Latin America faces a threat of a resurgence in destabilizing capital inflows that as recently as 2010 caused a rally in the in region’s currencies and other assets if risk aversion dissipates, the International Monetary Fund’s top official for the region said.
Capital flows into the region have maintained a “certain prudence” because of aversion to risk, Nicolas Eyzaguirre, director of the International Monetary Fund´s Western Hemisphere department, told reporters in Punta del Este, Uruguay following an IMF meeting with policy makers and economists.
A combination of high commodity prices, “very strong” growth in Asia and low levels of indebtedness in Latin America, coupled with reduced global risks, may create the conditions for capital to flow toward Latin America over the next two years, he said. The meetings in Uruguay sought to ensure that policies exist to protect financial stability.
“These financial flows, when they´re persistent at important magnitudes, end up generating strong risk taking in the financial sector,” he said. “That´s why we´re being proactive and have been talking today.”
In the year to date, the Mexican, Brazilian, Colombian and Chilean currencies are among the eight best performers among the most-traded 25 emerging market currencies tracked worldwide by Bloomberg.
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