The appreciation of the Real (BRL) against the Dollar (USD) is the result of the perception of global investors that there are more attractive investment opportunities in Brazil than in the rest of the world, and not due to a “currency war”, according to Paul Krugman, a 2008 Nobel Prize in Economics. “Shouting at the developed countries central bankers will not solve it, they have more things to worry about,” said Krugman, mentioning pressures that the Fed chairman Ben Bernanke now faces to stimulate the U.S. economy.
For Krugman, Brazil’s growth is not too impressive and the country is involved in a wave of optimism that should not be attributed to its own economic performance, but to the weak economic progress in the rest of the world, said the economist, who on Wednesday attended the “International Seminar for Small Business “, sponsored by Sebrae (Support Agency for Brazilian Micro and Small Enterprises) and Valor.
Although he considers the Real overvalued, Krugman estimates that Brazil will continue to be the destination of capital flows in the long run, “which is uncomfortable for a country that is trying to promote its manufacturing industry. The strong Real was the last thing that Brazil needed,” he said.
In addition to the monetary policy in developed countries, Krugman attributed the appreciation of the Real against the Dollar to the behavior of commodity prices, which remain in an uptrend because of demand from emerging countries, especially Asia.
The economist, however, says that appreciation of the Real is a problem that can be partly addressed by the imposition of taxes and limits to discourage the inflow of capital into the country. “If there is no threat of inflation, there is still further possibilities to cut interest rates,” he said.
For him, however, there is no simple formula to address the problem of low growth in the industry due to currency appreciation. “The appreciated Real and the current account deficit is a situation that can not be extended in the long term. It is an old problem and the government does what it can,” he said.
At the end of his speech, Krugman also emphasized that in the long term, the trend is that the industry generates fewer jobs as a result of the increasing automation of processes.