Mario Osava

RIO DE JANEIRO, Sep 26 (IPS) - A new international financial architecture, based on different rules, is a reform that has long been demanded by different sectors and is now "inevitable" in the face of the "universal and systemic crisis" originating in the United States, says Brazilian Finance Minister Guido Mantega.
The need for "regulation, controls and supervision" to limit excessive indebtedness on the part of financial institutions has been highlighted by the crisis, which is systemic because it has "obstructed credit" around the world and created difficulties for all financial institutions, the minister said Thursday at a press conference with foreign reporters in Rio de Janeiro.

Unless there are new rules, "confidence, which is vital in the financial system, will not be restored," he said, announcing that he would raise the issue at an International Monetary Fund (IMF) meeting to be held in Washington in early October.

The crisis may be creating a new world scenario, in which "the role of advanced countries, that are in fact prostrated" by economic and demographic stagnation, will give way to greater leadership by "emerging countries, that represent the future" because of their population, wealth and economic growth, he said.

It is no longer possible to keep countries that today are "the engines of global growth" out in the cold, with scant representation or none at all on international bodies, he added, mentioning BRIC (Brazil, Russia, India and China), which is excluded from the Group of Seven most powerful countries (G7), in which Russia has only "partial" participation.

The present crisis arose from a combination of financial troubles in the United States and soaring commodity prices, which reached their height in June and July, according to Mantega, an economist belonging to the governing leftwing Workers' Party (PT), who is close to President Luiz Inácio Lula da Silva.

Commodity prices have declined or increased more slowly since August, because of the end of a wave of speculation, but 2009 will still be a difficult year for countries around the world, the minister predicted.

The worst effects will be felt in "fragile countries, that is, the advanced countries" that were directly involved in U.S. bank and investment fund collapses or losses, have a "shrinking" domestic market, and in some cases have serious fiscal deficits and negative trade balances, like the United States, he said.

The "strong countries" at this juncture are the "emerging" economies, which have expanding domestic markets that can offset falls in exports, and a stronger fiscal situation with plenty of foreign exchange reserves, and are not hampered by the "rotten assets" that rich countries now have to absorb, the minister said.

The BRIC countries, with their dynamic economies, will suffer a more moderate impact from the crisis, with a mild slowdown in economic growth. In Brazil, Mantega predicted gross domestic product (GDP) growth of "over four percent" in 2009, and of between five and 5.5 percent in 2008.

There is no comparison between today's "solid" Brazilian economy and its condition in the 1990s, when economic turmoil originating in Russia and Asia consumed the country's entire foreign exchange reserves in just a few days and brought economic growth to an abrupt halt, Mantega said.

The present fall in prices of agricultural and mineral commodities will affect Brazilian exports, which are heavily concentrated in these products, but this will be compensated by devaluation of the national currency against the dollar, he said. Before the crisis, exporters were losing income due to significant overvaluation of the real.

The minister took the opportunity to counter two frequent criticisms of the government's economic policy, maintaining that public accounts "are improving," with increased savings rather than expansion of public spending, as is often alleged by critics.

The external current account deficit, which grew significantly this year, was attributed by Mantega mainly to transfers of profits and dividends from transnational corporations in Brazil to "cover the needs of their parent companies" abroad, at a time of financial crisis.

Economist Fernando Cardim de Carvalho, of the Federal University of Rio de Janeiro, told IPS that seeking to reform the international financial system at a meeting similar to the 1944 United Nations Monetary and Financial Conference at Bretton Woods is not a viable prospect right now.

"There is no consensus," at the moment, and neither is there a dominant world power to "enforce it," as the United States did at the end of World War II, he said.

Cardim, who regards it as an "exaggeration" to speak of a systemic crisis today, said that only "a monumental disaster," more serious than the present one, could produce a global agreement for a new financial world order. Previous attempts, like that of the Basel Committee on Banking Supervision (BCBS), met with failure, he said.

The crisis will continue, however, because the U.S. model of financial organisation, based on independent institutions, "is moribund," and the European alternative of a universal bank has not proved efficient, Cardim said. Uncertainty will reign for a long time to come, he predicted.