IMF warns Brazil and Latin America on possible economic crisis
In an unusually stark warning to both policymakers and investors on Thursday, the IMF said Latin America's economic boom could end in a "full-blown" crisis unless the region's governments properly manage the situation.
The IMF's warning comes as Brazil's Real and some other regional currencies have weakened in recent days in tandem with global commodities prices.
The fund has criticized Brazil's and Latin America's record of overspending during good economic times.
It says that Brazil's run of prosperity could cause the economy to overheat.
Nicolas Eyzaguirre, IMF Director for Western Hemisphere, said, "In the foreseeable future, of the most possible combinations of external factors is going to be high commodity prices and low domestic interest rates. Therefore, Brazil will be subject to strong tailwinds that could create too much credit, with the economy growing too fast and with vulnerabilities."
The IMF urges policymakers in the region to take steps to keep their economies from overheating, and set aside as much of the windfall from the current boom as possible.
Otherwise, it warns the region could see its currencies dramatically weaken as a result of a sudden external shock, such as a fall in global commodities prices or an unexpectedly fast increase in interest rates in the US.
Brazil's Central Bank President Alexandre Tombini, says the bank is committed to bringing inflation down as close as possible to the government's target.
Alexandre Tombini, President of Brazil's Central Bank, said, "Inflation is a concern for most countries. Brazil's Central Bank has been one of the fiercest fighters against it among fiscal authorities from the world's main economies. Currency conditions will continue to be adjusted for a prolonged period, which will be enough to guarantee that inflation will meet its targets in 2012."
The 12-month inflation rate for Latin America's largest country hit 6.51 percent in April, higher than the ceiling of the central bank's target range of 4.5 percent.
With interest rates near zero in many developed economies, investors have been borrowing money cheaply abroad to pour into higher-yielding assets in Brazil, where interest rates remain among the world's highest at 12 percent.
(Source: CNTV.cn) |
