MEXICO CITY, May 6 (Reuters) - Latin American commodity
exporters have largely failed to take full advantage of surging
raw material prices to boost savings and a recent deterioration
in external accounts bears watching, the International Monetary
Fund said on Monday.
In its latest regional economic outlook, the IMF said high
export prices for oil, metals and agricultural products since
2002 had led to a terms of trade windfall equal to 30 percent of
income a year for Venezuela and 20 percent for Bolivia and
Chile, or close to 15 percent on average for the region.
But countries had saved proportionally less of the extra
income than in past booms and less of that had been used to
strengthen external accounts by boosting investment abroad.
Current account deficits rose last year to an average of 2.8
percent of gross domestic product (GDP) in Brazil, Chile,
Colombia, Mexico, Peru and Uruguay, from 2 percent of GDP in
2011, as strong domestic demand for imported goods outpaced
Income from foreign investment is a credit in the current
account, a component of a country's balance of payments, the
broadest measure of its transactions with the world.
"In previous episodes, foreign savings appear to have
delivered higher post-boom income than domestic savings," the
IMF said in the report.
"Hence, the current weakening of external current account
balances in Latin America - even if driven by higher domestic
investment - warrants a close monitoring."
The current account encompasses trade in goods and services
and other cross-border money flows including interest payments,
profit remittances, workers' remittances and dividends. The
other major balance of payments component is the capital
account, which includes foreign direct investment.
Past economic crises in Latin America have been associated
with boom and bust cycles accompanied by large current account
deficits, making countries dependent on inflows of foreign
capital and vulnerable to collapse when flows reversed.
Still, deficits in the current account are short of levels
reached in the lead-up to past crises and so far there is no
sign that investors, attracted by the region's comparatively
high interest rates, are losing interest.
According to IMF forecasts, Brazil's current account deficit
is expected to reach 3.2 pct of GDP in 2014, from 2.3 pct in
2012 and Chile is seen widening to 3.6 percent from 3.5 percent.
Deficits in Peru, Uruguay and Colombia are seen easing over
the next 18 months but still high at 3.4 percent in 2014 for
Peru, 2.5 percent in Uruguay and 2.9 percent in Colombia.
The IMF said flexible exchange rates could help mitigate the
impact of foreign capital reverses, noting that the share of
foreign ownership in local currency debt had doubled from an
average of about 12 percent in early 2008 to more than 25
percent by the end of 2012.
In the six months following the collapse of Lehman Brothers
in September 2008, countries with more flexible exchange rates
had experienced fewer foreign outflows than countries which
tried to keep exchange rates stable.
"Overall, the evidence suggests that exchange rate
flexibility reduces the vulnerability to sudden changes in
foreign investors of domestic debt," the IMF said.
Countries including Brazil, Colombia and Peru are taking
steps to prevent their currencies appreciating too much as a
result of capital inflows.
The report also found deleveraging by European banks as a
result of the ongoing economic crisis had only a modest impact
on Latin America, although subsidiaries of Spanish banks had
been more cautious in lending than domestic banks.
(Reporting by Krista Hughes, Editing by W Simon)