IMF hikes L.America econ outlook on commodity boom

Booming energy, mineral and agricultural commodities prices should raise Latin American economic growth this year to 4.3 percent and 3.6 percent next year, the International Monetary Fund on Wednesday.

The forecasts in its semiannual World Economic Outlook were up from September's 3.8 percent outlook for this year, but Brazil's gross domestic product was expected to grow 3.5 percent -- unchanged from September's IMF report.

Mexican growth was pegged at 3.5 percent this year and 3.1 percent next year. Argentine growth was hiked to 7.3 percent this year from September's forecast of 4.2 percent but is expected to slow to 4 percent next year, the IMF said.

"Notwithstanding the slower pace of growth in larger economies, GDP growth remains solid, aided by booming commodity prices," the global lender said.

"While this has aided a notable reduction in debt ratios, political uncertainty remains a concern, and many countries remain vulnerable to an abrupt deterioration in the external environment," the fund added.

Brazil, Mexico and Colombia hold elections later this year while Peru is set to hold a run-off presidential vote and Bolivia swore in former coca farmer Evo Morales in January with growing talk of a left-leaning revival in the region.

Many investors have expressed confidence that Latin policy-makers would stick to prudent macroeconomic policies but IMF forecasts of national accounts serve as a warning.

Brazil's current account surplus is expected to narrow to 1 percent of GDP this year from 1.8 percent last year and further to 0.2 percent in 2007.

Mexico's current account deficit should shrink somewhat to 0.6 percent of GDP this year from 0.7 percent last year but then expand to 0.8 percent in 2007.

Argentina's current account surplus is forecast to narrow to 1.2 percent of GDP this year from 1.8 percent last year and further to 0.5 percent in 2007.

Upward revisions to GDP growth for Argentina as well as Venezuela this year raised the region's prospects by half a percentage point from September but there are downside risks.

"A softening in global demand for the region's primary and manufacturing exports could weaken the contribution to growth from the external sector in many countries," it said.

"While a deterioration in the global financial environment also poses risks given the still high level of public debt."

Many countries' public debt remain above the IMF's safe range of 25 percent to 50 percent of GDP, and have indexed interest rates, short average maturities and foreign exchange exposure.

Tighter fiscal policy now in anticipation of a downturn in the global commodities cycle would set the stage for future monetary easing, and entrench gains toward a flexible approach to exchange rates and gains made against inflation, the IMF report said.

Turning to individual countries, Argentina faces growing capacity constraints as inflation erodes competitiveness combining to curtail growth.

Brazil, in an election year, should see growth strengthen through the year and inflation moderate and should resist pressure for fiscal easing.

Venezuelan growth should continue to be strong, supported by high oil prices, which will underpin government spending. Macroeconomic policies need to be "tightened substantially" to rein in double-digit inflation.

In Colombia and Peru, strong macroeconomic policies have kept inflation low but "monetary policy needs to remain vigilant to emerging capacity constraints (Colombia) and the possible effect of recent currency depreciation (Peru)."

Mexico is expected to benefit from the strength of the global manufacturing cycle and recovery in domestic investment. "It will be important also to diversify the revenue base to reduce reliance on high oil prices," the fund added.