By Elzio Barreto
SAO PAULO (Reuters) - Brazil's government may only have one way to keep the local currency from strengthening too much, former Central Bank President Gustavo Franco said: scrapping all import tariffs so that more dollars flow out of the country.
Franco, who as president of the bank in the late 1990s spent billions of dollars trying to defend a fixed exchange rate, said local companies would buy more foreign goods and seek more dollars in the spot currency market if tariffs were slashed.
The move would help soak up the flood of U.S. currency from surging Brazilian exports, he said.
"Higher imports are the only thing to wake up the exchange rate from its deep sleep," Franco told the Reuters Latin American Investment Summit in Sao Paulo.
Brazil's currency, the real BRBY has traded near a six-year high of 2.067 and could go below 2 reais per dollar soon because of the country's healthy balance of payments, he said.
Politicians and business leaders have called for more vigorous efforts to weaken the real to protect local manufacturers from affordable imports and encourage more newcomers to the export market.
The central bank on Friday raised its forecast for the current account surplus in 2007 to $7.7 billion from $4.5 billion because of higher exports and foreign direct investment.
"Brazil has a huge surplus in the current account that shows no sign of coming down," Franco said. "You can't have lunch and keep your money too." Continued...
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