Brazil FinMin: Govt. ready to protect economy

FRANKFURT (Reuters): Brazil stands ready to take additional policy steps to protect its economy in the event of a recession in the United States and Europe, its finance minister told a German Sunday newspaper.

In an interview with Euro am Sonntag, Guido Mantega said Brazil was relatively insulated from the ongoing turmoil in parts of the world, since exports contribute only 13 percent to its output and its debt-to-GDP ratio is a low 39 percent.

“We are less dependent on fluctuations in the international economy due to buoyant and dynamic internal demand,” Mantega told the paper.

“We would nevertheless take the necessary measures naturally, whether it’s policies regarding taxes or the currency, should the crisis escalate.”

Mantega reaffirmed his comments from September 2010 that governments were resorting to beggar-thy-neighbor tactics to gain a competitive edge: “Without a doubt we are in the middle of a currency war.”

The warning could be a further sign that the government’s improvised steps to shield Brazil’s economy -- including a 30 percent increase in taxes on imported cars -- might continue in the sudden months.

President Dilma Rousseff’s willingness to make sudden, unexpected changes to economic policy is becoming one of the biggest risks of doing business in Brazil.

Speaking in the Euro am Sonntag, Mantega reaffirmed his expectation that inflation, which had been triggered by higher prices for commodities and food in particular, was on the decline in the country.

“External factors are responsible (for the rise in inflation), primarily the enormous global excess liquidity due to the monetary policy of quantitative easing in the United States, as well as an increase in production costs,” he said.

“It (inflation) has already reached its peak and will soon resume its decline. For the entire year it will be below 6.5 percent.”

Mantega said he expects Brazil’s economy to continue to expand in the middle term.

“For the coming two years we forecast mid-range growth of over 5 percent, assuming the crisis doesn’t escalate further. It should be a healthy growth paired with inflation that is under control,” he said.

According to Mantega, sustainable gains in output should help reduce poverty in Brazil, which was cut in half over the past eight years.

“In these eight years, more than 29 million people joined the middle class, to which 100 million Brazilians already belong. Seventeen million jobs were created during a period of time when the country grew by 4 percent on average,” he added.