Brazil's Central Bank Boss Thwarted by Lula: Alexandre Marinis
Commentary by Alexandre Marinis
March 26 (Bloomberg) -- If you have diversified away from the U.S. financial meltdown and invested in the emerging market that offers the most-attractive yields in the world, pay attention to what Brazilian President Luiz Inacio Lula da Silva has been up to.
Just when central bank President Henrique Meirelles was getting ready to raise interest rates to keep inflation in check, he was blocked by Lula. But wait a minute. Weren't they supposed to be playing the same game and for the same team?
You would think so, but over the past few weeks Lula has backed a couple of economic measures at odds with Meirelles and the central bank's directors.
A year ago, Lula told Brazilians to ``rest assured that, without any decree, law or magic, interest rates will continue to fall and the currency will adjust without the need for any nervous maniac to show up claiming to have found the magic trick that will adjust the exchange rate.''
Such a nervous maniac has shown up, was welcomed in the president's office and managed to persuade Lula that what was needed was a 1.5 percent tax on foreign fixed-income investments in Brazil. Lula pulled off this sleight of hand through a simple presidential decree and without Congress's approval.
The motive? Lula and Finance Minister Guido Mantega have become more concerned that Brazil's rising currency is hurting the nation's exports and balance of payments, and that any interest-rate increase would only aggravate matters.
Real's Climb
The real has climbed 19 percent against the U.S. dollar in the past 12 months, reaching $1.74 as of yesterday. In effective terms, the currency is already stronger than in January 1999, when Brazil was forced to devalue and float the real.
With the real's rise, Brazilian imports have been growing twice as fast as exports since mid-2007. As a result, the country's 12-month trade surplus has fallen to $36 billion from $46 billion a year ago. February's trade surplus was the smallest since June 2002 and weekly trade-balance figures are turning red.
More important, Brazil is becoming a global exporter of commodities, which already represent almost 60 percent of everything the country sells abroad. Meanwhile, the manufactured- goods trade balance swung from a surplus of $5.1 billion in 2006 to a deficit of $9.2 billion in 2007.
But a stronger currency isn't the devil that Lula and Mantega imagine. It has actually been a blessing for Brazil. The surge in commodity prices that boosted Brazilian exports since 2003 was largely due to a weaker U.S. dollar.
The stronger real made imported consumer goods cheaper, helping Brazil contain inflation even as the economy accelerated. Prices of imported machinery and inputs have fallen, lowering production costs and making the economy more efficient.
Making History
A stronger currency also allowed Brazil to amass $194 billion in reserves and turn into a net foreign creditor for the first time in its history. This has kept public debt under control, pushing Brazil closer to investment-grade credit status.
The appreciation of the currency has also helped Brazilian companies invest and acquire rivals abroad, giving Lula something else to brag about.
Lula's decision to tax foreign fixed-income investments on expectations that it will ease pressure on the real won't go far. The U.S. dollar is weakening in Latin America and elsewhere for reasons more potent than anything Lula can overcome. Over the past 12 months, the Chilean, Colombian and Peruvian currencies climbed 20 percent, 19 percent and 14 percent against the dollar.
The certainty of Lula's failure is what should raise foreign investors' eyebrows. If Lula is aware that a small tax on some foreign investments won't fool the currency devil, why do it?
Buying Wrong Idea
Amid the dollar's worldwide weakening, Lula has bought the idea that the real is surging mainly due to the spread between Brazil's 11.25 percent interest rate and lower international rates, encouraging foreigners to pour dollars into the country.
Lula became upset after the central bank indicated that it might increase interest rates to prevent inflation from feeding on the booming demand. Household consumption grew at the unsustainable annualized rate of 16 percent in the last quarter of 2007, the highest since 1996.
Lula hasn't exactly been making the central bank's life any easier. Public spending is soaring, fueling overheated domestic demand. Last week, Lula granted wage increases as high as 137 percent to 800,000 workers, comprising 81 percent of the federal workforce.
One of the main drawbacks of pursuing a weaker currency policy is that, once the magic box opens, markets begin to speculate on what rabbit will come out next. Mantega gave a clue in an interview in Carta Capital magazine earlier this month. The tax rate on foreign investments ``goes from zero to infinite,'' he said. ``If needed, we will increase it.''
Until two weeks ago, foreign investors and rating companies weren't concerned about a potential clash between Meirelles and Mantega. Now, any increase in interest rates may ring the bell on a brawl between the two, and who knows what sort of low blows Lula will allow.
(Alexandre Marinis, political economist and founding partner of Mosaico Economia Politica, is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Alexandre Marinis in Sao Paulo at amarinis1@bloomberg.net
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El Gobierno de Brasil debatirá la adopción de controles para manejar un incremento de capital
BRASILIA (Reuters) - El Gobierno de Brasil debatirá la adopción de controles para manejar un incremento previsto de los ingresos de capital, después de ascenso de clasificación de inversión de la semana pasada por parte de la agencia Standard and Poor's, reportó el domingo un importante diario.
Una reunión de gabinete dirigida por el presidente Luiz Inacio Lula da Silva discutirá el miércoles medidas que podrían incluir impuestos sobre influjos de capital, dijo el diario O Estado de Sao Paulo.
Lula ha descartado el abandono del régimen de tasa cambiaria flotante de Brasil y no consideraba que las medidas sean urgentes, dijo O Estado.
"Las soluciones requieren de ingeniería financiera sofisticada," citó el diario que decía un asesor de Lula.
La agencia de clasificación de crédito Standard and Poor's otorgó a Brasil su primera categoría de inversión el miércoles, causando un alza en los mercados de divisas y bolsas de la mayor economía de América Latina.
En marzo, Brasil comenzó a aplicar un impuesto del 1,5 por ciento sobre inversiones extranjeras en bonos del Gobierno sobre mercados de capital locales, en un intento por recortar los ingresos de capital de corto plazo que han elevado la moneda de Brasil.
El real ha ganado casi un 8 por ciento frente al dólar hasta ahora en el 2008, que se agrega a un incremento del 20 por ciento el año pasado. Algunos exportadores se quejan que ello está socavando la competitividad internacional del país.
Analistas prevén que las acciones, bonos y moneda de Brasil suban más en las próximas semanas porque la mejora otorgada aumenta el grupo de inversores potenciales que pueden comprar los valores. Muchos fondos de pensión e inversionistas institucionales tiene prohibido de colocar dinero en valores con grado de no-inversión.
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