Latin American Buffered Against Global Shock, World Bank Says
Latin American countries such as Brazil, Colombia and Chile have created a buffer against a global recession after raising interest rates in the past 15 months, the World Bank said in a report today.
In the worst of cases, those countries “could rely on lower interest rates, flexible exchange rates and strong international reserve positions as a first line of defense,” according to the report on the region’s growth prospects. The region should also “rebuild fiscal buffers, to enhance its capacity to deploy counter-cyclical fiscal policy down the line if needed.”
Latin America and the Caribbean is forecast to grow between 3.5 percent and 4.5 percent this year, thanks to capital inflows and high commodity prices, the bank said. That’s down from about 6 percent during the 2010 economic rebound, according to the report.
In the less pessimistic scenario for the global economy, the World Bank foresees emerging markets, including China, continuing to outgrow the developed world, with commodity prices remaining high, Augusto de la Torre, the bank’s chief economist for Latin America and the Caribbean, told a news conference in Washington. In the worse scenario, the economies of Latin America and other emerging markets would also weaken, undermining commodity prices, he said.
Monetary Policy
“Most Latin American countries have suspended their increases in interest rates because central banks have entered into a wait-and-see mode to see what happens internationally,” said de la Torre. “More Latin American countries are making announcements that it is convenient not only to hold off on rate increases but maybe to prepare to lower them” while moving to “reinforce” their fiscal positions.
De la Torre said the emergence of China as a major trading partner for Latin America has been a driver of the region’s robust growth in the past decade, contrary to initial concerns that China “would outcompete and displace” Latin America and the Caribbean.
Earlier today, the International Monetary Fund cut its 2011 economic growth forecast for Latin America to 4.5 percent from 4.6 percent.
IMF and World Bank officials, together with central bankers from the Group of 20 and other countries, are meeting in Washington this week to seek ways of averting European default and containing financial risk.
To contact the reporter on this story: Robert Willis in Washington at bwillis@bloomberg.net.
To contact the editor responsible for this story: Joshua Goodman at jgoodman@bloomberg.net.
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