MercoPress. South Atlantic News Agency
IMF warns Latam economic boom ‘could end in tears’ if spending is not trimmed
Nicolas Eyzaguirre: ”if a big correction comes into the fore ...” Latin America's economic boom could end in a “full-blown” crisis unless the region's governments properly manage the situation, the International Monetary Fund's top regional official said in an unusually stark warning to both policymakers and investors.
Nicolas Eyzaguirre, the IMF director for the western hemisphere, said that Latin America's economic fundamentals appear to be in good shape. Yet he urged policymakers to take steps to keep their economies from overheating by trimming public spending, maintaining sound monetary policy and setting aside as much of the windfall from the current boom as possible.
Otherwise, he told a conference of central bankers in Rio de Janeiro, the region could see its currencies dramatically weaken as a result of a sudden external shock - such as a fall in global commodities prices or an unexpectedly fast increase in interest rates in the United States.
Eyzaguirre honed in on Brazil, saying that the government of President Dilma Rousseff should continue to “rein in the economy through an array of measures to avoid excessive exuberance, or it could end in tears.”
“If a big correction comes into the fore ... capital could stop coming into the country all of a sudden and you could have a big financial crisis,” he added.
The remarks by Eyzaguirre, a former Chilean finance minister, were some of the strongest warnings to date by a senior official of the near-term dangers posed by Latin America's recent run of prosperity.
Much of the region's strong economic growth and the run-up in its currencies have been fuelled by rises in global commodity prices, which have also fed a growing inflation problem in several countries.
Brazil's government has been struggling to keep a lid on inflation this year, despite three interest rate hikes and the announcement of about 30 billion US dollars in spending cuts. Annual inflation in April breached the top of the central bank's target range of 4.5% with a two percentage point tolerance although the central bank expects the rate to gradually fall back toward target.
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Read all commentsDilma should slim down massively the size of the federal (and states') administrative apparatus which relies on 'many hands' rather than 'much technology' and on arcane 'make-work' methodologies.
May 13th, 2011 - 11:38 am 0This would help the immediate threat and would certainly help the Pensions Hole - which is HUGE.
Employees will rapidly redeploy into the private sector to the better advantage of the nation.
“Employees will rapidly redeploy into the private sector to the better advantage of the nation.” True, now go tell Cristina about the private sector lol, she's just as looney as her husband, she believes that Argentina's having progress because of her “Modelo”, perhaps she will finally accept the real numbers of intlation and stop thinking about the re-election to concentrate in real problems, and stop printing money like crazy. These times will put “El Modelo” to the test.
May 13th, 2011 - 03:23 pm 0@GW
May 13th, 2011 - 04:20 pm 0In BR, government consumption in 2010 grew by about 3% - much less than total GDP growth. In 2011 - if one is to trust numbers produced by the private agency Serasa - government spending grew, again, around an annualized 3% -- much less than investment and private consumption. Therefore, there isn't much room for the government to reduce spending levels, which are already modest.
As Mark Weisbrot said once, the IMF behaves as a creditor's lobby group. And it is in the interest of the creditors that inflation remains low, and even if the government itself can do little about it - after all, most inflation in BR is imported from abroad.
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As for this article, I'm not even going to read it. Most public statements by IMF officials tend to be biased and trivial.
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