MercoPress. South Atlantic News Agency

Interest rate hike threat for Latinamerica.

The World Bank's main economist for Latinamerica and the Caribbean said that insufficient investment in education and accumulated debt are the main threats to the region's economies, particularly now that the US Federal Reserve has began to raising interest rates.

Economist Guillermo Perry addressing an economics forum in Santiago titled "Latinamerica growing again: opportunities and risks" forecasted that the next two years will be favourable for Latin America's economy but warned that the greatest risk is the "increase in US interest rates".

One of the scenarios Mr. Perry analyzed was if Asian Central Banks cease to purchase US Treasury bonds which currently help to finance the US budget deficit equivalent to 5% of GDP.

"This would force the Federal Reserve to rapidly hike rates and consequently balloon Latinamerican countries debts".

Mr. Perry added that the current US budgetary and foreign trade situation with great deficits is "not sustainable in the mid term" and must be addresses.

However economist Perry ventured that there's an 80% chance that the Fed will not have to raise interest rates above 2%.

In related news a report from the International Monetary Fund, IMF, recommends indebted countries to have "greater fiscal and monetary credibility" and "protect claims of private creditors".

"The credibility of monetary and fiscal policies is an essential pre requisite to ensure private investors willingness to hold on to local currency long term bonds", says the report adding that a combination of macroeconomic stabilization together with institutional and structural reforms are needed to achieve this objective.

Besides governments must find ways "to protect private creditors in disputes over sovereign debts", which could help to reduce the cost of credit and increase market access for indebted countries.