MercoPress. South Atlantic News Agency

Brazil warns more Fed liquidity could lead to protectionist policies

Lula da Silva and Dilma with tickets and luggage ready for South Korea

Brazil said on Wednesday it was worried by the US Federal Reserve's plan to buy billions more dollars in bonds, saying the US policy of easy money could lead countries to enact protectionist policies.

With the Fed pledging to keep interest rates low for some time, Brazil is trying to prevent its currency from appreciating, which makes its exports less competitive, as investors dump the greenback and buy emerging market assets in search of higher yields.

“The Fed's decision is cause for concern. They are policies that impoverish those around them and end up prompting retaliatory measures” Brazil's Foreign Trade Secretary Welber Barral told reporters.

“And then you have this type of cancer, which is protectionism, that spreads very fast,” he said. He did not say if Brazil would take any action.

Brazil decided to double to 4 percent taxes on foreign investors buying local bonds in an effort to curb the strength of its currency, the real.

The Federal Reserve said it will buy 600 billion more in government bonds by the middle of next year in an attempt to breathe new life into a struggling U.S. economy.

President Lula da Silva who next week flies to South Korea for the G-20 summit said he would struggle to end the “currencies war”, promoted by the US and China that are deliberately debilitating their currencies.

The Brazilian president also confirmed he would be travelling to the November 11/12 summit with president-elect Dilma Rousseff

“I’m going to the G-20 summit. If they already had problems with Lula da Silva, now they will have to face Lula and Dilma”, said the Brazilian leader. “What we have in common is that we want a floating exchange rate but we believe the US and China are involved in a currency war”…

Lula da Silva claimed that the US is keeping the dollar artificially low to solve its fiscal deficit problem while China “knows very well they can’t go on with a devalued currency”.

So far this year the Brazilian currency has soared almost 30% against the US dollar triggering concern in government and among business circles that complain about a loss of competitiveness and a deterioration of the balance of payments.

“All countries with the exception of the US and China perceived we are in the midst of a currency war”, said Rousseff

“We are most concerned and we will take all necessary measures to prevent our currency to continue along the revaluation path”, underlined Lula da Silva.