Rousseff Accuses US Of ‘Manipulation’ & ‘Currency War’

April 10, 2012 at 16:36

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Brazil’s President Dilma Rousseff used a visit to the White House on Monday to complain about US monetary policy as she made her case for international action against currency “manipulation” directly to Barack Obama.

In a meeting that highlighted the occasionally uneasy relationship between the two countries despite their potential to be strong partners, Ms Rousseff said that excessive monetary expansion in the US and Europe was hampering growth in countries such as Brazil.

Brazil is keen to win public support for its efforts to find a multilateral solution to what it calls the “currency war”, competitive devaluations of exchange rates by countries hoping to improve their export prospects.

Ms Rousseff, who enjoys a 77 per cent approval rating despite a turbulent first year in office that has seen her lose seven ministers, has complained about a “monetary tsunami” that has swamped emerging markets, inflating the value of their currencies and rendering their industries uncompetitive.

“We expressed Brazil’s concern with the expansionary monetary policies in rich countries … which is leading to the depreciation of developed country currencies and compromising growth among emerging economies,” she said, sitting beside Mr Obama after their meeting in the Oval Office. Her comments mirror similar complaints she made to the German chancellor Angela Merkel during a visit to Germany last month.

Brazil wants the issue to be addressed eventually through dispute-solving mechanisms in the World Trade Organisation. Ms Rousseff’s administration won a small victory late last month when it helped to organise a WTO symposium to discuss the matter.

Although few analysts expect the initiative to amount to anything concrete in the longer run because of sharp international differences over the issue, any US recognition of the currency war would be an important moral victory for Brazil.

It would play well domestically for the Rousseff government, which has launched a high-profile programme to shield domestic industry from the effects of a strong currency.

While recent Brazilian complaints have focused on the impact of US and European policies on its currency, Brazil and the US do have some common ground in their criticism of China’s efforts to keep its currency down.

The Brazilian government also used the visit to find out more about a $335m US Air Force contract which was won in December by Embraer, the Brazilian aircraft manufacturer, but which was suspended in February because of problems with the bidding process. The contract to supply aircraft for Afghanistan was the first time the company had broken into the US defence market. At the same time, Brazil is mulling bids for a $5bn deal to supply fighter aircraft to its own air force, which pits France’s Dassault against Boeing.

“It was a very important example of the sort of strategic engagement that could happen between Brazil and the US,” João Augusto de Castro Neves, an analyst at Eurasia Group, a political risk consultancy, said of the Embraer contract.

The more friendly tone of the current meetings belies some lingering tensions between the two largest economies in the western hemisphere. The Brazilian government, which had hoped for a state dinner to accompany Monday’s visit, wants to be accorded the sort of status that Washington has bestowed on India in recent years, including public support for its bid for a place on the UN Security Council.

For its part, Washington is wary of the anti-Americanism that is a part of Brazilian political culture, especially on the left, and feels that Brasília’s efforts to assert its independence in foreign policy are usually at the expense of the US. Some members of the Obama administration are still smarting from Brazil’s efforts in 2010 to negotiate a nuclear deal with Iran.

“The US should be looking at Brazil more in the way it looks at India,” said Peter Hakim, president emeritus of the Inter-American Dialogue, a Washington think-tank. “And Brazil should treat the US more in the way it treats China, with more respect.”

Paulo Sotero, director of the Brazil Institute at the Woodrow Wilson Center in Washington, said Brazil would find it hard to remain neutral on humanitarian crises such as Syria if it wanted to play a larger global role. “The space for that type of attitude as Brazil deepens its democracy is decreasing,” he said.