Oct. 17 (Bloomberg) -- Brazil could experience a flight of capital should the European sovereign-debt crisis worsen, and the country may use interest rates and U.S. dollar reserves to combat contagion, an International Monetary Fund director said.
A worsening of debt problems in Greece and other European countries would first affect Brazil’s financial markets over other parts of the economy and could have consequences on trade, IMF Executive Director Paulo Nogueira Batista Jr. said in an interview in Paris yesterday. He said he doesn’t expect an exacerbation of the crisis.
Group of 20 finance chiefs last weekend urged European leaders to deal “decisively” with the turmoil when they meet for emergency talks on Oct. 23 and to tame the threat of contagion by maximizing the firepower of their 440 billion-euro ($610 billion) bailout fund. Brazilian Finance Minister Guido Mantega said yesterday the country could suffer knock-on effects from Europe’s debt problems and will react accordingly.
“If the crisis becomes more acute, Brazil may face capital flight,” Batista said. “The four points that give the country an advantage in times of turbulence are its international reserves and its leeway with interest rates, the exchange rate and reserve requirements.”
Batista, alongside Mantega, took part in the meeting of finance ministers and central bankers in the French capital last weekend to prepare for a Nov. 3-4 summit of G-20 heads of state in Cannes, France. He represents Brazil, Colombia, Ecuador, Guyana, Haiti, Panama, the Dominican Republic, Suriname and Trinidad and Tobago at the IMF.
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