BRASILIA (Reuters) - Brazil will join other big emerging economies and lend money to the International Monetary Fund, contributing $10 billion in a move that President Luiz Inacio Lula da Silva hopes will give it more sway in reforming the multilateral lender.
“That gives us the moral authority to keep pushing for the changes that are needed at the IMF,” Lula said on Wednesday in an interview with Reuters at the presidential residence. “Brazil couldn’t be left out.”
Lula announced the IMF loan one week before he was set to meet his counterparts from key emerging markets in Russia, where leaders of the so-called BRIC nations will gather for the first time to discuss ways to assert a new world order that reflects their growing influence.
His pledge came on the same day that Russia said it would gradually cut its holdings of U.S. Treasuries. Russia’s announcement had driven the dollar lower and forced Brazil’s finance minister to stress that while his country’s loan to the IMF will be made by buying bonds issued by the lender, it is not intended to weaken the U.S. currency.
Lula, 63, has been an outspoken voice calling for a greater role on the global stage for developing countries like the BRICs, a now-famous acronym coined by Goldman Sachs in 2001 to describe the up-and-coming economies of Brazil, Russia, India and China.
The charismatic former union leader said he would urge his counterparts at the BRICs summit in Yekaterinburg to forge a common position on reforming multilateral organizations like the IMF and the United Nations Security Council.
“The BRICs need to establish a common strategy in our negotiations with other blocks, in our negotiations about the U.N.,” said Lula, who has made raising Brazil’s international profile a priority of his presidency.
Brazil is not the only big emerging market that has decided to help capitalize the IMF. China has pledged $40 billion for the lender and Russia has agreed to give it $10 billion.
Finance Minister Guido Mantega said on Wednesday Brazil’s contribution to the IMF will be made through the purchase of bonds linked to so-called Special Drawing Rights, helping the South American country diversify its more than $200 billion in international reserves.
Lula, whose approval rating is hovering at a sky-high 80 percent, said the IMF loan is part of a broader push by Brazil to assert its influence in global institutions, an issue that will be high on the agenda at next week’s summit.
With the BRIC nations now accounting for about 22 percent of the world economy, Lula said the time had come for multilateral institutions to reflect that importance.
“The good news is that rich countries are in crisis and that emerging countries are making a huge contribution to save the economy and, consequently, save the rich countries,” Lula said.
“Wealthy countries are no longer the only ones that account for the world’s production capacity and consumption,” he added, saying the BRICs should work together to “change the political and trade geography of the world.”
One way Brazil is looking to boost ties with emerging economies and raise their profile in global financial circles is by pursuing trade transactions in local currencies instead of the U.S. dollar.
On a trip to China last month, Lula proposed that their central banks work together so some bilateral trade transactions could be conducted in Brazilian reais and Chinese yuan. Brazil has already started a similar push with neighboring Argentina, though it has yet to take off.
Brazilian officials said in recent weeks that reducing the world’s reliance on the U.S. dollar would be on the agenda at the upcoming BRICs summit.
While Lula said Brazil would like to eventually pursue trade in local currencies with other countries besides China and Argentina, he cautioned that the objective isn’t to replace the dollar as the world’s reserve currency.
“All we want to do is facilitate trade flows between countries,” Lula said.
“We recognize the importance of the dollar, and we recognize the importance of the United States,” he added. “But we also understand that, at this time of change in which no one really knows what is going to happen, it makes sense to start discussing things that five years seemed almost prohibited.”