On 14 of May, bloomberg wrote on its website:
Brazil Real Weakens to 2 Per Dollar for First Time Since 2009
“The government is loving it,” Alfredo Barbutti, an economist at Liquidez DTVM Ltda. “The government wanted this. It’s not a movement that escaped its control.”
It’s quite likely that the Brazilian government would sustain USD/BRL currency exchange beyond 1.98 by selling dollars, but is this the best way to gain the “currency war” that Finance minister Mantega always push as excuse against his country fail to show high GDP growth?
Even though that Brazil is facing a tough time to keep its growth steady and competitive to its rivals, internal issues must not be hidden from Brazilian government agenda as they might deal with corruption, education, bureaucracy, public security and crimes issues before Brazil’s commitments towards World Cup in 2014 and Rio Olympics games in 2016 if not to mention the investors who could find another attractive economy to hurry into.
In his article Can A Weaker Currency Save Brazilian Industry, Kenneth Rapoza from Forbes is defining the consequences that could emerge by following this policy.
Following a policy of weak currency to make it more profitable to produce things at home are a thing of the past, writes Marcio Garcia, an economist at PUC-Rio. Even China has learned this. “A strong (currency) scenario is not only the most probable one. It is also very likely the most desirable,” he wrote in business daily Valor Economico on April 25.
Considering a weak real promotes inflation by making imports, including essentials such as wheat and fuel, more expensive. Brazilian inflation is currently running at about 5.2%, higher than the government’s 2012 target of 4.5%. Said Tom Murphy in Wall street Journal on 7 of May 2012.
But, isn’t there another way to strengthen the Brazilian economy? There are much tools to increase industry’s productivity and competitiveness. Rapoza conclude that:
The main policy imperative in Brazil will likely be a focus on raising productivity and investment within major industry, or be held prisoner to the forex rate; not something the government wants to be captive to. The risks include a stagnant industrial base and forecasting difficulties for both investors and economists.
The most important, Brazilian government has to show its people a positive figures without effecting public incomes that are already suffering of the high life cost with soaring inflation that economists raised their forecast for 2012 inflation in Brazil to 5.22% from 5.12% a week earlier, according to the central bank survey published yesterday on 14 May.