Brazil’s Mantega: World Faces Trade, Exchange-Rate Wars

The world is involved in “a trade war and an exchange rate war” as countries seek trade advantages by manipulating their currencies, and Brazil must take steps to defend itself, including the possibility of new taxes, Brazil Finance Minister Guido Mantega said in Sao Paulo Monday.

Governments in several countries, including the U.S. and Japan, allowing their currencies to devalue to gain market share in economies that are faring well, such as Brazil, the minister said, adding that Brazil needs to tighten up its antidumping laws to ward off this unfair competition.

The Brazilian real has strengthened against the dollar in recent years and become a major concern of the government. There are plenty of domestic reasons for the currency to have gained, including a booming economy, high interest rates and a recent spate of Brazilian company bond and share issues, not least last week’s massive share sale by oil producer Petroleo Brasileiro SA (PBR, PETR4.BR), which raised $67 billion for the company’s expansion.

There are also external reasons, including the rock-bottom interest rates available in much of the developed world.

Mantega said the government may look to new taxes on financial investments that could look similar to the existing financial-operations tax that was introduced during the global economic crisis in 2008. However, Mantega ruled out a direct tax on foreign investment.

In addition, Brazil’s authorities will buy more dollars through the spot market to help stem the currency’s gains, Mantega said.

The government has already stepped up its dollar purchases, and its international reserves have grown to about $270 billion, not counting reserves also held by the treasury, which has also been buying dollars, he said.

Concerns over exchange rates and international trade will be aired at the coming Group of 20 meeting, where Brazil will propose more harmonious cooperation between trading nations, Mantega said. He stressed that floating exchange rates are ideal, but only if adopted universally.