MercoPress. South Atlantic News Agency

IMF good marks for Mercosur members

Economic prospects for several Mercosur country members, Argentina, Brazil, Chile and Uruguay in 2005 and 2006 are the best of the Latinamerica and Caribbean region, according to the latest International Monetary Fund “World Economic Outlook”.

However Brazil, Argentina and Uruguay are also highly vulnerable and face important risks because of their high public debt exposure.

Argentina with a GDP expansion of 9% was one of the most dynamic economies of the region in 2004, stimulated by robust private sector investment and with an outstanding fiscal performance achieving an estimated 5,1% primary surplus budget, reports IMF.

Sustained high growth in Argentina in 2005 will depend on normal relations with all private creditors, a greater advance in structural reforms and a prudent fiscal policy.

IMF estimates a 6% expansion in 2005 and at least 3,6% in 2006.

In Uruguay, 2004 recovery was above all expectations reaching 12% GDP expansion an financial indicators continue to improve, points out the IMF report. Nevertheless and even if expansion consolidates next year, public debt is "too high" and will be a problem for the newly arrived Tabare Vazquez administration since the GDP/Debt ratio makes Uruguay extremely vulnerable to international turbulences.

Brazil is by far the country which received most praise from the IMF for its strict adherence to solid macroeconomic policies and its constant search for structural reforms. This enabled to economy to expand strongly last year 5,2% and is expected to keep the pace in 2005 with a 3,7% growth and 3,5% in 2006. Fiscal performance by the Lula da Silva administration was also underlined with a 4,6% GDP budget primary surplus in 2004, a policy which IMF strongly recommends in 2005 and 2006 to continue reducing the GDP/Debt ratio. IMF however points out that Brazil must continue advancing with reforms to the pensions and tax systems, as it did last year with legislation involving bankruptcy, judiciary and private/public business associations. IMF believes conditions in Brazil are favourable to continue pushing ahead with the reforms agenda.

Chile as in the past, was praised as the soundest and most stable economy of the region with an annual GDP 6% expansion in 2004, record exports and an overall budget surplus equivalent to 2% of GDP. Forecast growth in 2005 is 6,1%, 5,4% in 2006, with inflation in the 2-4% range target. The Chilean economy is vigorously expanding saddled on exports (copper is selling at an almost record 1,50 US dollars per lb) and private investment, reads the IMF report.

Regarding inflation which in 2004 increased both in Argentina and Brazil, IMF attributed it to the fast current expansion and minimized its potential for the second half of 2005 and in 2006.

But Brazil must persist with an austere fiscal policy to ensure a reduction of the overall GDP/Debt ratio. A similar recommendation, in spite of the first quarter inflation sprint, was also suggested for Argentina.

"A prudent fiscal policy will help the gradual elimination of distortionate taxes, increase social expenditure and infrastructure investment, and bring down unemployment".

IMF highlights that overall Latinamerica and the Caribbean with a 5,7% growth in 2004 recorded the highest expansion since 1980. Growth was particularly vigorous in Argentina, Venezuela and Uruguay which are recovering from deep recessions and in Brazil and Chile which continue to benefit from structural reforms and healthy macroeconomic policies.