By Steven K. Beckner
TOKYO (MNI) – Brazilian Finance Minister Guido Mantega took aim at
what he considers excessively easy monetary policies and “draconian”
fiscal policies among industrialized nations, in a speech at the annual
meetings of the International Monetary Fund and World Bank released
Friday.
He vowed that Brazil “will take whatever measures it deems
necessary” to resist capital inflows from industrialized countries
pursuing monetary policies which he alleged are designed to give
their exports an unfair trade advantage.
Not only are the “quantitative easing” policies of the Federal
Reserve and other major central banks of questionable efficacy, they are
causing harsh “spillover” effects on Brazil and other emerging market
nations, Mantega said in a statement prepared for the IMF’s policymaking
International Monetary and Financial Committee.
Speaking on behalf of a group of Latin American countries, he said
it is unfair to brand his country and others as “protectionist” for
resisting upward pressures on their currencies caused by capital flows
generated by industrialized nations’ monetary policies.
It is not the first time that Mantega has had harsh criticism of
the policies of the U.S. and other industrial nations. And he was as
hard-hitting as ever as he addressed finance ministers and central
bankers representing 188 IMF member nations.
Because of “political paralysis” impeding the implementation of
sound fiscal and structural policies in advanced countries, he said
“major central banks are being led to take on a disproportionate share
of the burden of crisis management.”
Despite the central banks’ stimulative measures, “growth remains
weak, confidence low and unemployment high,” said Mantega. “We have been
arguing for some time that single-minded and draconian fiscal policies
may be counterproductive and have a tendency to backfire.”
“No one denies the need for credible fiscal consolidation plans
over the medium term,” he continued. “In the short term, however, fiscal
measures should be taken to promote aggregate demand and job creation or
at least mitigate the impact of consolidation on activity and
employment.”
As for the quantitative easing being pursued by the Fed, the
European Central Bank, the Bank of Japan and others, Mantega was caustic
in his criticism.
“Recent experience suggests there are reasons to doubt the
effectiveness of lax monetary policies in current circumstances,” he
said. “Real interest rates have been negative or close to zero for quite
a long time without prompting a clear recovery in private consumption or
investment.”
“If the domestic transmission mechanisms are weak, monetary policy
will operate mainly through its effects on exchange rate depreciation
and the resulting increase in net exports,” he added.
Mantega seemed to insinuate that an objective of the Fed and others
is to depreciate their currencies to improve net exports at the expense
of countries like Brazil.
“Advanced countries cannot count on exporting their way out of the
crisis at the expense of emerging market economies,” he declared.
“‘Currency wars’ will only compound the world’s economic difficulties.”
“Trying to grasp larger shares of global demand through artificial
means has many side effects,” he went on. “It is a selfish policy that
weakens the efforts for concerted action.”
Mantega advised the U.S. and other advanced countries to “rethink
their macroeconomic strategies and avoid simultaneous fiscal
contractions and the consequent overburdening of monetary policy.”
He served notice that Brazil and other emerging market countries
will not sit idly by and tolerate what he implied are predatory policies
in the industrialized world.
“Emerging markets and developing economies cannot passively endure
the spillovers of advanced countries’ policies through large and
volatile capital flows and currency movements,” he asserted. “All forms
of trade and currency manipulation must be avoided because they improve
international competitiveness in a spurious manner.”
Mantega vowed that his own country “will take whatever measures it
deems necessary to avoid the detrimental effects of these spillovers”
and rejected complaints from its trading partners about its defensive
actions in foreign exchange markets.
“We cannot accept the attempt to unfairly label as ‘protectionist’
legitimate measures of defense in the areas of foreign trade, exchange
rate and capital account management,” he said. “Experience has shown
that the free flow of capital is not necessarily the preferable option
in all circumstances.”
Mantega said the IMF needs to take “a more balanced approach”
toward limiting “excessive short-term capital flows” — an apparent
reference to greater tolerance for capital controls.
The Brazilian finance minister seemed particularly critical of
European policymakers, saying “the delayed reactions to the crisis,
especially in the euro area, have led to the accumulation of intractable
problems…. The euro area is at the epicenter of the crisis.”
He said European fiscal and banking integration “may be essential
to overcome the crisis,” but questioned whether a political consensus
can be built to accomplish that.
Meanwhile, progress on implementing financial reform “remains slow
and uneven,” he alleged. “Financial systems in most advanced economies
remain overly complex and leveraged…. The authorities remain
apparently incapable of responding to the ingrained tendency of
financial markets to develop ‘innovative products’ as a means of
circumventing new regulations.”
Mantega warned that “another round of financial turmoil may be
festering while the world economy has yet to fully recover from the
previous one. It seems that the harsh lessons of the financial crisis
have gone unheeded.”
[TOPICS: M$U$$$,MFU$$$,MGU$$$,M$$CR$,MT$$$$,MMUFE$,M$$BR$]
