Brazilian Finance Minister Guido Mantega said yesterday that the BRICS (Brazil, Russia, India, China, South Africa) bloc of advanced emerging economies should rally behind a single candidate for the presidency of the World Bank. Though an American has filled the role since the organization’s founding in 1946, developing nations—spearheaded by the BRICS group—seek to break to mold with whoever is nominated to succeed current president Robert Zoellick.
Mantega met United States nominee and global health expert Jim Yong Kim Thursday morning, but maintained that Brazil had not yet made a decision of who to endorse. “By late next week, Brazil should have a position on the matter, and I will talk with the other BRICS,” Mantega said.
Apart from Kim, the other front-runners include Nigerian Finance Minister Ngozi Okonjo-Iweala—who has received the support of many developing nations and South Africa—and former Colombian Finance Minister José Antonio Ocampo.
With this and similar proclamations on behalf of other BRICS nations, Brazil sees the nomination as an opportunity tip the balance of power, long held by the U.S., in favor of the emerging markets. The World Bank plans to make a decision before its spring meetings held jointly with the IMF, beginning on April 20.
The news that Brazil has overtaken Britain to become the world's sixth largest economic power is being touted as a sign that that the longtime "country of the future" has finally arrived. While the celebrations have been somewhat muted by concerns over slowing GDP growth and the country's still-heavy dependence on high energy and food prices, Brazil is heading into the coming global showcases of both the 2014 World Cup and the 2016 Summer Olympics with more than its usual swagger.
But this emerging economic prominence is raising the question of just what kind of actor Brazil will be on the world stage. In the past 20 years, Brazil has become well known for turning crisis situations into geopolitical opportunities, becoming a leading voice in international forums devoted to AIDS, poverty, and even the environment. And now, it is doing it again with a challenge that Brazilians understand all too well: a debt crisis.
Only this time, it's Europe in need of a helping hand, not the former Portuguese colony in Latin America. At an EU-Brazil summit held in Brussels last October, President Dilma Rousseff told European leaders, who had asked for assistance: "You can rely and count on us." As an initial strategy, Rousseff and her finance minister, Guido Mantega, considered using their foreign exchange reserves—estimated at $352 billion—to purchase debt through treasury bonds. However, after consulting with her BRIC colleagues at a meeting in Washington last November, Brazil decided that buying EU bonds would be too financially risky, and proposed instead to indirectly assist Europe by donating an estimated $10 billion to the International Monetary Fund.
It was hardly a slip of the tongue when Guido Mantega, Brazil’s minister of finance, coined the term “currency war” in late September when describing the state of the global economy. His bold statement publicly reflected the private concerns of investors and policymakers worried about the amount of government intervention worldwide to curb currency appreciation.
This is a particular concern for Mr. Mantega, whose country is home to one of the world’s strongest currencies. In the first ten months of 2010, the Brazilian real gained 4.5 percent on the U.S. dollar and a whopping 25 percent since early 2009.
Originally the finance minister preferred to limit public spending, opposing devaluation of any kind. But he quickly reversed course when many emerging economies, notably in the Asia-Pacific region, lowered their respective exchange rates. The result: when one country intentionally devalues its currency, its exports become cheaper to foreign consumers and imports more expensive to domestic buyers. When other nations follow suit, this practice, known as competitive devaluation, drives down the economic competitiveness of all nations.
To remain competitive, Mr. Mantega increased the tax rate for foreign investments of fixed-income securities two separate times—the second time only one week after speaking at the Americas Society and Council of the Americas in mid-October. Outside economists defended his actions, noting that investors would nonetheless continue to focus on BRIC (Brazil, Russia, India, and China) countries in the interest of high returns on investment.
Now Brazil has emerged as perhaps the leading critic among developing economies on the U.S. role in a currency war. Mr. Mantega suggested non-expansionary measures to increase demand and consumption, but got the opposite when earlier this month the Federal Reserve announced it would buy back $600 billion in government bonds. Known as quantitative easing, the Fed essentially gave itself license to print new money and increase liquidity to raise bond prices and lower long-term interest rates. Brazil did not react kindly; President-elect Dilma Rousseff blasted the move as “disguised devaluation.”
Mr. Mantega recommended that developed nations agree on a consolidated action plan at the International Monetary Fund meetings in Washington DC in October and the G-20 summit in South Korea earlier this month. But if the missions of the two gatherings were to advance discussion on the issue, then they both failed miserably.