WASHINGTON, Apr 13 (Reuters): Latin American countries will have to tighten their belts as the rising cost of capital and lower commodity prices dampen growth and force countries to do more to drive economic activity, policymakers warned this week.
Both the World Bank and International Monetary Fund expect slower growth in the region this year than last year in the face of weaker Chinese growth slowing demand for commodities and tighter financial conditions as some central banks wind down stimulus.
The IMF expects Latin America's economy to expand 2.5 per cent this year, which would make a fourth straight year of slowing growth.
"The region is clearly exiting from a period of high growth, above all in the southern cone," IMF Western Hemisphere chief Alejandro Werner said during the global lender's spring meetings.
International experts say Latin American countries, seasoned veterans of both home-grown and global financial crises, should generally withstand turbulence surrounding the gradual normalization of easy money policies in advanced economies such as the United States.
But how well will depend on the state of each country's economy and its appetite for reforms to boost productivity, increase competitiveness and support investment.
"We all have to acknowledge the growth will not be fostered by excess liquidity or cheap access to funding; growth has to be created from within and that's where structural reforms are always useful," Mexican Finance Minister Luis Videgaray said in an interview with Reuters.
Some countries have already taken steps. Mexico is in the midst of a package of structural reforms of areas including banking, taxation and energy, Colombia has announced fiscal reforms and Chile's new government plans an overhaul of education.
But others like Brazil and Argentina, with growth buoyed by China's demand for raw materials, have had less incentive to overhaul their economies. The IMF expects growth in Brazil, Latin America's biggest economy, to slow to 1.8 percent in 2014.
Brazilian Finance Minister Guido Mantega took issue with the forecast, saying the IMF was too pessimistic. Central bank governor Alexandre Tombini said Brazil was comfortable with its strategy of building up reserves and then using them for sterilized currency market intervention when needed.
