess of dollars on the market. We are focused and concerned about this. We definitely will not be idle spectators as this game unfolds,” he said. “This is a situation where those who devalue their currencies have a competitive advantage. We cannot stand by and let this happen.”

The minister did not go into details about how Brazil was going to deal with the currency problem. The country has a floating exchange rate that limits goverment action. Mantega pointed out that Brazilians are very creative in dealing with challenges, and good at changing difficulties into opportunities, he said. “This last crisis (the international financial meltdown of 2008-2009) is a good example of what we can do. Brazil came out of this strengthened because we took advantage of opportunities.”