miércoles, 11 de diciembre de 2013

miércoles, diciembre 11, 2013

December 10, 2013, 3:43 PM ET

Brazilian Central Banker Says Not to Fear the Fed Taper

By Paulo Trevisani


 
Brazilian Central Bank Governor Alexandre Tombini has a message for the worldFederal Reserve tapering is good and governments that do their homework shouldn’t fear it.

Of course, he thinks Brasília’s homework is already done, while critics say the country is bound for a credit downgrade.

In scheduled testimony before a Brazilian Senate committee Tuesday, Mr. Tombini re-iterated his view that “Brazil is ready to make the global transition without any trouble.”

The central banker was referring to the expected reversal of the Fed’s easy money policies used to jump start growth in the U.S. and Europe.

Among other things, “easy moneyfueled capital flows to emerging countries such as Brazil, in Brazil’s case leading to an unwanted strengthened of the currency, the Brazilian real, which damaged exports. Earlier this year, however, when Fed Chairman Ben Bernanke hinted that the easy-money policy was about to end, the real went into a tailspin that stopped only when Brazil’s central bank launched a program of daily market interventions.

In Mr. Tombini’s view, the fact that the Brazilian real floats freely against the dollardespite central bank interventions–“is the first line of defense” against potential ripple effects in currency markets from Fed tapering, which could come as early as this month.

As for Brazil’s homework,” the central banker cited the country’s $376 billion in foreign reserves, high levels of foreign investment and strong fundamentals in the local banking system.

His views contrast with those of many critics, who think slow growth and deteriorating fiscal accounts make Brazil more vulnerable.Tapering hasn’t even started and the real is already falling,” said Alberto Ramos, a Goldman Sachs economist who has pointed to low growth, high inflation and declining fiscal results as problems Brasília has been slow to confront.

Mr. Ramos and other analysts believe Brazil is heading for a sovereign credit downgrade in 2014, a possibility Brazilian officials often hotly refute.

Mr. Tombini, whose job is at the ministerial level in the Brazilian government, has also shown optimism. Even as the Brazilian economy contracted in the third quarter, Mr. Tombini said that “gradual growth is still occurring.” He said that future growth depends on consumer and business confidence, but that both are already improving.

Pursuing growth is complicated by the fact that, at almost 6%, 12-month inflation is well above the government’s 4.5% target. Mr. Tombini said the target is “reachable.”

The central bank has been raising interest rates systematically since mid-year but the tightening cycle is expected to come to an end at some point in 2014.

“I don’t believe we should accept a little higher inflation in order to have stronger growth,” he said, trying to dispel feelings that the government has abandoned its commitment to inflation control. “There is no such trade-off.”

He said thatany central bank in the world would rather have a strong fiscal result,” answering a senator’s question about Brazil’s deteriorating public accounts. But he stopped short of criticizing the government’s handling of its finances.

Last month, the Brazilian Treasury unveiled figures showing a 12-month primary surplus, as of October, equal to 0.85% of gross domestic product. The primary surplus, or the difference between tax revenues and most government expenses, gives a sense of the country’s readiness to pay its debts.

In the past, Brazil has been able to consistently deliver an annual primary surplus equal to 3.1% of GDP, an important factor in achieving an investment grade rating in 2008.

Brushing away the fiscal results, Mr. Tombini said Brazil will keep on investing in social programs to reduce the country’s infamous income gap. He said that expected private-sector investment in infrastructure and educational programs to boost productivity will drive sustainable growth in the future.


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