THE International Monetary Fund (IMF) is of the view that against the backdrop of the global financial crisis Latin America and the Caribbean should generally stay their present policy course and continue to rebuild buffers but stand ready to shift tack if global winds change starting with monetary policy. This was disclosed last week by IMF Deputy Director, Western Hemisphere Department, David Vegara at the Barbados Central Bank during the launch of the Regional Economic Outlook.
According to Vegara, in South American economies, where output hovers above potential and domestic demand is still strong, overheating dangers have lessened but not fully disappeared, adding that where inflation pressures have eased, inflation expectations are aligned with targets, and policy frameworks are credible, monetary tightening  could halt uncertainty fades.
“In a downslide scenario, monetary policy should be the first line of defence, including providing liquidity support if funding conditions become stressed. Meanwhile, fiscal consolidation should continue to avoid impairing fiscal credibility and create room for manoeuver should downslide risks materialise. In addition, macro-prudential policies remain an important part of the toolkit,” Mr. Vegara exhorted.
He observed that despite the recent deterioration of the global environment, the IMF’s baseline entails only a modest worsening of the economic outlook for the region, pointing out that advanced economies are projected to grow by 1.5% this year and just below 2% next year, constrained by continued balance sheet headwinds.
Growth in emerging and developing countries this year would be in the vicinity of 6.5%, Vegara said. This would be led by Asia, as softening exports would be offset by less policy tightening and stronger domestic demand.
Mr. Vegara said in this context the tailwinds of easy external finance and high commodity prices would persist for much of Latin America, but would be less brisk than expected in the spring.
He identified several areas within the region’s economies which need to be addressed including public debt, budgetary deficits, high expenditure on salaries and pensions and tax incentives.
Mr. Vegara noted also that credit unions and similar types of financial organisations within the region need to be brought in line with best practices of international standards.
Following the launch of the report, a group of panelists, including Executive Chairman of First Caribbean International Bank Limited, Michael Mansoor; Head of Management Studies of the University of West Indies (UWI-Cave Hill), Dr Justin Robinson; Director of Economics of the Caribbean Development (CDB), Dr Denny Lewis-Bynoe; and the Governor of the Central Bank of Barbados, Dr De Lisle Worrell (moderator)engaged in discussions as to how to deal with the current economic challenges facing regional economies.
Mansoor, in his presentation, urged that while focusing on what is to be to overcome the present difficulties, there should not be an economic shutdown by austerity measures.
He also advocated for more to be spent on infrastructure, exhorting for patience as the realities cannot be changed overnight as there is “no magic spell.”
Dr Robinson posited that Caribbean governments are fragile with diminishing policy tools options, and concerted government action is needed. However, he noted that one of the serious dilemmas facing regional governments is getting the balance between equity and efficiency.
According to him, for the most part, equity wins out; but he argued that governments need to rethink this position and place greater emphasis on efficiency.
Dr. Lewis-Bynoe noted the severe impact of natural disasters on small economies, which, she said, is adversely affecting their ability to compete on the global market.
She also contended that enough use of technology is not being made to improve efficiency.
Dr. Lewis-Bynoe exhorted that in the present scenario, governments need to do some strategic thinking, reflect on where we are, where we want to be, and how to get there.