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Latin American and Caribbean countries should exit fiscal stimulus first before addressing the monetary side as the economic recovery in the region gathers pace, a report released by the International Monetary Fund said.
The IMF declared that the worst of the financial crisis was over for much of the Latin American region and expects the overall economy to grow 3% in 2010, after contracting nearly 2.5% this year.
With the economic recovery already underway, the IMF said that some countries in the region may start experiencing cash inflows soon and on a scale that could become problematic. As a result, the international organization encouraged Latin American nations to prioritize the removal of fiscal stimulus ahead of the monetary one.
According to the report, countries that are net exporters of commodities - including Brazil, Chile, Colombia, Mexico and Peru - are likely to experience robust growth in the near term, with global commodity prices on the rise again. On the other hand, countries that mainly rely on remittances and tourism for their revenue - including many Central American and Caribbean nations - are at a disadvantage, with their economies directly dependent on conditions in other advanced economies such as the U.S., where only a slow recovery is expected.
The report added that despite the region's policy framework ensuring a relatively good performance amid the global crisis, there remained "considerable room for further improvement". Latin American countries will need to address their reform agenda to further improve its resilience and preparation for future shocks, the IMF said.
"It is true that Latin America fared much better during the crisis than in the past," said Nicolas Eyzaguirre, Director of the IMF's Western Hemisphere Department. "The question, now that the worst of the storm is behind us, is how to adjust policies to the new reality of a more sluggish global economy and still provide conditions for growth and poverty alleviation."
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