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Speech of Luiz Inácio da Silva, President of Brazil,
at the Plenary Meeting of the G20 Ministers of Finance

Sao Paulo, November 8, 2008
[Portuguese version] [Listen in Portuguese]

Mr. and Mrs. Ministers of Finance and Central Bank Governors,
Members of the delegations,

I would like to welcome you all to this important meeting that we have the honor to host.

The world economy faces its most severe moment in decades. Measures taken by governments have prevented the worst from happening, but there are still many things to be done. There are still risks and uncertainties on the behavior of the economy, on the impact of the crisis on trade, on international finances, and in developing countries,.

However, one thing is clear: the disorder that has taken place in the world finances in the last year is now threatening the real economy. The price we are paying for this lack of responsibility can be measured in many ways.

For us, what matters is the threat of a general recession, and as a result, the loss of millions and millions of jobs, the increase in poverty and social exclusion. The panic that has taken control of so many places must not affect other productive sectors. It is our duties, as world leaders, to make sure we act with serenity and responsibility and not driven by fear.

But this is a world crisis, it demands global solutions. This is the time to make proposals for a substantial change in the world financial architecture.

The crisis started in advanced economies. It is a result of the blind belief in the market’s self-regulation capacity and, by and large, of the lack of control of the activities of financial agents.

For many years, speculators have made excessive profits, investing money they did not have in miraculous business. We are all paying for this adventure. This system, just like a card castle, collapsed and ceased the dogmatic faith in the principle of no government intervention in economies.

Many of those who would abhor a stronger role of governments in the economy are now desperately asking for their intervention.

In my opening speech at the UN General Assembly, I stated that it was time for politics and now, I join those who believe it is time for change.

Decisions that were once from the private sector have to be brought to the public level. It is widely acknowledged that G-7 is no longer able to deal with the world economic issues alone. The contribution of emerging countries is also essential.

We need a new, more open and participative governance. Brazil is ready to take up its responsibility. This is not the time for narrow-minded nationalism, and individual solutions. This is the time for an agreement among governments to create a new world financial architecture, that can promote safety and development in equal bases for all.

These reforms must be guided by the following principles:

Representativity and legitimacy: Global financial institutions must fit in the new economic reality. They must open up for greater participation of emerging and developing countries;

Collective actions: Risk situations and shared costs call for collective responses, both to design the solutions, and to implement coordinated national policies.

Proper governance of the domestic markets: The importance of credit, the growing risks, and the complexity of financial markets demand enhancing the mechanisms of regulation, surveillance, corporative governance and risk assessment. In these activities, governments must try to find the balance between the efficiency of financial markets, the stability of all the markets, and promotion of financial development.

Accountability: The policies of each country cannot transfer risks and costs to other countries. Each country must take up its own responsibilities. Nationally, those sectors whose policies expose society to great risks, must contribute, even financially, to the solution of the crisis and recovery of stability.

Transparency: Private financial agents must comply with internal corporate governance and infomation transparency rules that are relevant to the market and society, especially those regarding risks and assets.

Prevention: National policies and international financial institutions must include prevention of financial crisis, surveillance mechanisms, and market follow-up in their policies. In this context, G-20 has a lot to contribute. It is a representative dialog forum bringing together rich and emerging countries. Overcoming the current crisis entails the cooperation of these two groups of countries, taking into account the opinion of the world community.

Wealth is still concentrated in the so-called developed countries; however, economic growth is stronger in emerging and developing economies. The International Monetary Fund estimates that, in the last years, the emerging countries have accounted for 75% of the growth in the world economy. This trend will be mantained in 2009.

Ladies and Gentlemen,

No country is safe from the financial crisis. We are all being affected by the problems that started in the advanced countries. The collapse of trust in developed countries’ financial markets created a credit crunch all over the world. The crisis made banks both in the U.S. and Europe stop lending.

For those less capitalized, external financing shortage may lead to problems of balance of payments. Even for the more prepared countries, such as Brazil, loans will cost more. Foreign investment funds are withdrawing their applications in the stock market of emerging countries to make up for losses they had in advanced markets. This loss of resources affects balances of payments and impairs company financing.

Developed countries and institutions, such as the Internacional Monetary Fund, must adopt measures to restore liquidity in internacional markets.

The main concern about the crisis is its impact on trade. With the previously announced recession, rich countries will reduce their imports, which will affect the balance of trade of poor countries. Nobody wants this reduction in world trade.

Brazil believes countries must avoid the temptation of resorting to financial and trade protectionism as a mechanism to overcome the crisis.

Lessons learned from 1929 crisis should serve as an alert for everybody. At the time, unilateral decisions only extended the economic depression and increased suspicion. It is time now for coordenated actions. But it is up to rich countries to start them. We expect them to adopt the main measures.

On October 27, we met in Brazil with Chancellors, Ministers of Finance and Governors of MERCOSUR and associated countries’ Central Banks – in other words, with all South America. We came to the conclusion that we need more integration, more trade, less distortion, and less protectionism.

Time has come for the final boost in the negotiations of Doha Round Table. A more open world trade is an excellent antidote to the crisis. Actually one of the best anticyclical measure we will take. Closing this Round Table is no longer an opportunity; it is now a need. Many proposals have already been put forward. We just have to smooth some rough edges. We must make a stand. Developed countries must not, at the moment, increase the demands on developing countries.

Ladies and gentlemen,

This crisis has not caught Brazil off guard. Our economic foundation is consistent. My administration and our society have made sacrifices and we are now bearing the fruits of our hardwork.

In 2007, our GDP increased by 5.4% and we expect it to go up by 5% this year. This growth is achieved through social justice. In the past years, we have rescued 9 million from abject poverty and another 20 million climbed up the social ladder to join the middle class contingent in Brazil. We expanded our internal market, which protects us a lot from the internacional turbulence. We have diversified our exportation market.

So far enhancement of regional integration and increase of trade with other developing countries have played an essencial role, and will be in the future... Inflation has remained on low levels. Public accounts are in order. Brazil has had a primary surplus around 4% since 2004, and our public debt today is at 37% of GDP, and will continue to fall.

Since 2007, Brazil went from being a debtor to being a nominal creditor in the international market. Our international reserves are over US$ 200 billion, an increase of US$ 143 billion since March, 2006.

This positive scenario allows us to navigate through the crisis with responsibility and confidence. We are alert though. We are not standing still. The government will not let our growth be compromised. We will keep all infra-structure work of our Growth Acceleration Plan.

The Minister of Finance and the Central Bank are taking the necessary measures to increase internal financing and facilitate credit to foreign trade. We are working to make sure our banking system keeps showing appropriate liquidity levels.

Ladies and gentlemen,

This meeting has the task to start the design of a new world financial architecture. It is a preparation for the meeting in Washington, next Saturday, where we will try to better diagnose and formulate global alternatives and other meetings that will follow. To attain true solutions, we need to make a joint effort, overcoming the temptation of taking unilateral measures.

I stress what I said before. We have to increase the participation of developing countries in the decision mechanisms of the world economy. We must review the role of existing organizations, and create new ones, so that we can strengthen financial market supervision and regulation.

We must increase transparency with new universal mechanisms to review domestic policies for financial markets. After all, it is human lives that are at stake!

During crisis, History opens up great opportunities for real changes. We can see not only the mistakes for the past, but also the promises for the future.

Billions of human beings – especially those more vulnerable – hope that we can face the challenges imposed by reality. We cannot, we must not, we have not the right to fail.

Thank you very much and have a very productive meeting.

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Source: Ministério de Fazenda, Brazil

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