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Brazil’s Mantega admits ‘mini-crisis’; blames the US Fed confusing messages

Tuesday, August 27th 2013 - 22:06 UTC
Full article 18 comments
The mini crisis will have a much smaller impact than the EU crisis of 2011 and 2012, pledged Mantega The mini crisis will have a much smaller impact than the EU crisis of 2011 and 2012, pledged Mantega

Brazil's economy is going through a “mini crisis” stemming from global markets turbulence made worse by confusing messages from the US Federal Reserve, complained Finance Minister Guido Mantega.

 Speaking to business leaders in Sao Paulo, Mantega said that record-high foreign reserves and low public debt levels will help shield Brazil from a sharp drop in the value of its local currency and weaker economic growth both domestically and abroad.

 “It's a mini crisis that we are going through, but it will have a much smaller impact than what happened, let's say, in the European crisis of 2011 and 2012,” Mantega said.

 Mantega said that the US Federal Reserve has communicated its plans to reduce monetary stimulus “poorly” prompting some of the wild swings in the value of currencies and stocks in emerging market economies.

 In July, Mantega stated that the worst of the financial turbulence was likely over after Fed chairman Ben Bernanke clarified that a scale back in monetary stimulus hinged on the strength of the recovery in the US.

 After a brief period of calm the Brazilian Real plunged to near five-year lows against the dollar in August, forcing the Brazilian central bank to launch a 60 billion dollars currency intervention program last week to ease its depreciation.

 A weaker Real raises the value of imported goods and the cost of debt servicing for local companies, further hurting investors' confidence in Latin America's largest economy. The real has weakened about 18% since May.

Although the Brazilian economy is likely to show a pick up in activity in the second quarter, recent data points to a weak recovery ahead with some economists predicting economic growth closer to 2% this year.

 Mantega said the local economy would remain robust, however, boosted by an increase in investment and the impact of infrastructure concessions which could mean investments of over 100bn dollars.

 However Brazil’s current account deficit more than doubled in July from a year ago, according to the latest Central bank data. The gap reached 9.08 billion dollars in July, while a year ago the deficit was 3.75bn dollars. The current account is a country's broadest measure of foreign transactions encompassing trade, profit remittances, interest payments and other items.

 In the first seven months of this year Brazil accumulated a current account gap of 52.472bn, nearly double the 28.99bn posted in the same period a year ago. Even so, foreign direct investment during the same period this year totalled 35.239bn, lagging the 38.169bn of FDI in same period last year.
 

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  • Anglotino

    Brazil you should have reformed during the boom years.

    But you didn't and now you will have to reform during the bad years.

    Just ask Europe how good that feels.

    Aug 27th, 2013 - 10:22 pm 0
  • Fido Dido

    1 Reformed what? First the real was overvalued and now so called undervalued. Brazil needs to continue to invest in infrastructure. It is being done but more needs to be done.

    Europe did what?? Reform? European leaders continue to drink the kool-aid while bail out the zombie banksters and pretend everything is fine. Europe is finished unless they let the zombie banks go and just get the F out the Euro project that was designed to fail and go back to local currencies and government central banking control...not private (ECB is a private central bank and so is the “federal reserve” that does not answer to the people but to it's shareholders..yes, the same zombie banks who are dead/broke)

    Aug 27th, 2013 - 11:47 pm 0
  • Tik Tok

    This guy does stand up comedy consistently well

    Aug 28th, 2013 - 12:37 am 0
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