Latin American countries are entering a period of robust economic growth but should exercise caution if they decide to remove fiscal stimulus given uncertainty in the global economy, finance ministers said on Friday.
High-ranking finance officials from the Americas met in Lima amid strong growth prospects for the commodities exporting region, tempered in part by doubts about contagion from Europe's financial woes.
"Although there is consensus that economic recovery is happening in the region, there are still many questions, and a lot of uncertainty coming from other regions such as Europe," said Mexican Finance Minister Ernesto Cordero.
Cordero and Peruvian Finance Minister Mercedes Araoz called for caution before deciding when and how to withdraw stimulus measures implemented to offset the global financial slump.
"Looking at the impacts (of the crisis) we'll look for the right moment to pull out the stimulus plans or, for instance, the right moments to act jointly if there were another external shock ... if there were changes in commodity prices," Araoz said.
In a press conference with other Latin American finance officials, Araoz also said inflationary pressures are unlikely to be a problem in the region in the near term.
"I think that most of us are not seeing the possibility of prices increasing rapidly," she said.
Still, Brazil and Peru raised rates recently to forestall inflation as they are both expected to have the fastest economic growth rates in the region this year with expansion of some 7 percent.
Mexico and Chile have held rates steady, while Colombia recently took a more expansionary monetary policy stance to help lift growth.
Both Araoz and Cordero expressed concern that local currencies could strengthen against the dollar, which could make the region's exports less competitive. Capital inflows have surged as investors flee low-yielding advanced economies.
The officials did not issue a final declaration, but said they had agreed to continue to coordinate economic policies and be fiscally prudent.
EUROPE CRESTFALLEN, LATAM OVERHEATING?
Also attending the meeting in Lima was IMF chief Dominique Strauss-Kahn, who warned of potential overheating in rebounding emerging market economies.
"The recovery in advanced economies is lukewarm. the situation is dramatically different in emerging markets," Strauss-Kahn said.
The IMF sees global economic growth of 4.25 percent this year and next, faster than previously expected, as many emerging markets boom, Strauss-Khan told the meeting.
He encouraged hard-charging emerging markets to begin withdrawing fiscal and monetary stimulus.
"As recent events in Europe have reminded us, the dark clouds have not yet passed," he said, referring to fiscal woes in Greece and Spain that have rattled financial markets.
"In emerging markets, including in Latin America and the Caribbean, the concerns are a bit different. With the recovery more advanced, a natural starting point would be to remove temporary fiscal stimulus," he said.
Strauss-Khan on Thursday said that the U.S. economy should grow about 3 percent this year, while Europe may post growth of between 1 percent and 1.5 percent.
Cordero said Mexico was sticking by its latest growth forecast of 4.1 percent despite global market turbulence caused by fiscal shortfalls in Europe and moderate growth in the United States, the country's main trading partner.
"We're very conservative regarding the extent of economic recovery in the United States," he said.
Many of the finance officials will go next month to Canada, which hosts a meeting of the G20 leading developed and developing economies.
Among the issues likely to be discussed there is a controversial proposal to impose a new global banking tax to prevent and pay for bailouts. No firm consensus emerged at Friday's meeting, with Canada and Mexico voicing opposition to the tax.
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