São Paulo – In an article published this Wednesday (4th) on the International Monetary Fund (IMF) blog, the organization’s Western Hemisphere Department director, Nicolás Eyzaguirre, stated that the region is not free from spillover of the crisis now taking place in wealthy countries, especially in Europe. He said the estimates for Latin America, which the Fund will issue on the 24th, will be no better than those published in October 2011. On that occasion, the IMF forecasted that the region’s Gross Domestic Product (GDP) will grow by 4.3% this year.
Eyzaguirre claimed that for as long as the European crisis remains under control, the “most likely” scenario is for Latin American growth to remain positive, though at a lower rate than in 2010 and 2011. However, should the risk increase, the region will suffer the consequences. This is so, according to the IMF executive, because Eurozone banks keep 25% of their assets in Latin America. The banks, he said, are adopting more conservative measures and restricting access to credit.
“Though these banks have prudently funded their Latin American activities largely through local-currency deposits, reducing their vulnerability to a dollar funding squeeze, fewer external credit lines available to banks could trigger a credit crunch in Latin America,” said Eyzaguirre. He stressed that in case Europe’s problems spread to other countries, raw materials prices could drop, which would be “toxic” to the growth and stability of Latin America.
The economist said Latin Americans may address the crisis by maintaining their public finances in order, increasing scrutiny over financial systems and stepping up public spending to curb an eventual slowdown. The latter, however, should only take place if “risks appear.” However, Eyzaguirre said the macroeconomic situation of many countries in the region is solid.
*Translated by Gabriel Pomerancblum
