IMF: Latin America faces challenges from global crisis

The International Monetary Fund (IMF) said, the latest global economic and financial crisis presents a range of challenges to Latin America which generally has sound macroeconomic fundamentals. "Downside risks are significant, with some countries more vulnerable than others," the Washington based global lender said in its latest Regional Economic Outlook for the Western Hemisphere. The Fund''s latest baseline projection is for a modestly lower growth outlook for Latin America and the Caribbean at 4.5% in 2011 and 4% in 2012, down 0.1% point from the forecast published in June. "We still have as our baseline a situation in which both global liquidity and commodity prices will remain, as we have called them, the double tailwinds for the region," said Nicols Eyzaguirre, director of the IMF''s Western Hemisphere Department. "However, these will be somewhat weaker than in the recent past." Noting the fluid situation in markets, the report noted that downside risks to the baseline are potentially severe. The lack of a definitive solution to the crisis in Europe could worsen confidence and global credit market conditions, with spillovers to emerging markets. A recession in advanced economies could hit commodity prices, with significant negative effects on commodity exporters. The IMF said that in South American countries with more robust growth, overheating dangers have lessened but have not fully disappeared, particularly where output is above potential and domestic demand remains strong. Countries with strong economic linkages to the United States, like Mexico and much of Central America, face a somewhat weaker outlook, the report noted. For Caribbean countries, which have started recovering from a long and protracted recession, the outlook continues to be constrained by high debt levels and weak tourism flows from advanced economies. Countries must focus in bringing down high debt levels, as well as addressing financial sector vulnerabilities, the Fund suggested.