Archive for the ‘Economic’ Category
The strong growth experienced by some Latin American
Despite the strong growth experienced by some Latin American countries including Peru, Brazil, Mexico and Chile during the last time, the fear of reliving a crisis like the 2009 is still latent.
These economies have weathered the crisis, and beyond the rebound effect that recovery product, adds the individual capacity of each government to improve their situation, regardless of the global level.
It was thought, until recently, when in its “Economic Outlook: Western Hemisphere – attentive to overheating,” the International Monetary Fund (IMF) warned of a situation that could cause problems for the unusual growth of these nations overheating.
How? The report said Latin America is entering the “dangerous territory” of the overheating of their economies and governments should take measures to balance the rapid growth in recent years.
The position, although one can debate using its own projections made by the authority, which indicate that the region could grow 4.75% this year (1.25 points less than last year), this still is not “normal.”
In other words, although growth has slowed compared to last year’s rates, “still remains just above the potential growth rate,” says the IMF.
Anyway, opinions are mixed. According to Nathan Pincheira, an economist at Banchile Inversiones, although we have high growth rates, we must not lose focus that the rates are discernible in a process of normalization of growth of the subprime crisis that hit in 2009.
This could be happening in other economies in the region that have grown beyond expectations.
Also, he continues Pincheira, “The Central Bank says that the gap would already be closed during the first quarter. Therefore we believe that growth rates should continue to moderate further accelerated. This is an important point when talking about overheating. We believe that the economy is not overheated, but there is a risk of overheating, but is not overheated. ”
What are the risks of overheating?
The occurrence of the scenario proposed by the IMF, the economy could fall into a sort of bubble, as happened in the last crisis, which began in the U.S. after the subprime crisis in the housing sector.
“With more liquidity, or money, there is certain assets (the stock market or real estate) at the end have increased demand and this, in turn, have increased the price beyond what they should,” Pincheira said about it.
In other words, companies that should cost 100 million pesos, for example, show that, by the market capitalization of its shares cost 200 or 300 million pesos. “This may be a matter of speculation, because the economy has too much liquidity, or very large expansion of credit, which ends up creating so-called bubbles.”
And one of the sectors that historically have generated these bubbles has been held in conjunction with real estate (subprime crisis).
The IMF also called attention to the increase in “external debt”, especially businesses, so that asset prices “begin to show signs of bubbles.”
What are the measures taken by governments?
To prevent possible overheating of the Latin American economies and to contain these inflationary pressures, the IMF believes that “will require further increases in rates” of interest.
It is important to have regulatory policies that complement, but not replace, the traditional economic policy tools, especially in the current context of favorable external financing conditions
In its report, the IMF discusses a number of general concepts that will help guide the use of new “macro-prudential policies, and called:
* Interaction with traditional tools of macroeconomic policy
While the use of prudential instruments for prudential policy could serve as a contribution to all policy tools, such policies should not replace a proper exchange rate flexibility, which is the critical first line of defense against a background of abundant entries capital. It is also essential to have a good balance between monetary and fiscal policies.
* Monitoring comprehensive
Prudential supervision should cover the entire spectrum of financial activities.
* Appropriately targeted intervention
Prudential measures should try to swim against the tide in the specific sectors affected at any given time.
* Adding a ‘macro-prudential approach’
Institutional mechanisms to be adopted must be provided with mandates.