MEXICO CITY: Latin American countries have little room to boost growth with fiscal or monetary stimulus as their economies slow and a slump in commodities prices undercuts a pillar of recent strength, top officials said.
After years of strong growth, Latin American economies have slowed and policymakers may have overestimated the speed at which they can expand without high commodities prices, officials and executives told Reuters Latin American Investment Summit.
Critics say countries have lagged on important economic reforms to increase productivity and boost tax revenue to give governments room to provide fiscal stimulus if growth worsens.
“The short-term task is to re-establish the working room that monetary policy and fiscal policy had, as they are practically exhausted to a large degree across Latin America,” said Guillermo Ortiz, Chairman of bank Banorte and former Mexican central bank chief.
The average benchmark interest rate across major Latin American economies has fallen to 4.8 percent from 9 percent before the 2008 financial crisis.
Mexico cut its benchmark interest rate to record low of 4 percent this year, while Colombia’s has dropped its main rate to 3.25 percent, near its lowest ever, in a bid to jolt the economy and fend off portfolio investments has strengthened its currency and hurt the competitiveness of local exporters.
Brazil has begun raising its main rate from an all-time low of 7.25 percent to fight a spike in inflation even as growth remains sluggish. On the fiscal side, the region’s average surplus in 2007 has slumped into a deficit.
The IMF warned in April that Brazil and other Latin American countries need to realize their economic boom could be over because of cooler global demand for their minerals and farm goods.
Softer demand in China and the potential tapering off of extraordinary monetary stimulus in the United States could lead to even lower prices for the region’s raw materials. Reuters
