Geithner in Brazil to bolster US economic ties

SAO PAULO – U.S. Treasury Secretary Timothy Geithner met with Brazil's leaders Monday looking to bolster ties before next month's visit by President Barack Obama and foster teamwork on economic issues such as confronting China on its currency.

Geithner, taking questions from economics students in Sao Paulo, said Brazilian and U.S. "interests are fundamentally aligned" and the countries have "very similar interests in what we want to build globally."

Economic relations between the U.S. and Brazil have frayed in the past few years. Former Brazilian President Luiz Inacio Lula da Silva blamed the U.S. and other wealthy nations for creating the global financial crisis and not doing enough to halt it.

In recent months, Brazilian Finance Minister Guido Mantega blamed both the U.S. and China for a global "currency war" that has caught nations like Brazil in an economic crossfire by putting upward pressure on their currencies. That makes Brazilian goods less competitive abroad and imports more affordable at home, eating into the domestic market.

Since President Dilma Rousseff took office Jan. 1, however, there are growing signs in Latin America's biggest economy of worries about losing out to Chinese products that critics say are cheap because of China's refusal to allow its currency to appreciate as the market would dictate.

A survey last week of 1,529 manufacturing companies in Brazil indicated 45 percent of them were losing business to Chinese competitors within Brazil.

China has surpassed the U.S. as Brazil's biggest trading partner. While Brazil maintained a $5 billion trade surplus with the Asian giant last year, it was on the back of commodity exports, stoking worries that this is hurting Brazil's ability to develop its industrial sector.

Washington and U.S. companies have long been critics of Chinese policies that keep its currency low relative to the dollar.

While not naming names, Geithner made the case for Brazil to lean toward the U.S. argument on China's currency, saying that "there are a significant number of emerging economies outside this region that are running exchange rate systems that are designed to try to preserve undervalued currencies."

"We need to see more progress toward more flexible exchange-rate systems where they're not flexible," he added.

In Sao Paulo, Geithner met with several business leaders and spoke with students at the Getulio Vargas Foundation.

Later, he talked with Rousseff and other officials in Brasilia before heading back to the U.S.

"We are focused on how to take advantage of this moment to strengthen our economic ties between the U.S. and ... build a more balanced, more stable, stronger multilateral system," he said after meeting Rousseff. "We have a very productive relationship now and we're going to build on that."

Erasto Almeida, a Latin America analyst with the Eurasia Group, said there has been a split within Brazil's government between those viewing China as a powerful strategic political partner and those looking more at economic issues, who see it as a rival.

During Silva's eight years in office, Brazil took on a more muscular foreign policy and pushed hard for so-called "south-south" ties, rather than fierce competition with other emerging market nations like China.

But Almeida said Rousseff's administration appears to be giving more voice to those within the government who are aware of the threat China poses to Brazilian industry.

"Under Rousseff, the more political view of China won't go away, but there is going to be more emphasis put on the more economic view," he said. "There is a growing concern within the government about the currency."

Michael Shifter, president of the Inter-American Dialogue, said U.S. and Brazilian officials may be using the China issue to improve relations strained during the fallout of the global financial crisis.

"In the last two years the policy differences between the U.S. and Brazil have gotten most of the attention," Shifter said. "Today both governments are seeking common ground, and China's currency question can help bring them closer together."

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Associated Press writer Marco Sibaja in Brasilia contributed to this report.