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IMF says Brazil could experience flight of capital if Euro crisis worsens

Monday, October 17th 2011 - 21:41 UTC
Full article 5 comments
IMF Executive Director Paulo Nogueira Batista Jr IMF Executive Director Paulo Nogueira Batista Jr

Brazil could experience a flight of capital should the European sovereign-debt crisis worsen, and the country may use interest rates and US dollar reserves to combat contagion, an International Monetary Fund director said.

A worsening of debt problems in Greece and other European countries would first affect Brazil’s financial markets over other parts of the economy and could have consequences on trade, IMF Executive Director Paulo Nogueira Batista Jr. said in an interview in Paris Sunday. He said he doesn’t expect an exacerbation of the crisis.

Group of 20 finance chiefs last weekend urged European leaders to deal “decisively” with the turmoil when they meet for emergency talks on Oct. 23 and to tame the threat of contagion by maximizing the firepower of their 440 billion-Euro bailout fund.

Brazilian Finance Minister Guido Mantega said on Sunday the country could suffer knock-on effects from Europe’s debt problems and will react accordingly.

“If the crisis becomes more acute, Brazil may face capital flight,” Batista said. “The four points that give the country an advantage in times of turbulence are its international reserves and its leeway with interest rates, the exchange rate and reserve requirements.”

Batista, alongside Mantega, took part in the meeting of finance ministers and central bankers in the French capital last weekend to prepare for a Nov. 3-4 summit of G-20 heads of state in Cannes, France. He represents Brazil, Colombia, Ecuador, Guyana, Haiti, Panama, the Dominican Republic, Suriname and Trinidad and Tobago at the IMF.

Categories: Economy, Brazil.

Top Comments

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  • GeoffWard2

    Not a problem, if European money pulls out, China will buy up as much of Brasil as it can get its hands on.

    Oct 18th, 2011 - 10:46 am 0
  • Forgetit86

    “Not a problem, if European money pulls out, China will buy up as much of Brasil as it can get its hands on.”

    You can't get rid of your talking points, do you? China wishes it could buy more of Brazil.

    This situation, by the way, is the same for most other 3rd World countries. Capital flights occur whenever a new crisis is on sight. “Investors” then sell their assets in 'riskier' countries and return to 'safer' bets (usually the US and Europe). Since the new crisis has as its epicenter the West, this strategy doesn't make to me. But this is their problem. As Batista said, Brazil is not ill prepared; it has a large amount of international reserves. And if capital flight does occur, the currency will devaluate and the reserves will climb in value. What Brazil can't do is to increase interest rates to attract capital. A recessionary move isn't the right strategy to solve an economic crisis. And, as the late 90s Asian crisis proved, to increase interest rates in face of a currency crisis (an extreme form of capital flight) is counterproductive and harmful for the economy.

    Oct 18th, 2011 - 03:58 pm 0
  • GeoffWard2

    Thanks, Forgetit.
    I value your insight into monetary matters.

    We agree that China is poised to grab as much of & from Brasil as it is able when things go pear-shaped.
    Let's hope there is enough resilience in the economy to avoid this (land-)grab.
    Other nations - particularly Argentina - might not be so well placed and could suffer badly.

    Oct 18th, 2011 - 06:20 pm 0
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