MercoPress. South Atlantic News Agency

Latam vulnerable to trade shocks and highly China-dependent, warns IIF

IIF Managing Director Dallara: only Chile has a credible framework to protect the economy

Economic growth in Latin America should speed to 4.5% in 2013 thanks to monetary stimulus and steadier global conditions, raising the risk of policy complacency, the Institute of International Finance said on Thursday.

Demand for the region's raw material exports has also strengthened local currencies, highlighting the need for reforms to boost productivity and reduce government deficits, the IIF said in a report presented by managing director Charles Dallara.

“While stronger macroeconomic positions have bolstered Latin America's resilience to external shocks, luck has been on the region's side,” the report said. Higher commodities prices are bolstering the region's economies, according to the report, but masking bad policy in some countries.

A key risk to the region's recovery is an economic downturn in China, currently Brazil's main trading partner and a principal customer for Latin American raw materials such as iron ore, soybean and copper, the IIF said.

“Growing dependency on commodities and China requires improving lines of defence against sharp and sustained terms of trade losses,” the report said. “Thus far only Chile has in place a credible framework to protect the economy against trade shocks.”

Latin American economies should grow an average 3.7% this year, slowing from 4% growth in 2011 as Europe's debt crisis weakens exports and saps confidence, the IIF said. Last year expansion was 4%, but IIF estimates 4.5% for 2013.

IIF represents over 450 banking institutions worldwide. Beijing recently announced a growth target in 2012 of 7.5%, down from the 9.2% of 2011.