Ability to Export Raw Material Helps Brazil’s Faster Recovery, Says IMF

Iron ore Brazil Brazil and other emerging economies should recover more rapidly than developing nations from the global financial crisis. This opinion was presented in the paper from the International Monetary Fund (IMF) entitled "Crisis Averted – What's Next?", released this October 23 in São Paulo, Brazil, by Nicolas Eyzaguirre, the director of the Western Hemisphere Department at the Fund.

"The recovery of the industrialized economies will be slow and painful," said Eyzaguirre. "The good news is that, probably, emerging economies should grow rapidly, as is the case, for example, with China and Brazil. This brings enormous opportunities, but also challenges by great economies, with many expectations," he said.

According to the FMI's projections, after the 2.5% retraction in 2009, Latin America and the Caribbean should grow around 3% next year. "The question, now that the worst of the storm has blown over, is how to adjust to the new reality of a global economy that is less dynamic and provide conditions for countries to grow and reduce poverty," said Eyzaguirre.

The report points out that the perspective for the short term is more favorable to exporters of raw materials, like Brazil, due to the continued recovery of prices of these products.

However, economies that depend on funds from abroad and on tourism, like those in Central America and the Caribbean, are at a disadvantage at this moment, as these factors are strongly connected to the level of employment in the United States and in other developed economies, which should recover slowly.

"The United States should not manage to leave the recession exclusively based on their domestic demand. They will need to export much to solve their current account problem," said the IMF director. Brazil, Chile, Colombia and Peru were mentioned as examples of economies that should recover faster than the United States.

According to the report, countries that were better prepared and could issue fiscal and monetary measures to boost their economies will now have to start thinking on how and when to revert this. The study suggests that, in general, countries should consider reverting their fiscal measures before contracting their economic policies.

The study also shows two main challenges for the future of Latin America and the Caribbean. "In the medium term, policies will need to adjust to a new global environment of lower growth. A return to pre-crisis rates of growth of output, and of commodity export prices, is unlikely.

"With government revenue therefore growing more slowly, public spending will need to be more focused, particularly in countries with higher debt. More broadly, policies will need to work harder to provide conditions for growth and poverty alleviation," says the report.

The report adds that countries will have to further their economic reforms to make their economies more resistant to future crises. This includes greater exchange rate flexibility, better fiscal policies and changes in regulation and supervision of the financial sector, incorporating the lessons learnt in other regions of the world.

Anba

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