Latin America needs to bolster finances to face tapering-IADB

domingo 30 de marzo de 2014 09:19 GYT

By Alonso Soto

COSTA DO SAUIPE, Brazil, March 30 (Reuters) - The fiscal deterioration of many Latin American countries in recent years has left the region more vulnerable to shocks stemming from the reduction in U.S. stimulus, according an Inter-American Development Bank report released on Sunday.

It said the rise in foreign currency debt sales by banks and non-financial companies has also left many countries more exposed to shocks this time around than during the 2008 global financial crisis, it referred to as the "Great Recession".

"The region appears somewhat more vulnerable to certain shocks now compared to prior to the 'Great Recession,'" the IADB said in its annual Latin American and Caribbean Macroeconomic report.

Still, the regional bank says Latin America is for the most part able to withstand capital fluctuations resulting from the draw back of asset purchases by the U.S. Federal Reserve and slowdown of the Chinese economy.

During the 2008 financial meltdown, the region poured tens of billions of dollars into their economies to bolster activity, shore up employment and help local banks.

Since then, many of those countries left the fiscal tap open despite the recovery, raising debt levels and diminishing their fiscal arsenal to battle another round of market turbulence.

"Fiscal balances have continued to deteriorate, and tighter fiscal management and restoring policy buffers remain key policy priorities," the IADB warned in its report.

"Developing automatic fiscal stabilizers and institutions that favor carefully designed discretionary policies ... would help the region to become truly countercyclical."   Continuación...