IMF Downplays Latin American Threat of Contagion

Latin American must resist the urge to boost economic growth as the euro area sovereign-debt crisis probably will create less damage in the developing region than many think, an International Monetary Fund director said today.

“My strong vision is that the spillover or potential effect of Europe´s deterioration on the United States, China and Latin America has been greatly exaggerated,” said Nicolas Eyzaguirre, director of the IMF´s Western Hemisphere division. “Don´t jump the gun. This is the time to build up defenses” in Latin America, he said.

Latin America´s macroeconomic health is “impeccable” as the region will grow 3.7 percent this year, exceeding the global average of 3.5 percent, he said, citing forecasts published in April by the Washington-based lender.

While the price of commodities such as copper have declined, they will remain high from a historic perspective and benefit Latin American exporters including Chile, said Eyzaguirre, who was finance minister for the Andean nation. Latin America will continue to attract foreign investment as liquidity remains elevated in other parts of the world, he said.

“The task of Latin American governments today, in light of this great external bonanza, is to make structural reforms, not pro-cyclical policies,” Eyzaguirre said. “There already is enough pro-cyclicality with terms of trade.”

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