MercoPress. South Atlantic News Agency

IMF: imperative for Latinamerica to cut growth of public spending

“Overheated” economies and risks of inflation

The International Monetary Fund once again warned Latin American nations with fast growing economies of the risk of “overheating” due to strong domestic demand, which would cause “inflation and widening of current account deficits.”

On its regional report “Heating up in the South, Cooler in the North,” presented Tuesday in Bogotá, the IMF repeated its forecast for Latin America, which foresees that the GDP in the Latin America and Caribbean region is set to expand by 5.7% in 2010 and 4% in 2011.

The South American region continues to be the most favoured region due to high international commodity prices and easy access to international finance, for which growth in some countries is projected to exceed 7% this year. The organization warns, however, to avoid possible excesses of demand and finance, since they would reach “unattainable levels.”

“Despite a beneficial rapid growth by domestic demand, which allowed these economies to recover, their rapid, continuous expansion, might cause overheating,” the report says.

Therefore, the IMF considers it “imperative” for those countries to ”end stimulus policies on time, at the same time assuring that the combination of fiscal and monetary policies does not exacerbate capital entry.

As a first immediate measure, the report points to fiscal policies, emphasizing of cutting down the growth of public spending.