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Dubai’s Default Doesn’t Worry Brazil

November 29th, 2009
Central bank President Henrique Meirelles

Central bank President Henrique Meirelles

The president of Brazil’s Central Bank (BC), Henrique Meirelles, said this Friday, November 27, that the moratorium announced by the government of Dubai for the payment of debts of the Dubai World investments fund should not worry the government and the Brazilian banks. For Meirelles, the event is an alert against the “euphoria excess”.

“The euphoria excess problem happens when we think there are no more problems in the world and the first most important problem generates the opposite result,” said Meirelles.

For him, troubles as that in Dubai still can occur all over the world, but they are not so worrisome, nor should they generate a collapse in the global financial system because the international banks are taking steps to tackle situations like these.

“The atmosphere today is of caution, concern. Some banks should lose funds in this institution [Dubai World], but it is not something similar to past episodes,” he added.

In Brazil, however, said Meirelles, the effects should be small because the country is not “exposed to that fund or to that kind of problem”. He added that the country is, moreover, “ready to confront the international market’s mood oscillations. Brazil has its whole arsenal of crisis fighting measures in order, set up, ready,” he stated.

According to Meirelles, the Central Bank got it right when it adopted a policy to keep accumulating reserves. “This Dubai fund episode shows the wisdom of the BC’s policies to keep accumulating reserves, showing that there are uncertainties ahead in the international market. And the fact that we have reserves is a sign of bigger strength and trust in the Brazilian economy,” concluded Meirelles.

Global markets have come under pressure in recent days after Dubai on Wednesday said it would ask creditors of two flagship firms, including conglomerate Dubai World, for a standstill on debt payments as part of a restructuring.

That decision sparked concerns about the financial health of the Gulf region and worries over the potential exposure by banks around the world.

However the Brazilian real closed stronger against the dollar on Friday as concerns about the ramifications of the Dubai debt situation eased. The real ended at 1.7434 to the US dollar compared with 1.750 on Thursday.

Investors ran for cover Thursday on news that Dubai World asked for a six-month stay on debt repayments. Dubai World’s liabilities total about 60 billion USD.

Markets calmed after Finance Minister Guido Mantega and Brazil’s banks said there was no local exposure to the fund, while European banks said they weren’t as exposed to state-run Dubai World’s debt as initially believed.

ABr

Written by Elaine Patricia Cruz

http://www.brazzilmag.com


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