Forex-PK

20 May 2009

BEIJING: Brazil president said on Tuesday in China that the two nations had achieved a century worth of results in a mere generation, as he witnessed the signing of several large business deals cementing ties.

Luiz Inacio Lula da Silva spent a day meeting with Chinese leaders in Beijing, during which analysts said he could broach a plan to ditch the US dollar in his nation trade with China.

In just 35 years of diplomatic relations, Brazil and China have more to celebrate than countries that have had relations for more than 100 years, Lula, on a three-day visit, told Hu inside the Great Hall of the People in Beijing.

Among the deals signed was a $10 billion loan extended by policy lender China Development Bank to Brazilian state oil company Petrobras, reflecting Brazil growing ambition of obtaining Chinese funding. Petrobras also inked a 10-year pact for the delivery of up to 200,000 barrels of crude daily to the energy-craving Asian giant.

All eyes were on whether China and Brazil would discuss ditching the dollar in their bilateral trade and replacing it with their own currencies, the yuan and the real.

It is absurd if two important trading nations such as ours continue to carry out our commerce in the currency of a third nation, Lula said in an interview published in the most recent issue of China Caijing magazine. But if he discussed the issue with China leaders, it was not publicly announced.

Lula first broached the idea with Hu at the April G20 summit in London and said he would raise the issue on his visit to China, in what would be another challenge to the dollar special status as the leading global currency.

Already in March, China central bank governor Zhou Xiaochuan made waves when he suggested dumping the dollar as the global reserve currency and replacing it with a different standard run by the International Monetary Fund.

Zhou and his Brazilian counterpart were due to meet soon to discuss the matter, the Financial Times reported on Tuesday, citing an official at Brazil central bank.

Everybody has realized that the currency and debt crises in many countries and the global economic crisis are linked to the dollar standard, said Zuo Xiaolei, a Beijing-based economist with Galaxy Securities.

It is unlikely for them to change the global currency system overnight, so what they are trying to do now is something regional and defensive.

China, an energy-hungry nation that is hugely interested in Brazil natural resources, in March became the Latin American nation biggest trading partner, ahead of the United States.

Brazilian exports to China, mainly iron ore and soya products, so far this year have grown 65 per cent over the same period in 2008, a jump from $3.4 billion to $5.6 billion.

China and Brazil also signed other agreements on Tuesday, including an $800 million credit loan between Brazil National Bank for Economic and Social Development and the China Development Bank.

Lula, who was in China between visits to Saudi Arabia and Turkey, said in a comment piece in the official China Daily on Tuesday that strengthening diplomatic and economic alliances with other key developing countries was a pillar of Brazil foreign policy.

The systemic challenges facing the world economy underscore the growing responsibilities of emerging economies, he wrote. Concerted efforts and dialogue will be required among developing countries for their voice to be increasingly heard on the global stage.

Lula also met a number of other leaders on Tuesday, including Premier Wen Jiabao and Vice President Xi Jinping, widely seen as the heir to the presidency once Hu retires, probably in 2012 and 2013. Lula is scheduled to leave China on Wednesday.