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Outlook Worsens For Caribbean, Latin America

by Mike Godfrey, Tax-News.com, Washington

04 January 2012


New reports from the Inter-American Development Bank (IADB) and the Economic Commission for Latin America and the Caribbean (ECLAC) say the region has demonstrated marked economic gains during the past year, but risks remain significant looking ahead to 2012.

Although uncertainty in international markets reduced the rate of the global recovery during 2011, Latin America and the Caribbean averaged a 4.3% economic growth rate. Capital inflows to the region's largest countries reached a record USD354bn.

The head of the Inter-American Development Bank, Luis Alberto Moreno, summarised the agency's report, stating:

“The region is on the right path. We have stronger economies with solid foreign exchange positions, low levels of indebtedness and a sound and well-regulated financial sector. We also have democratic governments that are increasingly effective in reducing structural poverty, expanding the coverage of public services and in building infrastructure.”

However, ECLAC has warned in its report of the risks facing the region in the coming year, mainly as a result of the European debt crisis, the US fiscal deficit and the possibility of a deceleration in the Chinese economy. Its report states: "Lower growth of the world economy and greater uncertainty and volatility in international financial markets will have repercussions for Latin America and the Caribbean, a region which will register a slight drop in growth to 3.7% in 2012, having reached 4.3% in 2011."

ECLAC has reported that the countries with the greatest growth this year will be Panama (10.5%), Argentina (9.0%), Ecuador (8.0%), Peru (7.0%) and Chile (6.3%), while El Salvador will only grow by 1.4%, Cuba by 2.5% and Brazil by 2.9%.

The ECLAC report also notes that nations now have less room for fiscal manoeuvre than at the onset of the financial crisis, and measures to correct economic slippage will therefore be less powerful should a deterioration in the global economy occur.

Looking ahead to 2012, the report recommends that Latin American and Caribbean territories focus on preparing for the possibility of a deterioration in the global economy and prepare flexible fiscal policy packages in the event that the governments are required to step in to protect their economies.

TAGS: tax | investment | economics | Chile | fiscal policy | international financial centres (IFC) | budget | Ecuador | offshore | unemployment | Brazil | Peru | Argentina | Cuba | El Salvador | Panama | services

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