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Andres Oppenheimer
During the recent
Now, several new studies released during the spring annual meetings of the
In sharp contrast with what international financial institutions and credit rating agencies were saying only a few months ago, when many of them were claiming that this could be "the Latin American decade," the climate surrounding this weekend's meetings in Washington, D.C., was marked by nervousness.
An internal IMF document titled "Managing abundance to avoid a bust in Latin America," dated
It explains that much of Latin America's current prosperity is based on two extraordinary outside circumstances -- a global liquidity flood that results in a big influx of capital to the region, and a rise in world commodities prices, thanks to China's purchases -- that will not last forever.
"The unusual intensity of these favorable external conditions is conducive to a buildup of vulnerabilities and heightened risks of reversals," the study says. "These conditions can mask underlying fragilities in external, financial, and fiscal accounts, and bring complacency and exuberance."
In other words, most countries in the region are spending more than they should, and have overvalued currencies. The study, put out by the
A separate study released last week by the
The 80-page study, titled "Latin America economic perspectives," says that "today, overheating and inflationary pressures are rising, and many financial regulators wonder whether domestic credit is already growing excessively." It adds that "an area of special concern" in Brazil and other countries is the banks' excessive consumer loans, which may never be repaid.
What exactly has moved international economists to suddenly become more nervous about Latin America's future? I asked Mauricio Cardenas, co-author of the Brookings study.
Cardenas, a former minister of economic development of Colombia, said that it's the realization that the outside factors that have benefited Latin American in recent years may come to an end, and the region may not be prepared to absorb that shock.
China, whose commodity purchases have become a major engine of South America's growth, has just announced that it will lower its economic annual growth target from 10 percent in recent years to 7 percent over the next five years, which is bound to result in a drop of China's commodity imports, Cardenas said.
In addition, the United States may soon increase interest rates, which will drive more capital to the United States, and away from the region, he added.
"We must save during the good times," Cardenas said. "There's not too much time left. We may see a change in outside conditions as early as next year."
My opinion: I agree. Most of Latin America hasn't seen a better international context for growth anytime in recent memory. It would be a crime not to set aside part of the current bonanza to maintain social programs when times get harder, as well as to start improving most countries' disastrous education, science and technology standards.
It was great to see the crowds of happy Latin American tourists at the Key Biscayne tennis tournament, but it would be much better if their current affluence were built on solid ground, ensuring that it would last a long time.
Available at Amazon.com:
At War with the Weather: Managing Large-Scale Risks in a New Era of Catastrophes
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World - New Fears Over Latin American Economies | Global Viewpoint