By Jaylan Boyle, Senior Contributing Reporter
RIO DE JANEIRO, BRAZIL – Representatives of the world’s developing countries, including Brazil, left Seoul’s G20 summit with an appeal to the rich nations to demonstrate responsibility in resolving what Brazilian minister Guido Mantega has called a ‘currency war.’
“Developed countries must increase their domestic demand, in contrast with U.S. policy which is geared to promote domestic demand in developing countries”, said Brazilian President Lula da Silva in Seoul, and vocalized the concern that if rich countries do nothing to stimulate domestic demand rather than encouraging exports, “we’re heading for a major global collapse”.
Da Silva was accompanied at the summit by President elect Dilma Rousseff, who according to Forbes magazine will now assume the role of the world’s sixteenth most powerful woman. Many speculate on her ability to continue projecting Brazil into the global spotlight following Lula’s successful, if not sometimes controversial, foreign policies.
Brazil’s currency has been labeled the most over-valued in the world, which, driven by huge inflows of investment capital redirected from traditionally strong but currently faltering economies has appreciated 35 percent in the last twelve months.
Policy makers and commentators worry that Brazil’s manufacturing competitiveness will suffer if this appreciation continues. Many analyst’s were saying after the end of the summit that the world’s developing countries have emerged as winners, as they were effectively, if vaguely, given the green light to more closely manage currency appreciation.
A joint statement released at the conclusion of the Seoul summit allowed policy makers of those countries meeting certain criteria to implement what it termed ‘macroprudential’ measures, seen by many as tacit approval of the steps taken by nations like Brazil, which recently introduced a higher capital inflow tax rate.
America’s plan to deal with the current crisis was roundly shunned, and some are predicting that the world’s advanced economies face a doubling of deficits by 2014.
The G20 forum has in the past adhered to its aim of fostering market-determined currency rates, and opponents, especially in the west, have seen measures like those taken by Brazil to limit growth as deliberately devaluing it’s currency, and thereby unnecessarily tampering with the free market.
Many agreed that now is probably the best time to implement such unusual measures in the interest of pulling the world’s leading 20 economies out of the slump of recent years. However, those opposed to interventionist policies worry that such actions will create asset bubbles, that could burst with sudden and catastrophic consequences.
The other notable outcome to emerge from this most recent meeting of the G20 was the decision to give developing countries more power within the International Monetary Fund (IMF), which many countries have been appealing for for some time.
Managing Director of the IMF Dominque Strauss-Kahn, called the reforms agreed to at the summit “the biggest ever shift of influence in favor of emerging markets and developing countries”. Government ministers and reserve bank heads gave the go-ahead for the transferal of just over five percent of voting power in the organization, and puts the BRIC nations (Brazil, Russia, India and China) in the top ten IMF shareholders.