Monday, March 30, 2009

The IMF becomes more relevant in Latin America, “Latin America Loan Needs May Surge, IMF Director Says”
El, “El 20 de abril se revelará plan para reestructurar la deuda”, “Costa Rica Seeks IMF Credit Line to Shield Economy”
The New York Times, “Rising Powers Challenges U.S. on Role in I.M.F.”
El, “México pedirá al G-20 mayor financiamiento a países emergentes”

Once again, many Latin American countries will be incrementing their foreign debt by requesting global financial actors, such as the IMF, for loans as the made-in-America international financial crisis endures in the region. Latin America is on its way to the worst economic performance in three decades, mostly due to the drying up of credit and capital inflows in the region. Other crucial factors include a decline in tourism, contracting rates at 4%, lower levels of remittances from abroad and decreasing trade levels. All these factors influence Latin American countries’ demand for international assistance.

The IMF believes that growth could resume next year, so long developed countries “fix” their financial systems in a “timely and effective” manner. While IMF predictions hope for the best, the IMF admits the need to prepare for the worst. The IMF is providing more options to needy countries, including a short-term credit provision called the Flexible Credit Line, which eliminates lending conditions for countries with low inflation, moderate foreign debt and levels and sound financial policies. The real challenge is to find countries that are perfect candidates for such loan incentive in Latin America, because even open economies such as Costa Rica are struggling to obtain a stand-by credit from the IMF.

The panorama for the region is not promising, according to the IMF’s Western Hemisphere Director Nicolas Eyzaguirre, who would not be surprised if capital inflows to Latin America halve and the IMF doubles or triples the numbers of loan programs in the region by the end of the year. Meanwhile, countries like Mexico, Argentina and Brazil are working together to improve the profile of Latin America through the G20 summit, as a way of demonstrating to institutions like the IMF and the Inter-American Development Bank that the region is trying to keep up with their homework. Other countries like Costa Rica try to strengthen their economies by utilizing multilateral lenders such as the Inter-American Development Bank and the IMF to shore up confidence in the countries’ limping economies and to help banks increase financing options for exporters.

One thing is true, with more Latin American countries slipping into crisis weekly, there is a general consensus that the IMF needs additional resources. The wave of increased demand for IMF resources and renewed growing relevance of the IMF at international level has given the Fund a sort of higher hand to reshape the post-crisis landscape of Latin American countries and to fortify the region’s leaders to push for increased investment in the IMF.

What are some of the long-term implications of increased IMF lending in Latin America?
Do the benefits of borrowing from the IMF outweigh the costs? Do Latin American countries have options other than the IMF?

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