Latin America worries Fed's stimulus will pressure currencies

Fri Dec 14, 2012 4:38pm EST

* Measure by Fed and others seen spurring more capital flows

* Export-dependent countries' currencies seen strengthening

* Financial ministers say measures hurt region's competitiveness

* But diverse region doesn't have common response

VINA DEL MAR, Chile, Dec 14 (Reuters) - Latin America is worried stimulus measures in the developed world will trigger more capital flows that could further strengthen the commodities-dependent region's currencies, its finance ministers said on Friday.

The U.S. Federal Reserve's fresh round of monetary stimulus could dent Latin America's competitiveness by making its exports more expensive, according to a statement by the Community of Latin American and Caribbean States, or CELAC.

They urged the developed world to take into account "those still on the road to development" in their policies, which they said have hurt the region, a major metals and grains exporter.

But nations in the diverse region - which range from investor darling Chile to socialist Venezuela - don't share a common vision of how to tackle these flows, Chilean finance minister Felipe Larrain said at the end of the CELAC meeting, which the International Monetary Fund Managing Director Christine Lagarde attended.

"While measures to spur the economies of the developed world are welcome, we express our concern with regards to the monetary expansion in those countries and their effect on our region... given the pressure on our currencies that affect the competitiveness of most of our countries," the CELAC statement said.

Emerging markets have blamed loose monetary policies in rich nations for spurring destabilizing flows of hot money, and the IMF is trying to forge a consensus on when it makes sense for nations to resort to capital curbs. [ID :nL1E8N304O]

Larrain called capital controls "the last alternative," saying macro prudential measures and foreign exchange coverage can help face the inflow.

Regional powerhouse Brazil shocked investors in October 2009 by imposing taxes on some categories of foreign investment flows to local stocks and fixed-income securities. Back then, it said some of the flows constituted hot money and were harming the economy.

Capital flows have been "a central part of the (summit's) discussion," Peruvian Finance Minister Castilla told Reuters on Friday on the sidelines of the meeting.

"The discussion involves the convenience or not of adopting capital controls or other policies that can mitigate significant entry of foreign capital flows," Castilla said.

"The other important discussion was (centered on) a way of mitigating a stronger exchange rate by pushing contractive fiscal policies, and whether it's worth doing that, taking into account the needs these countries have," he added.

Chile's peso, for instance, has strengthened 8.83 percent this year against the U.S. dollar. It ranks behind the Hungarian forint and the Polish zloty as one of the strongest foreign currency performers against the dollar among 152 currencies tracked by Reuters.

Investors chasing returns have also been lured by brisk growth in much of Latin America, as the debt crisis drags on in Europe and the United States' economic recovery remains tepid, .

The economy of Latin America and the Caribbean will likely grow by 3.8 percent in 2013, less than previously forecast, as slower growth in Mexico weighs against a recovery in Brazil and Argentina, the United Nations said earlier this month.

But the export-dependent region's growth is seen picking up pace next year from a downwardly revised 3.1 percent expansion in 2012, largely defying the effect of the lingering euro zone debt woes and fallout from softer demand from key trade partner China.

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