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Bank of Canada says market key for growth, social policy

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Brazil proves that market forces can both boost growth and curb inequality, the Bank of Canada's No. 2 policymaker said in Sao Paulo on Monday.

In a speech that defended the pro-market focus of a capitalist system, Tiff Macklem, senior deputy governor at the Bank of Canada, applauded Brazil's policies and its record on reducing the gap between rich and poor.

He acknowledged that the global financial crisis had hit the poor hardest and had increased inequality in many countries. But Macklem said movements like Occupy Wall Street were wrong to think the remedy was abandoning market-based economics.

"From the supporters of the Occupy Wall Street movement to the editors at the Financial Times, the market economy is under acute scrutiny," he told the Brazil-Canada Chamber of Commerce.

"The economic record of our countries (Canada and Brazil) in recent years provides an important counter-example to those questioning capitalism," Macklem said. "Markets work better than anything else. They have proven over time to be the best generator of prosperity."

Macklem said countries needed a correct policy framework, while central bankers needed to ensure prices and financial markets remain stable.

He noted that Brazilian policies that had helped lift people out of poverty went beyond social programs and included a move to inflation targeting, a flexible exchange rate and fiscal reforms.

Blaming loose monetary policy in developed economies for the heavy flow of foreign cash into her country, Brazilian President Dilma Rousseff - a left-wing militant turned technocrat - on Monday extended the scope of a 6 percent tax on foreign borrowing. Strong capital inflows have boosted Brazil's currency and hurt the industrial competitiveness.

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