Nov. 12 (Bloomberg) -- The Brazilian government has no “coherent” strategy to limit gains in the local currency, said Tony Volpon, a strategist at Nomura Securities International.
The real is the world’s best-performing major currency this year, with a 34 percent gain against the U.S. dollar.
Volpon spoke in a phone interview from New York.
On government signals:
“The government gives very contradictory signals. It wants strong domestic consumption and investments, which demand a lot of external capital. This same government is worried about currency appreciation and the impact on manufacturers.
“The government has no coherent strategy to deal with the effects of its policies.”
On Brazil’s development plan:
“We have a very serious problem. Our development model is based on selling commodities to Asia and on distributing income and giving more credit to the population. This naturally appreciates the currency.”
On government choices:
“Higher domestic demand and higher salaries are good choices. But they are not compatible with a strong manufacturing sector that exports. The government has not understood the consequences of the model it adopted.
“Our social and macroeconomic models are not compatible with a competitive manufacturing sector.”
On currency measures:
“The government will work in two ways. The Finance Ministry will do interventions, like taxing and closing channels and making things more difficult. The central bank will raise demand for dollars, allowing funds to invest abroad or allowing dollar accounts.
“They will make the real a convertible currency, which I believe is correct. But that will make Brazil even more attractive to investors.”
On currency trends:
“Both ways will fail. The problem is structural: the dollar is losing as the reserve currency of the world. The tsunami is coming, paddling is useless.”
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--Editor: Glenn J. Kalinoski
