Growth & Threats in Latin American Economies

Extracted 17AUG2011 from http://www.economist.com/node/21525909?fsrc=scn/tw/te/ar/thebalancingact

Boosted by capital inflows, by record prices for commodity exports, by sound policies and by a heady expansion in domestic credit, the region saw economic growth of 6% last year and is on course to notch up close to 5% this year...

The better-run countries of Latin America also have more policy weapons available than most rich-world economies. Having spent the past nine months raising interest rates to cool demand, central banks could cut them again if needed (though inflation worries mean that they probably won’t rush to do so). Fiscal deficits are relatively modest. So is the burden of public debt: excluding the heavily indebted Caribbean, this averaged only 32% in 2010, according to the UN Economic Commission for Latin America...

The longer South American countries, in particular, postpone structural reforms, the more they leave themselves hostage to the outside world. Their current-account deficit is rising even though their terms of trade (the ratio of export prices to import prices) have jumped by 25% since 2005 (see chart on previous page). Many countries are spending their commodity windfall on imports and a consumer boom, rather than investing it, argues Neil Shearing of Capital Economics, a consultancy which forecasts Latin America’s growth will fall to 3.5% next year and just 3% in 2013...