Brazil gets used to life in the big league
Brazil has absolutely hammered wealthy nations of the world for what it believes are economic policies that deliberately set out to underplay the growth of emerging countries and hamper their productivity, a policy which it sees as non-conducive to the recovery of the global economy.
The country's president, Dilma Rousseff, revealed a ferocious side to her that has yet to be fully seen – given that she has only been in power for 15 months and hasn't yet needed to demonstrate her assertive, no-nonsense character – and attacked leaders of the elite group of rich nations for letting loose a devastating "tsunami" of cheap money, Reuters reported.
"We have a currency war that is based on an expansionary monetary policy that creates unequal conditions for competition," said Rousseff, her rhetoric loud and angry. "We will continue to develop our country by defending its industry and ensuring that the strategy used by the developed countries to exit the crisis does not cannibalise emerging markets."
There is little doubt that Ms Rousseff and her cabinet are at loggerheads with some of the financial policies being used by, for example, the European Central Bank and the Bank of Japan. By bringing in a wave of cash inflows, they manufacture a scenario where their currencies become overvalued, which in turn makes their exports a lot more expensive.
This idea of a currency war, a phrase that was brought into existence by Brazil's finance minister Guido Mantega roughly 18 months ago, is a complicated, very political way of conducting business, that irritates those on the other end. Hence the strong words from Ms Rousseff and the use of war by Mr Mantega all add up to absolute contempt on the part of Brazilians. They find it all to be very underhand.
However, it is not so black and white. The economist Antonion Manfredini, who works for Brazil’s Fundacao Getulio Vargas, was quoted by the Financial Times as saying: "Given the exceptional circumstances, monetary policy became heterodox on a global scale; almost every country is trying to react to measures taken by central banks."
Furthermore, as Reuters reported, when Brazil revealed that it was extending a tax on foreign loans with the intention of weakening its own currency, it ended up doing the reverse. Global investors, abundant in capital courtesy of cheap lending, are keen on investing in Brazil, because they are likely to get a good return.
Such stories highlight the complexity of the finance world, the relationship between growing countries and those that have historically called the shots. Moreover, it casts light on the uneasy relationship between trade and currency, which at a global level depends on the various distinct policies of all the nations involved. It's like fighting a war on many fronts, a constant struggle to find a balance where effectiveness is at a level that is manageable. This is the reality that Brazil is slowly becoming accustomed to. This is what it is like to play in the big league. What sets it apart is how it emerges at the end of it all.