WASHINGTON — When the U.S. economy sneezes, Latin American economies catch colds, according to an old saying. Not this time — at least for now. The U.S. crisis triggered by subprime mortgages and rising energy costs will spare most economies in Latin America, experts said Thursday.
The bad news is that the slowing U.S. economy and high oil and food prices will continue to drag down the global economy, including Latin America's to some degree.
Overall, the International Monetary Fund predicted that the region's growth would slow from 5.6 percent in 2007 to 4.4 percent in 2008 and to 3.6 percent in 2009.
Over the past decade, the region experienced steady economic growth, but not every country is well positioned for the downturn, said Anoop Singh, the director of the Western Hemisphere department at the International Monetary Fund. He and others spoke at the American Enterprise Institute, a neo-conservative policy institute in Washington.
They noted that countries such as Venezuela, Brazil, Chile and Mexico have seen their economies grow because of a boom in commodity exports such as oil, copper and soy, but not due to fundamental improvements in their economies.
"International commodity prices have experienced an unprecedented boom over the past five years, but they are expected to ease if there is a global recession," said Desmond Lachman, an advisor to AEI.
Independent of the U.S. economic situation, high food and energy prices are burdening Latin America's poorest people, said Singh.
Countries such as Brazil and Mexico can deal with that because they have well-developed social programs to address the needs of the poor, he added. Other countries, however, lack the money to do so. Singh urged those countries to turn to international organizations such as the IMF for social welfare funds, rather than using their central banks.
Haiti has done that, Singh said, and other Central American and Caribbean nations are following suit. On Tuesday, the Inter-American Development Bank approved a $500 million line of credit primarily to assist Guatemala, Honduras, El Salvador, Costa Rica, Nicaragua, Panama and the Dominican Republic.
Because their economies are more closely tied to the U.S. economy and they rely on imported oil, Singh and other analysts said, they'd be more affected by the global food and energy crisis than other South American economies will be.
Inflation is another major concern in the region. Lachman and two other advisors from the institute gave Brazil and Mexico "A's" for acting quickly to keep inflation low. Venezuela and Argentina got "F's" for adopting populist policies that will make it harder for them to rein in inflationary pressures.
In Argentina, where the government increased taxes on exports of soy and sunflowers, farmers have been protesting on the streets for the past three months.
Roger Noriega, a former assistant secretary of state for Western Hemisphere affairs and now an advisor to AEI, said the popular protests in Argentina show that people are "terrified" by the prospect of an economic crisis. But he said that other countries in the region would learn from Argentina's mistakes and avoid them.
"Argentina and Venezuela are cautionary tales that reassure other countries that what they are doing is the right thing," Noriega said. "If you slap the invisible hand of the market, you are more likely to have problems."