LatAm leaders more worried about QE exit
The winding down of quantitative easing by the Fed should be clearly communicated, Colombia’s finance minister said
Policymakers in Latin America are more worried about the US monetary policy than the current political wrangling that led to the US government shutdown and doubts regarding the debt ceiling, Colombias finance minister said in an interview on Thursday.
By the time Emerging Markets went to press, no compromise had been reached to break the impasse that has led to the US government shutdown and threatens to make the US default on its bonds if the debt ceiling is not raised next week.
I have to be frank and say what concerns us is what lies ahead, say in the next year or so in terms of monetary policy in the US. I think that is more decisive for countries like ours, said Mauricio Cardenas said.
He spoke to Emerging Markets after 25 Latin American finance ministers met with the US Treasury Secretary Jack Lew on the fringe of the IMF and World Bank meetings in Washington to express their concerns in a frank and firm way.
It was a good opportunity for Latin American finance ministers to put their case before the US authorities regarding the need to deliver as much information as possible about what is happening in the US and express a note of concern regarding the collateral effects that may impact Latin America due to the uncertainty regarding the debt ceiling, fiscal issues and the monetary policy management, said Cardenas. They said very explicitly that all of this will have collateral effects.
But they insisted clear communication regarding the withdrawal of monetary stimulus will be essential to ensure a smooth transition towards normalization. Latin American countries are both at the frontline and at the receiving end of the US ongoing crisis, which may take a heavy toll on the regions economies. The large countries are already experiencing sluggish growth.
But Cardenas reiterated that he was more concerned with the exit of QE than the fiscal issues. The US will not risk a downgrade, will not risk a recession based on a sharp reduction of government expenditure, I think these things will be resolved. They are more part of the political debate here [in Washington]. Different issues are being trapped in that conversation, but ultimately the US will do the right thing. I think in the long term, the most important aspect for us is US monetary policy, how predictable it is, how the announcements are made in a way that they do not generate volatility in the market.
He said the issue of a default was still hypothetical but chances for this to happen were minimal. It is not something we assign a high probability to, but it is a matter of concern that was expressed (to Lew) during the meeting.
An eventual debt moratorium would have a devastating impact on Latin American economies, according to participants, due to the dependency of some of the regions economies on the US. Lew was said to be optimistic and positive.