MercoPress. South Atlantic News Agency

Regional committees downgrade Latam growth prospects

Cepal Director Jose Luis Machinea

The United Nations Economic Committee for Latinamerica and the Caribbean, Cepal and the Andean Promotion Corporation, CAF downgraded their prospects for the region's growth this year fearing the impact of a recession in United States.

Cepal dropped its estimate from 4.9% to 4.5% and CAF forecasted growth in Latinamerica to be in the range of 4% in 2008. "For the moment we have a situation in Latinamerica that instead of growing 4.9%, we should be closer to 4.5% in 2008", said Cepal Director General Jose Luis Machinea, who added that "if the US deceleration is even more intense or becomes a recession, we would then have a different scenario". In 2007 the hemisphere economies expanded an average of 5.6%. CAF pointed out that in spite of current prospects, it will be issuing bonds valued in 1.2 billion US dollars in world financial markets, which represents a 67% increase over 2007. CAF already successfully floated a 250 million US dollars bond this month in the US market, its first this year. "The fact that CAF is a well established institution at world level with a high credit rating means we have the capacity to float in international markets even in volatile moments", said Enrique García from CAF. Last year CAF managed to collect 6.6 billion US dollars in financial markets most of which was earmarked for production projects in member countries. CAF is made up of almost all Latinamerican countries, including power horses Brazil, Argentina, Venezuela, Chile, Colombia plus Mexico and Spain as well as 15 regional private banks. Machinea indicated that the region is better prepared than when the financial crisis of the nineties and early century, but admitted that "we still have ahead strong volatility periods" and "many turbulences" in financial markets. However "definitively the region is better prepared for when the international financial crisis of the past, which does not mean they are non vulnerable. If there's a significant drop in US economic activity, this will undoubtedly have an impact in the region". Machinea underlined that the fiscal performance of the region this decade has been "exemplary" since public debt dropped drastically and beginning in 2003 to 2006 "most countries in the region begun to show primary surplus in their budgets". But he also warned that 2007 showed an overall increase in governments spending which can be risky in an incipient inflationary scenario, particularly when the lack of fiscal discipline leads to an increase in interest rates, in a world context of falling rates, "which attracts an inflow of capital and a greater appreciation of local currencies". Therefore fiscal responsibility, macroeconomic stability, improved quality government spending combined with greater transparency in government actions and accountability are the essence of successful democracies that deliver, he underlined.