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“Certainly the times have changed for emerging markets,” said Luis Videgaray, finance minister of Mexico. He added that testing times will continue “for a while”.
The US Federal Reserve’s decision to lift rates, expected at any time from next month, “will create market volatility” in the region.
However, Mr Videgaray is a rare voice among emerging market policy makers to welcome the prospect of higher rates.
“If rates are increasing in the US that’s because the US economy is doing much better and that is a very good thing for Mexico because we export 80 per cent of our goods to the US,” he said. “The Fed rate increase is going to create some volatility, no doubt, but it is fundamentally good news for Mexico.”
Addressing a panel at the forum earlier, he said: “Clearly Mexico is in a different position to most emerging markets. North America is going to be the fastest-growing region in the next 10 years.”
Mauricio Cárdenas, Colombia’s finance minister, said potential market turbulence would not have a uniform effect on countries in the region.
A striking feature of the latest IMF forecasts was how sharply it cut growth estimates for Latin America. While developing Asia received upgrades and emerging Europe appears to be doing fine, it is a different story south of the border.
“Are we concerned about a super taper tantrum? No we’re not because markets are discriminating. They understand what the fundamentals are and are going to be looking at the sources of growth of different economies,” he said.
But it is not only reckless policy makers, such as those in Argentina and Venezuela, who failed to spend the sunny days building a buffer for the downturn, husbanding resources and honing policy to ensure continued growth to be able to address perennial Latin American problems such as poverty and unequal education.
Ricardo Villela, executive vice-president of Itaú, Brazil’s biggest bank, said: “[Brazil] is in urgent need of economic adjustment . . . to regain sustained growth.”
Brazil, the region’s biggest economy, has seen its primary surplus wiped out in four years as the government cut taxes and lifted spending in an attempt to spur growth.
The answer for Latin American economies readjusting to less liquidity and more expensive money is “intelligent austerity,” said Ernesto Talvi of the CERES think-tank in Uruguay.
That does not mean a return to old-style programmes “to look good vis-à-vis the international community” but measures focused on socially productive investments.
Eric Parrado, head of Chile’s banking regulator, said there was one clear objective. “It is not enough to have financial or economic stability if you don’t share the wealth with everyone. When we talk about structural reforms, the priorities should be education, education and education,” he said.
Countries including Chile, Colombia and Mexico also have stringent fiscal rules in place for when times get tough. And that matters as capital flows become more discerning.
“In emerging markets, you have to earn the trust of the market every day,” Mr Videgaray added.