MercoPress, en Español

Montevideo, February 6th 2023 - 22:01 UTC

 

 

IMF calls for fiscal austerity in South America but admits “dilemmas”

Saturday, February 12th 2011 - 08:08 UTC
Full article 3 comments
 IMF Director for the Western Hemisphere Department Nicolas Eyzaguirre  IMF Director for the Western Hemisphere Department Nicolas Eyzaguirre

IMF warned inflation is threatening South America but also admitted countries had a dilemma since increasing interest rates could further worsen the appreciation of local currencies vis-à-vis the US dollar.

“Inflation is growing” said IMF Director for the Western Hemisphere Department Nicolas Eyzaguirre and this is not only limited to “food and fuel prices”. Regional economies are clearly over-heated, he added and “this is a problem”.

Eyzaguirre mentioned internal and external elements as responsible for the situation. Domestically elevated government spending is justified when facing a financial and economic crisis, “but not at boom times”, such is the case.

“It’s time to change” he insisted pointing out that governments in the region last year continued with stimuli policies as if the crisis was still present and actually “it was the opposite”.

Eyzaguirre mentioned as an example to follow Brazil’s recent decision to trim the federal budget. “It’s a strong signal”, but also admitted that other factors also influence and are pushing prices.

The IMF official specifically mentioned the strong demand from China which increases commodities prices, and the massive influx of capital to the region which is expected to reach record levels in 2011.

The combination of expansive fiscal policies, easy access to credit, high prices for commodities and the abundant liquidity in the rest of the world means there’s a big party in the region with plenty of “vodka, gin, beer and good music”.

And to avoid a serious hangover, “fiscal austerity is a must.

But Eyzaguirre also pointed out that things are a little more complicated because if central banks raise interest rates to cool their economies, “strong currencies will become even stronger”.

“So we have different dilemmas when attempting to contain the surge”, and this requires a global balancing act, which means leading countries such as China should prop domestic demand while softening their aggressive export model.

Eyzaguirre said Beijing should appreciate its currency at a faster rate, although “this will not necessarily happen”. Furthermore the world is growing at different rates, faster in developing countries and anaemically in developed nations so “it’s not impossible that we should be experiencing tensions”.

Eyzaguirre finally forecasted that the surge in commodities prices will probably continue for some time since “China has room to keep expanding” and the current decoupling between emerging and developed economies can be expected to persist.

“I don’t see Latinamerica collapsing in the near future” although if commodities’ prices dropped abruptly, “vulnerabilities would be exposed immediately”.
 

Categories: Economy, Politics, Latin America.

Top Comments

Disclaimer & comment rules
  • Forgetit87

    ““So we have different dilemmas when attempting to contain the surge”, and this requires a global balancing act, which means leading countries such as China should prop domestic demand while softening their aggressive export model.”

    Curious how IMF manifestations always happen to coincide in scope with the US agenda. China has its own problems with inflation. If it decided to spur domestic consumption at the expense of exports, inflation would become an even greater problem to that country. It's weird how the IMF can bald-facedly exhort a country to take steps that go against its own best interests.

    The commodities bubble is none of China's fault. Even semi-stagnated countries that don't export much of anything to China - eg, the UK - have been struggling with food inflation. This is so because the spike in food prices has been provoked by excessive liquity in capital markets, something that resulted from US quantitative easings and interest rates cuts in developed markets. If anyone is to blame for high commodity prices, it is those countries, especially the US. But of course, an IMF pussy would never dare saying that.

    The poor judgment of this man is further shown in the fact that he says LatAm economies are “clearly” over-heated. It wasn't even a week ago, however, that official data released by Brazil - a country that has also been struggling with inflation - showed its industrial output fell sharply in December: a sign that its economy is not overheated, that there's no demand inflation, and that any inflation is the result of external liquity.

    Feb 12th, 2011 - 08:53 am 0
  • I

    #1 I think you are over analizing it, it all boils down to food shortages, over population and lack of resources, if you also add global warming and the negative effects on farming and yeld you might be on a better track to figure out the reasons for inflation. Egypt and Tunisia had a food shortage problem as well, but IMF as you pointed out has ulterior interests vested in priviledged members, mind you the voting members are the country who put the money to finance the many programs.
    http://www.thesundayleader.lk/2011/02/13/food-shortage-and-inflation-a-world-crisis/
    http://www.thesundayleader.lk/2011/02/13/food-shortage-and-inflation-a-world-crisis/
    http://www.thesundayleader.lk/2011/02/13/food-shortage-and-inflation-a-world-crisis/

    As if IMF had any credibility with the working class, IMF is till the same old mouth piece of the elite.
    http://www.thesundayleader.lk/2011/02/13/food-shortage-and-inflation-a-world-crisis/

    Feb 13th, 2011 - 07:58 am 0
  • yul

    http://english.caiijing.com.cn/2011-02-10/110637794.html

    Feb 13th, 2011 - 02:41 pm 0
Read all comments

Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!