World Bank says Argentina should advance on pending reforms

The World Bank on Wednesday painted a more optimistic picture of the outlook for Latin America, saying more exports, renewed capital inflows and a better world economy should boost growth to 1.8 per cent this year.

In its "Global Economic Prospects 2004" report, the World Bank estimates that Latin America should grow 3.7 per cent and 3.8 per cent in 2004 and 2005, respectively. The region is emerging from a tough 2002, when sharp recessions in some countries coupled with a global slowdown led to economic shrinkage of 0.8 per cent.

"The region's contraction is over," said World Bank chief economist for Latin America and the Caribbean Guillermo Perry.

"Improving world trade growth, coupled with increased economic growth in the industrialized countries led by the United States, should further boost the export-led recovery of Latin America."

The "Global Economic Prospects 2004" report only gives regional growth estimates, not country-by-country numbers.

However, in a video conference with reporters, Perry said the bank's numbers indicated growth for Argentina will "probably be above 5 per cent this year, and next year (growth) can easily be around or above 4 per cent."

"What will happen later on will depend on the advancement that Argentina does on solving some structural problems," he noted.

The report lists key reforms that Argentina needs to embrace to sustain its longer term prospects, including a restructuring of its banks -- hurt after a devaluation in early 2002 -- higher utility rates and a revamping of the tax structure.

The World Bank's warnings on the need for reforms come as Argentina and the International Monetary Fund are negotiating a new aid program to replace one that expired Aug. 31. An agreement would pave the way for the country to restructure its defaulted debt, a key step for investment confidence to return in a country that suffered its worst recession ever in 2002.

On Brazil, Perry told reporters "We do think that all the conditions are in place for a sustained reduction" in interest rates, citing the "very prudent fiscal policy that the government had followed."

The Central Bank cut its benchmark Selic rate by 2.5 percentage points last month, to 22 per cent, in an effort to avert a slowdown of Latin America's biggest economy.

Perry said growth in Brazil would "probably not be more than 1.5 per cent" this year, although estimates that the economy could grow just 0.5 per cent were "probably too pessimistic." He expects a "return of levels of 3 per cent or more next year."

The economist also urged Venezuela to scale back its currency controls, slapped on after a two-month strike earlier this year choked oil exports, and said a lack of structural reforms was slowing growth in Mexico.

The World Bank also said capital flows into Latin America were on the rise, with Mexico garnering nearly $15 billion in the first six months of the year, equaling last year's level. Brazil was on track with 2002 investment levels.

Latin America should also see its exports grow 5 percent this year, after two years of stagnation, the World Bank report said.
"Further trade liberalization worldwide would permit even stronger export-led growth in the region," Perry said.