Brazil has voiced its strongest opposition yet to any international move to control commodity prices and has insisted it will not join the US in an alliance to pressure China to revalue its currency, the renminbi.
Speaking ahead of the Group of 20 nations meeting of finance ministers in Paris this week, Brazilian finance minister Guido Mantega said that loose monetary policy in developed countries had led to increased speculation in commodities markets, driving up food prices.
But once developed economies recovered, this increased liquidity would be absorbed and commodity prices would correct naturally, eliminating the need for price controls or other government intervention in the markets.
“Brazil totally opposes the use of mechanisms to control or to regulate the price of commodities,” Mr Mantega said. “Most of the prices of these commodities will fall naturally as the market re-establishes itself.”
France, the current president of the G20, has proposed discussing regulations that would limit volatility in food and commodity prices, raising the ire of large agricultural producers, such as Brazil.
Brazil is the world’s biggest exporter of sugar, coffee and orange juice and the second-largest producer of soybeans after the US.
Mr Mantega blamed strong demand from other developing countries, bad weather and financial speculation for the recent rises in food prices, as well as subsidies in developed economies that he said distorted global commodity markets.
“Developed countries should remove subsidies and trade barriers to the products of emerging countries,” Mr Mantega said.
The rising prices of Brazil’s commodity exports, which also include non-agricultural products such as iron ore and beef, have also contributed to growing pressure on its currency, the real, to appreciate against the dollar.
Brazil has tackled the problem by intervening in foreign exchange markets and lobbying against “quantitative easing” in the US, which Brazil says has led to a flood of excess liquidity into emerging markets, strengthening their currencies.
Brazil has also this year increasingly called on China to allow an appreciation of its currency, the renminbi, amid a flood of cheap Chinese goods into South America’s largest economy that domestic manufacturers claim is undermining their competitiveness.
US Treasury secretary Tim Geithner during a visit to Brazil last week lobbied the new government of President Dilma Rousseff to support calls for a revaluation of the renminbi but Mr Mantega said on Tuesday Brazil would not join any “united front” on the Chinese currency.
“There’s no such thing as a common initiative … between Brazil and the US,” said Mr Mantega. “Brazil is just as worried about the US dollar as it is as about the yuan.”
Mr Mantega said Brazil’s economy, which grew 7.5 per cent in 2010, was slowing this year, with growth in some areas of industrial production grinding to a halt or even turning negative in the final quarter of last year.