IMF Gives Latin America a Mixed Report

Latin America is experiencing its “most vigorous three-year period of growth since the 1970s,” but the rate of expansion still lags behind that of competitors, and without more investment it will begin to slow down, the International Monetary Fund said last week.

In its annual economic outlook for the region, the IMF also said that, despite reduced indebtedness, a recent increase in current public spending was “a significant source of concern”.

The improvement in external circumstances has been marked, especially for South American countries. Since the end of 2002 the price of oil has risen by 150 percent and other commodities by an average of 80 per cent.

Only Chile, Central America and some Caribbean countries import fuel, so this trend has paved the way for a significant improvement in the terms of trade –by 23 percent in South America and by 9 percent in Mexico.

Falls in interest rates and a rapid expansion in credit growth, especially consumer and mortgage credit (credit to households grew by 9 per cent in 2005), have also helped boost private investment, especially in Mexico and Brazil.

The fund also praised successful income transfer programmers, such as Brazil’s bolsa família, Chile’s solidario and oportunidades in Mexico, which it said “show considerable promise as a tool for poverty reduction”.

Overall, the fund expects the region to grow by 4.75 per cent this year and by 4.25 per cent in 2007. It said the expansion compared favorably to previous upswings, mainly because governments had been running sizeable current account and primary fiscal surpluses and reducing debt burdens.

However, the report also singled out a number of vulnerabilities. Slower U.S. growth, commodity price volatility and tightening global financial markets are among the external risks, but the fund laid greater emphasis on internal factors.