MercoPress. South Atlantic News Agency

IMF warns of asset bubbles in Brazil and Indonesia

International Monetary Fund, IMF, chief Dominique Strauss Khan warned that Brazil and Indonesia and other emerging countries are in “real risk” of suffering an assets price bubble given the inflow on foreign capital.

“Large sums of capital are going into Brazil, Indonesia and other countries that run real risk of undergoing asset bubbles”, said the IMF chief during an economic forum in Washington.

The Brazilian stock market which dropped to 30.000 points at the end of 2008 during the worst of the global crisis is back above 66.000 points in spite of having suffered losses during the year, which means doubling shares in value.

Similar surges have been recorded in Indonesia and other emerging markets and to contain the influx of capital Brazil has imposed capital controls, and a 2% tax on all foreign investments on fixed or variable yield assets.

The IMF official policy has long been contrary to any capital control, but has now accepted it in certain circumstances.

Strauss Khan said that capital controls are not the panacea for governments to solve the problem but also admitted that “if there is no other resource or tool to be used temporarily to avoid damage to the economies, why not use them?”.

The IMF chief said that the normal reaction to the massive influx of capital is to let the currency appreciate, but this can lead o tan excessive increase in the exchange rate, something which IMF have come to recognize.