IMF tells Latin America to brace for eurozone contagion

THE International Monetary Fund on Thursday urged Latin American policymakers to take actions to guard against contagion from the eurozone debt crisis and looming recession.

"Hope for the best (or at least, the better); but prepare for the worst," Nicolas Eyzaguirre, director of the IMF's Western Hemisphere department, wrote in an IMF blog post.

Eyzaguirre said the outlook for Latin America and the Caribbean "hinges on policy action in Europe".

If the eurozone sovereign debt crisis escalates, global economic growth would be hit further, the Chilean economist said, citing the IMF's recent reduction of its global growth forecasts due largely to Europe's troubles.

He noted the IMF's warning that if the eurozone crisis deteriorates further, global growth could be slashed by two percentage points, dragging down commodity prices and heightening financial strains.

"For our region, this would mean more sluggish exports, worse terms of trade, and tighter borrowing conditions," Eyzaguirre said.

He recommended that policymakers "rebuild fiscal buffers" to maintain fiscal credibility, saying "the euro crisis vividly illustrates the costs of losing it", and prepare for a further deterioration in global conditions.

He also suggested they be ready to ease monetary policy, closely monitor financial systems for signs of stress and keep flexible exchange rates to help buffer shocks, particularly from lower commodity prices.

The IMF projects growth in the region will slow this year to 3.6 per cent, from 4.6 per cent in 2011.

AFP