Prepare for Lower Commodity Prices: Ex-IMF Official

Latin America’s policymakers must prepare for lower commodity prices, Claudio Loser, president of Centennial Group Latin America, tells LatinFinance. “The last several years of commodity-led prosperity have resulted in a degree of complacency in Latin America that is misplaced. The impact of lower terms of trade can be staggering. Prices will continue to fluctuate, and may even show a secular downward trend,” the veteran economist and former director of the Western Hemisphere at the IMF says. Better terms of trade since 2000 have meant an increase in gross domestic income in excess of GDP growth during that time, he explains, an effect that would erase even if terms of trade were to normalize. Such a reversal would mean trend growth of 2.0%-2.5%, down from 3.7%. “A steep but not unusual decline in terms of trade of 10% would result in a one-time decline in income of 5% in Latin America, with grave consequences for public finances and the external accounts,” Loser says. Fiscal discipline, including structural rules like in Chile, a competitive private sector, better education, and a well-protected financial system are of the essence to survive, he adds. Separately, the IMF identified Monday a “reversal of the favorable tailwinds of easy financing conditions and strong commodity prices that have prevailed since 2010,” as the most important risk to LatAm, in its annual regional outlook. The fund has revised the GDP growth projection for the region for this year to 3.4% from 3.6%.