Latin American economies overheating, IMF warns

Photo: REUTERS

IMF warns Latin America of overheating economies across the region.

JASON LANGE and LOUISE EGAN

Published: 2011/03/28 07:25:24 AM

THE International Monetary Fund (IMF) warned Latin America on Saturday that economies across the region were overheating, and Canada urged policy makers not to underestimate the risks from rising inflation.


The calls for caution contrasted with an upbeat mood among many Latin American policy makers gathered in Canada for an annual meeting of the Inter-American Development Bank. Countries such as Brazil and Chile are enjoying sustained strong economic growth, on healthy demand for commodity exports and double-digit expansion of bank lending to consumers.


The head of the IMF warned, however, that many Latin American economies were growing too quickly, putting pressure on a region where some countries suffered hyperinflation a few decades ago.


"In many of them there are worrisome signs of overheating," IMF MD Dominique Strauss-Kahn said in a blog. He said a credit boom created the risk of asset price bubbles.


Latin America’s economy would be likely to grow 4,5% this year after expanding 6,1% last year, the Institute of International Finance said.


In Brazil, house prices in some cities have nearly doubled in just two years and the currency has strengthened nearly 10% since March last year.


Bank of Canada governor Mark Carney said the commodity boom may last longer than many expect, fuelled by surging demand from emerging economies such as China and India.


"It’s a mistake to chalk this all up to cyclical" factors, Mr Carney said, referring to the argument that prices for raw materials such as copper and grains have risen only because of an upswing in the global business cycle. "We’re in an environment that is probably going to be with us for several decades."






Several countries in Latin America have seen an uptick in inflation caused by high prices for food and other commodities. Reuters