LATIN AMERICA

China， Chile celebrate 40th anniversary of diplomatic tiesChina and Chile on December 8， 2010 celebrated the 40th anniversary of diplomatic ties at a reception in Beijing.The Chinese People’s Association for Friendship with Foreign Countries (CPAFFC) and the China-Latin America and Caribbean Friendship Association jointly held the reception.Almost 60 guests attended the event， including Abdul’ahat Abdulrixit， vice chairman of the National Committee of the Chinese People’s Political Consultative Conference， other Chinese officials， as well as Chilean experts and overseas students in China.Addressing the reception， Li Xiaolin， vice president of the CPAFFC， said Chile was the first country in South America to forge diplomatic relations with new China and the first in that region to recognize China’s market economy status and sign a bilateral free trade agreement with China. China and Chile established diplomatic ties in 1970.In the years since 1970， China-Chile relations have developed smoothly， with frequent high-level visits as well as exchanges and cooperation in various areas， especially in the cultural， education， economic and trade sectors， Li said.Chile is China’s second biggest trade partner in Latin America and China is Chile’s largest trade partner. Bilateral trade volume rose 2.1 percent to US17.72 billion in 2010.China and Chile forged a comprehensive cooperative partnership in 2004. China-Chile non-governmental exchanges have growth in strength over the years， Li added. Chile’s ambassador to China Luis Schmidt Montes， spoke highly of the development of Chile-China relations. He said Chile would like to further expand its cooperation with China as the two countries have much to share with each other. (Xinhua) Brazil ups rates and signals more tighteningBrazil’s central bank raised interest rates by 50 basis points and signalled further tightening in the weeks to come as Latin America’s biggest economy seeks to rein in a worrying surge in inflation.In a hawkish statement， the central bank increased the benchmark Selic rate to 11.25 per cent in a move that could lead to further pressure on Brazil’s currency， the real， to appreciate against the dollar.The rate increase was the beginning of “a process of adjustment in the benchmark interest rates whose effects， coupled with macroprudential measures， will contribute to a convergence of inflation to the target trajectory”， the central bank said.The move will ratchet up pressure on the new government of President Dilma Rousseff to make politically difficult cuts in government spending， which is partly blamed for recent rises in inflation.Consumer prices in Brazil rose more than economists expected in December， contributing to year-end inflation of 5.91 per cent， the fastest increase for a calendar year in six years.The central bank’s target for inflation is 4.5 per cent， plus or minus 2 per cent， leading to expectations among traders in the futures market that rates could reach as much as 13.25 per cent this year， according to Bloomberg data. Brazil already has the highest real interest rates， policy rates adjusted for inflation， of any large economy.Ms Rousseff has made lowering rates one of her priorities but must first reverse an increase in the government budget during the past two years， when Brazil spent more to counter the effects of the global financial crisis and then entered an election year.High interest rates and rapid economic growth also have attracted hot-money flows from foreign investors， driving an appreciation of the real against the dollar of almost 40 per cent in two years.“By most metrics， Brazil’s economy closed 2010 overheating，” wrote Tony Volpon， emerging markets economist with Nomura Securities. Ms Rousseff’s first act on coming to office has been to try to combat the appreciation of the real with measures designed to damp speculation on the currency.Brazil’s strong exchange rate contributed to a 40 per cent increase in imports last year， which domestic manufacturers say is threatening to drive them out of business. Ms Rousseff has also promised stringent budget cuts to be implemented next month but analysts believe she needs to act more quickly to convince markets.Nomura’s Mr Volpon said he expected interest rates to increase 150bp during this tightening cycle.“The government’s incorrect emphasis of the ‘currency war’ over the need to detail its fiscal constraints has once again put the central bank in a tough spot，” Mr. Volpon said. (Financial Times)