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[Courrier International, France]



Estadao, Brazil

After the G-8: It’s Every 'Man' for Himself


"Out of everything that was said during the summit there was only one clear message - and it was not encouraging … Every country will have to take care of itself, if it can."


By Rolf Kuntz*


Translated By Brandi Miller


July 10, 2008


Brzail - Estadao - Original Article (Portuguese)

Based on the evolution of the futures markets, oil prices should fall only gradually over the next five years, according to a report by the International Monetary Fund (IMF). Food prices are also expected to decline gradually - in a relatively shorter interval. Some recent price quotes and forecasts have already influenced the trade in wheat. But the cost of raw materials, largely determined by the price of oil and its derivatives, will continue to weigh heavily. None of these projections were altered by the pointless G-8 summit, made up of the seven leading capitalist economies and Russia.


Out of everything that was said during the summit which ended yesterday in Hokkaido, Japan, there was only one clear message - and it was not encouraging: the great powers have no joint approach with which to tackle the global economy's momentous difficulties. Every country will have to take care of itself, if it can - which is possible in Brazil’s case - and the poorest and most affected by the food crisis and high oil prices can expect only modest assistance to avoid sinking into misery and social and political chaos.


For now, such assistance is being provided primarily - and almost exclusively - by the World Bank and the IMF. The Fund is already committed to programs in Benin, Burkina Faso, Kyrgyzstan, the Central African Republic, Haiti, Mali and Niger - and may be able to extend relief to other economies buffeted by the external shock. 


With no future action being articulated, each government and each central bank will have to chart their own strategies to halt the surge in prices and avoid the escalation of inflation, which is especially devastating for those on a salary and in general, for the poor. The most rational message transmitted in Hokkaido was from the IMF's managing director, Dominique Strauss-Kahn, who was invited to the G-8 event. "When you worry about high oil and food prices, you should be concerned about growth, but even more concerned about inflation ," he recommended. The expansion of the global economy has already been undermined by the surge in oil prices - which are up close to 70 percent since the beginning of the year. This should reduce economic growth in 2008 by between .75 and 1 percentage point. But the inflationary pressure is not confined to oil and food markets, noted the IMF managing director.


The challenge now, Strauss-Kahn said, is to limit the secondary effects, the more wide-ranging price increases. The IMF managing director argued that if the contagion continues, market adjustment will be retarded, anxiety over inflation will hamper growth and the poor will be disadvantaged, since they are the least capable of defending themselves from inflation. 



In Brazil, the contagion is more and more evident. Already, it's not just a case of imported inflation or pressure that is localized within particular sectors.


In the Brazilian economy, the permanence of indexed contracts [contracts under which the terms depend on fluctuating commodity prices] raises the risk of transmitting high prices. This risk is increasingly clear in the evolution of the General Price Indices (GPIs) calculated by the Getúlio Vargas Foundation . The Foundation's "General Price Index - Domestic Availability from June," released yesterday, rose 1.89 percent in June. The 12-months increase reached 13.96 percent. The Wholesale Price Index (WPI), the most important item in the general index, rose 2.29 percent over the last month and 17.9 percent over the last 12 months.


The increase in wholesale prices doesn't necessarily transfer to retail, but such a result is more and more likely as prices rise and demand drops, therefore affecting the resilience of each link in the chain of production and supply of merchandise.


At this stage, the great task of monetary authorities is to create barriers to prevent the contamination of prices and salaries. The increase of inflation was classified by the National Confederation of Industry (CNI, represents Brazilian industry) as "the principal economic focus for the first semester [the first half of the year]." In its newest report on economic conditions released yesterday, the projection for growth in 2008 fell by 5 percent to 4.7 percent. The expected rate of inflation rose from 4.7 percent to 6.4 percent, nearing the target ceiling of 6.5 percent.


The CNI hasn’t condemned the government's interest policies. On the contrary: it welcomes as positive the "possibility of a greater link between fiscal and monetary policies," given the government's promise to increase the budget surplus to 4.3 percent of Gross Domestic Product. There are those that call this "line" insufficient, but the Finance Minister [Guido Mantega ] prefers to call those who demand more action be taken against higher prices "alarmist. "


*Rolf Kuntz is a journalist.





































[Posted by WORLDMEETS.US July 13, 1:41pm]