December 22, 2014
IMF report: Further adjustments needed in Argentina
According to the report, Latin America still faces a number of downside risks. The key risk is a sharper decline in commodity prices caused by weaker demand from some of the major commodity-importing economies, especially China. Although the effects from a gradual and orderly normalization of US monetary policy should be contained for most of the region, increased capital flow volatility also remains a risk.
Growth in the financially integrated economies—Brazil, Chile, Colombia, Mexico, Peru, and Uruguay—in 2014 is expected to remain the same as in 2013, at 3½ percent. However, the average growth number masks considerable divergence across countries (see table).
Mexico’s economy is expected to rebound to 3 percent this year owing to a stronger US recovery and normalization of domestic factors. In Brazil, activity is expected to fall below 2 percent in 2014, as weak business confidence continues to weigh on private investment.
The IMF said the key policy priorities for the financially integrated countries include a careful calibration of macroeconomic policies, a clear focus on reducing financial vulnerabilities, and stepped-up structural reforms to remove obstacles to growth.
Growth in the other commodity exporters—Argentina, Bolivia, Ecuador, Paraguay, and Venezuela—is projected to fall sharply in 2014, to about 2¾ percent from nearly 6 percent in 2013. The IMF said that fundamental policy adjustments are needed in Venezuela to avert the risk of disorderly dynamics.
Further policy adjustments are also needed to restore macroeconomic stability in Argentina, especially in the context of less favorable prospects for global commodity prices. The other economies in this group will also need to control levels of public spending, which have increased sharply over the past decade owing to strong commodity revenue.
Economic activity in Central America is projected at about 3½ percent in 2014, similar to last year’s level. Looking ahead, the IMF pointed out that a consolidation of public finances is necessary to reduce fiscal and external imbalances, and to ensure debt sustainability. Consolidation efforts would have to include both expenditure restraint and higher tax revenues.
Growth remains tepid in most of the Caribbean. The tourism-dependent economies are expected to grow on average by 1.4 percent in 2014 and the commodity exporters by 3.2 percent. Reducing high public debt levels remains a key challenge in much of the Caribbean along with further efforts to address long-standing competitiveness problems, notably in the tourism-dependent economies.