By Ian Katz
Feb. 7 (Bloomberg) -- Treasury Secretary Timothy F.
Geithner said Brazil is getting a disproportionate share of
capital inflows because other countries keep their currencies
undervalued.
"Investors around the world see Brazil growing at a faster
pace and offering higher rates of return relative to other major
economies," Geithner said today in remarks prepared for a
speech in Sao Paulo. "But these flows have been magnified by
the policies of other emerging economies that are trying to
sustain undervalued currencies, with tightly controlled
exchange-rate regimes."
Geithner didn't specify the countries. In a report to
Congress on Feb. 5, the Treasury Department said China had made
"insufficient" progress in allowing its currency to rise and
said the yuan remains "substantially undervalued." The report
on foreign-exchange markets also said South Korea needs more
exchange-rate flexibility.
Net private capital flows to developing countries expanded
44 percent in 2010 to about $753 billion, according to a World
Bank report last month. The nine countries that attracted the
bulk of capital flows were Brazil, China, India, Indonesia,
Malaysia, Mexico, South Africa, Thailand and Turkey, the report
said.
"Brazil and other emerging economies with flexible
exchange rates and open capital markets have borne a
disproportionate share of both the benefits and burdens of these
capital flows," said Geithner, who was scheduled to visit Sao
Paulo and Brasilia on a one-day visit to South America's largest
country. U.S. President Barack Obama plans to visit Brazil next
month.
Fastest Growth
A 38 percent rally of the Brazilian real in the past two
years, combined with the fastest growth in more than two
decades, has increased imports, prompting the government to take
measures to temper the currency gains. The central bank has
begun offering reserve currency swaps and buying dollars in the
spot and forward currency markets.
The administration of Brazilian President Dilma Rousseff,
who took office Jan. 1, has "deep concerns" over the strength
of the real and may take trade measures to protect domestic
manufacturers from cheap imports, Trade Minister Fernando
Pimentel said Feb. 4.
Emerging economies such as Brazil need, "just as we do,
the support from the policy choices of other major economies,"
Geithner said.
"As countries with large surpluses act to strengthen
domestic demand in their economies, open their capital markets
and allow their currencies to reflect fundamentals, we will see
more balance in the flow of capital, less upward pressure on
Brazil's currency, and more robust growth in Brazil's exports,
especially manufacturing exports."
Geithner, 49, said the U.S. and Brazilian economies "are in a much stronger position than we were two years ago." The two countries' economic interests are "fundamentally aligned,"he said.
For Related News and Information:
Treasury stories: NI TRE <GO>
Brazil stories: NI BRAZIL <GO>
U.S. Economic Forecasts: ECFC <GO>
Latin America news: NI LATAM <GO>
--Editor: Kevin Costelloe
To contact the reporter on this story:
Ian Katz in Washington at +1-202-624-1827 or
ikatz2@bloomberg.net
To contact the editor responsible for this story:
Christopher Wellisz at +1-202-624-1862 or
cwellisz@bloomberg.net
Feb. 7 (Bloomberg) -- Treasury Secretary Timothy F.
Geithner said Brazil is getting a disproportionate share of
capital inflows because other countries keep their currencies
undervalued.
"Investors around the world see Brazil growing at a faster
pace and offering higher rates of return relative to other major
economies," Geithner said today in remarks prepared for a
speech in Sao Paulo. "But these flows have been magnified by
the policies of other emerging economies that are trying to
sustain undervalued currencies, with tightly controlled
exchange-rate regimes."
Geithner didn't specify the countries. In a report to
Congress on Feb. 5, the Treasury Department said China had made
"insufficient" progress in allowing its currency to rise and
said the yuan remains "substantially undervalued." The report
on foreign-exchange markets also said South Korea needs more
exchange-rate flexibility.
Net private capital flows to developing countries expanded
44 percent in 2010 to about $753 billion, according to a World
Bank report last month. The nine countries that attracted the
bulk of capital flows were Brazil, China, India, Indonesia,
Malaysia, Mexico, South Africa, Thailand and Turkey, the report
said.
"Brazil and other emerging economies with flexible
exchange rates and open capital markets have borne a
disproportionate share of both the benefits and burdens of these
capital flows," said Geithner, who was scheduled to visit Sao
Paulo and Brasilia on a one-day visit to South America's largest
country. U.S. President Barack Obama plans to visit Brazil next
month.
Fastest Growth
A 38 percent rally of the Brazilian real in the past two
years, combined with the fastest growth in more than two
decades, has increased imports, prompting the government to take
measures to temper the currency gains. The central bank has
begun offering reserve currency swaps and buying dollars in the
spot and forward currency markets.
The administration of Brazilian President Dilma Rousseff,
who took office Jan. 1, has "deep concerns" over the strength
of the real and may take trade measures to protect domestic
manufacturers from cheap imports, Trade Minister Fernando
Pimentel said Feb. 4.
Emerging economies such as Brazil need, "just as we do,
the support from the policy choices of other major economies,"
Geithner said.
"As countries with large surpluses act to strengthen
domestic demand in their economies, open their capital markets
and allow their currencies to reflect fundamentals, we will see
more balance in the flow of capital, less upward pressure on
Brazil's currency, and more robust growth in Brazil's exports,
especially manufacturing exports."
Geithner, 49, said the U.S. and Brazilian economies "are in a much stronger position than we were two years ago." The two countries' economic interests are "fundamentally aligned,"he said.
For Related News and Information:
Treasury stories: NI TRE <GO>
Brazil stories: NI BRAZIL <GO>
U.S. Economic Forecasts: ECFC <GO>
Latin America news: NI LATAM <GO>
--Editor: Kevin Costelloe
To contact the reporter on this story:
Ian Katz in Washington at +1-202-624-1827 or
ikatz2@bloomberg.net
To contact the editor responsible for this story:
Christopher Wellisz at +1-202-624-1862 or
cwellisz@bloomberg.net
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