By Alonso Soto
BRASILIA Jan 30 Latin America is in a better
position now to handle a resurgence in global market turbulence,
but policymakers need to stay alert and use sound policies to
tackle any spillovers, the International Monetary Fund said on
The region needs to rebuild fiscal buffers and use monetary
policy and flexible exchange rates to absorb any shocks, said
Alejandro Werner, the IMF's director for the Western Hemisphere
Department, in a press briefing streamed online.
"The region is much better prepared," Werner said. "We
believe their economies are less tied together than they were 20
years ago. But it is always important to remain alert."
Fears about the health of major emerging economies have set
off an exodus of investors from those markets, prompting many
central banks to raise interest rates in an attempt to contain
the effects of the selloff.
In mid-2013, after the United States announced an eventual
removal of monetary stimulus, a similar capital flight exposed
the vulnerabilities of many emerging nations that, until then,
had been the main engine of global growth.
A sharp devaluation of the Argentine peso has raised fears
of a currency crisis in the South American nation that could
spread to regional peers such as Uruguay and Brazil.
Werner said that smaller economies like Uruguay and
Paraguay, although more vulnerable, are better prepared than in
the past to avoid contagion from Argentina.
"These economies are more susceptible to contamination, but
these economies have also diversified their foreign trade," he
"We believe that they are solid (economies)... in a better
position to face any eventual regional contagion," he said,
adding that the IMF is monitoring developments in Argentina as
closely as possible.
Werner also said the impact of currency depreciation on
inflation is smaller in the region than it was 20 years ago.
An expanding U.S. economy will mostly help the nearby
economies of Mexico and Central America this year, Werner said.
Brazil and the rest of South America, on the other hand, would
see less immediate benefits from the recovery of developed
In the case of Brazil, Werner said, the government needs to
improve its fiscal policy to grow more in the medium term. He
also stressed that low investment levels continue to be one of
the main weaknesses of Latin America's top economy.