There's abundant good news coming out of Latin America's economies today. Average growth in the region will be 4.5% for the year, up half a point from the IMF projection in April. In addition inflation is largely controlled, and the outlook for next year is for respectable growth, Fund and Bank officials say.
The return to growth and continued stability in most economies is no reason to be complacent however, argue the leading regional economists of the IFIs. On the contrary, with economies on an upswing, now is the time to push for reforms and to pay down debt so as to make Latin nations more solid and solvent and to consolidate fiscal accounts. That is the message from Anoop Singh, Western Hemisphere director at the IMF and Guillermo Perry, chief economist for Latin America at the World Bank.
Growth in 2004 is the strongest since 1997, and is being led primarily by the US recovery. It is also being fuelled by commodity prices and increased domestic demand. "Challenges remain, in particular how to lock in higher growth on a sustainable basis to raise living standards across the region," says Singh. "In these good times, countries should run a fiscal surplus and pay down debt," adds Perry.
Latin America remains troubled by high unemployment and poverty, and must work to create conditions in the region for favouring investment and job creation, says Singh. The tasks ahead include reducing debt and non-essential spending and raising revenues to allow greater investment without harming fiscal accounts. Other issues include deepening reforms to make labour markets flexible; enhancing property rights and liberalizing trade; and continuing sound monetary policy to keep inflation in check, he says.
Concerns persist about the sustainability of Latin American debt in the wake of the Argentine default on $100 billion of bonds. World Bank President James Wolfensohn said this week that a common approach should be developed for determining sustainable debt levels and it should take into account the income and performance of countries.
Asked about debt, Mexican Finance Minister Francisco Gil Díaz said Friday that other indicators must also be considered including the level of international reserves which signals liquidity, the openness of the economy to trade which could generate more export earnings in a time of crisis and the amount of credit relative to gross domestic product.