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NEW YORK Chile and Peru are best positioned in Latin America to withstand a downturn in the global economy and a drop in commodity prices, while Argentina and Venezuela are the most vulnerable to any turmoil, a senior official from Fitch Ratings said on Friday.
Both Chile and Peru have large rainy-day funds and their government debt is a relatively small fraction of their economic output at about 20 percent or less, Shelly Shetty, head of the sovereign ratings for Latin America, told the Reuters Latin America Investment Summit in New York.
The two Andean neighbors have the fiscal flexibility to cope with a potential drop in capital in-flows, sharply lower prices for metals - their main exports - and volatile swings in exchange rates, Shetty said.
Colombia, Brazil and Mexico can also counter any shock waves from abroad, but to a lesser extent, she said.
Among the other large Latin American countries, Argentina and Venezuela would be the hardest hit by slowing global growth and a fall-off in commodity prices - oil in the case of Venezuela and soy prices for Argentina.
A slowdown in China will hurt the region's economies, especially those with large, commodity-based export sectors. A rule of thumb says a 1 percent decline in China's growth rate will cut growth by about 1.2 percent in the commodity exporters, she said.
The regional economies most exposed to China - the world's largest growth driver this past decade - are Brazil, Chile, Costa Rica, Peru and Venezuela, according to Fitch.
As for the impact of Europe's crisis on the region, trade exposure to Europe is concentrated more in the southern cone region of South America - Brazil, Argentina, Chile and Peru - than Mexico and Central America, Shetty said.
"Our view is still that Latin America as a region is well placed to withstand external shocks that might emerge from the intensification of the euro zone crisis," said Shetty.
"Having said that, it's also true that Latin America would certainty not be immune to what goes on in the euro zone."
Brazil is less exposed than Chile, whose economy is more open, she said. But Chile, which has the highest investment grade rating in Latin America, has a history of being fiscally prudent when necessary, she said.
"Trade exposure to Europe really varies across the region and that's an important point to make," she said.
Government debt in Chile is about 10 percent of gross domestic product, while in Peru it is about one-fifth of GDP - exceptionally low when compared to leading Western economies, which have ratios at least several times higher.
Peru's fiscal stabilization fund is more than $5 billion, or about 3.5 percent of GDP.
The market value of Chile's Economic and Social Stability Fund (FEES) stood at $13.156 billion at the end of 2011, according to Chile's budget office. That is equivalent to just under 6 percent of the GDP.
In Shetty's view, since the financial crisis in 2008, most of Latin America is in a better position to withstand external shocks, Shetty said.
Foreign reserves, for example, have grown to about $750 billion from $500 billion several years ago, giving countries greater ability to withstand exchange rate swings, she said. The debt burden in Argentina, Peru and Brazil has also declined in recent years.
"If you look at our own ratings, we've actually upgraded quite a few ratings since the crisis," she said.
(Additional reporting by Luciana Lopez in New York, Terry Wade in Lima and Alexandra Ulmer in Santiago; Editing by Andrew Hay)