Transcript of a Press Briefing by Guido Mantega, Finance Minister of Brazil and Chairman of the G-20
IMF News, October 11, 2008
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- Published: October 11, 2008
Assessment of the global financial crisis
- The crisis is "on a global scale" affecting almost all countries and has migrated from advanced countries (epicenter the United States and Europe) into emerging markets.
- The thesis that there would be no spillover is "no longer valid."
- The crisis may be "the most serious financial crisis perhaps since the crisis of 1929."
- Acute phase described as "an acute crisis" with problems that require monitoring "day by day, hour by hour."
- Expected growth effects cited:
- "almost a zero growth rate from the U.S. and the European Union for the second semester of 2008"
- China aiming to "protecting a 9 percent growth rate next year" (down from "12 percent this year")
- Russia expecting "growth below 5 percent" (previously "over 6 percent")
- Brazil projecting a "moderate deceleration" for 2009 with adjustments "down to around 4, 4 1/2 percent"
Channels and modalities of contagion and spillovers
- Financial channels:
- Investments by emerging countries in advanced-country assets (including, in some cases, subprime exposures) can transmit shocks.
- Investment funds in advanced countries running losses may "withdraw the funds that they have invested in emerging countries," producing capital flight.
- Exit of assets from stock markets in emerging countries reduces funding capacity.
- Liquidity channel:
- "Breakdown of international credit" and "shortage of resources, funding sources" affects trade and balance of payments in emerging economies.
- Policy implication: needs coordinated policy responses across advanced and emerging countries to address credit crunch, liquidity shortages, and solvency issues.
Role and reform of international fora (G-20, G-7, IMF)
- G-20 history and limits:
- Created in 1998 as a discussion forum; Ministers meet "only once a year, in November every year" with Deputies meeting more often, leading to lack of agility for emergency response.
- Proposal to "rethink the G-20" to transform it into a more agile institution capable of responding to immediate problems; potential to meet "more times a year" (proposal: "at least four meetings a year").
- Alternatives discussed: strengthen the G-20 or reconsider expanding the G-7 to include key emerging countries.
- G-7 role:
- Characterized as having moved quickly and functioning as a crisis management tool meeting "all the time" (example: recent meetings and an EU meeting called by President Sarkozy).
- IMF:
- Recent IMF meetings "totally dedicated to the discussion of the crisis"; reference to International Monetary Fund's Rapid Access Credit Lines with "very strong support" for "rapid approval."
- Note that quota and voting reforms had been undertaken earlier ("we have already achieved during the last meeting, the last Spring Meetings").
Short-term and medium-term policy measures discussed
- Emergency measures to address acute phase:
- Inject more liquidity via central banks.
- Capitalize banks (governments buying stock). Example: U.K. nationalization and "put in a trillion" (quoted as the scale of intervention for U.K. banks).
- Lower reserve requirements (Brazil "put $30 billion of liquidity back into the market through lower reserve requirements").
- Russia reportedly "put in $150 billion available for the financial markets."
- Countercyclical and medium-term measures:
- Emerging countries should pursue countercyclical policies to sustain global demand and partially offset lower growth in advanced economies.
- Maintain domestic demand where possible (use strong domestic markets in China, Russia, Brazil, India, South Africa, Korea).
- Avoid premature fiscal austerity ("countries should not put their feet on the brake") while being prudent about overheating.
- Measures NOT favored:
- Imposing capital controls or restricting international trade seen as counterproductive and likely to worsen the crisis; avoid repeating 1930s protectionism.
- Blanket adoption of the same measures by emerging countries as those in epicenter advanced economies—responses should reflect different problems (solvency vs liquidity).
Brazil-specific situation, policy stance, and regulatory framework
- Brazil has "solid financial institutions" and "does not have a problem with subprime investments."
- Brazil's actions and fiscal/monetary stance:
- Lowered reserve requirements to inject "$30 billion" of liquidity.
- Developing new lines to support access to export loans using "part of our foreign reserves"; bureaucratic measures to become operational "on Monday."
- Expectation of moderate deceleration to growth "down to around 4, 4 1/2 percent" in 2009 (from higher 2007–2008 rates).
- Social-policy priority:
- Concern that reduced world economic activity could harm poorest populations via unemployment and reduced incomes; supports countercyclical policies to protect social programs and living standards.
- Brazilian regulation highlighted as stronger:
- Leverage levels in Brazilian banks "around 14 percent" versus Basel "8 percent."
- Brazil enforces mark-to-market and tighter oversight of multi-market funds; limits leveraging as a key regulatory principle.
- Acknowledges corporate risk exposures can still occur (companies taking on dollar-denominated derivative positions), but the banking system is monitored "in a very tight manner."
- Market and consumption context:
- Domestic consumption growth indicators:
- Consumer market growth at end of last year "8.4 percent" reduced to "6.5 percent"
- Retail consumption monthly research showed "14 percent growth from one year to the other"
- Government objective is to "contain its growth" (slow pace), not to accelerate domestic consumption further.
Institutional proposals and operational concepts
- Make the G-20 into a more active "Situation Room" style instrument to monitor markets and coordinate policies in real time.
- Increase the frequency of G-20 ministerial meetings to "at least four meetings a year."
- Consider revising membership or creating a broader management forum (discussion about enlarging the G-7 or changing G-20 remit).
- Promote adoption of stronger financial regulation internationally modeled on principles Brazil uses: limit leverage, enforce mark-to-market, regulate multi-market funds and hedge funds.
Operational priorities for the period to the next G-20 meeting
- Ministers of Finance and Presidents of central banks will "hour by hour" monitor markets and work with Deputies and support teams to:
- Develop proposals to make the G-20 more active and capable of short-term crisis response.
- Coordinate central bank liquidity provisions and national measures appropriate to differing country circumstances.
- Prepare for the November G-20 meeting in Sao Paulo to present institutional proposals and policy coordination measures.
Transcript of a Press Briefing by Guido Mantega, Finance Minister of Brazil and Chairman of the G-20 — October 11, 2008.