Most Latin American nations, in the event of another global crisis, are in worse shape to implement stimulus than in 2007 as a result of lower budget surpluses before interest payments, the Inter-American Development Bank said.
Mexico, Chile, Colombia and the Dominican Republic are among nations less prepared to face a potential crisis, the IDB said in a report released at the bank’s annual meetings in Montevideo, Uruguay, today. Brazil and Argentina are in positions similar to those in 2007, while Uruguay and Jamaica are better prepared, the Washington-based lender said.
“The main reason for the deterioration is the widespread reduction in structural primary balances,” the report said.
While so-called primary surpluses have eroded, balance sheets across the region are stronger and financial supervision has improved, making many economies more resilient, the report said. Latin American economies will grow on average 3.6 percent this year after averaging 5.4 percent the past two years, the IDB said.
“If you look at the region, you’ll see a slight deceleration of growth compared to last year,” said Marcos Buscaglia, chief Latin America economist for Bank of America Merrill Lynch. Two exceptions in the region to that forecast are Brazil and Venezuela, he said.
Growth in Brazil, Latin America’s biggest economy, should accelerate through the year after a slowdown in the second half of 2011, Buscaglia said in an interview in Montevideo.
“Monetary policy will be more expansionary than last year, and fiscal policy will be less contractionary,” Buscaglia said.
In the aftermath of the Greek debt crisis, one weakness for the region comes from its dependence on European banks, primarily lenders in Spain, the IDB said. Other potential regional liabilities come from a growing dependence on commodities such as copper, and from higher borrowing costs, the report said, the report said.
A World Bank official said “protectionist” trade measures may hinder the region’s ability to boost long-term economic growth. Argentine Economy Minister Hernan Lorenzino said yesterday that he’s working with colleagues in countries including Chile and Uruguay to resolve trade tensions after President Cristina Fernandez de Kirchner imposed import restrictions last month.
“The short-term tendency is to look at protectionist measures as an option but, in the long-term, it will jeopardize the ability to reach some of the goals that the regional countries would like to have,” Hasan Tuluy, the World Bank’s vice president for Latin America and the Caribbean, told reporters in Montevideo today.
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