Milestones : Latin America Leads Improved Emerging Markets Outlook

EMERGING MARKETS

Enrique V. Iglesias

The stars appear to have aligned in favor of the emerging markets. Strong growth, easing inflation, sustainable fiscal performance and improving creditworthiness are conspiring, according to WestLB, to give emerging markets their best economic prospects in decades. Latin America is expected to be this years star EM performer since, according to a WestLB report, economic growth for the regions top eight markets is expected to come in at 4.5%, versus last years 1.5%. Growth in the top 10 markets in the Central Europe, Middle East and Africa region will be higher than Latin Americas, at an average 5.3% this year, an encore of 2003s performance. The World Bank also predicts 3.8% growth in Latin America this year, while the Inter-American Development Bank (IADB) expects a stronger 4% expansion after five years of disappointing performance.

Some are tempering their enthusiasm, however. IADB president Enrique V. Iglesias, for one, warns that improvements can be temporary. Externally driven improvements in an economy are rarely long-lived, as the regions experience and world history can attest, he said as part of his opening remarks at this years IADB conference in Lima, alluding to the fact that high international commodity prices and historically low interest rates in developed economies have played a role in emerging markets recovery. Sooner or later we can expect to see adjustments, he said.

Iglesias suggested Latin American and Caribbean countries should use this favorable phase to consolidate reforms that have worked well, correct those that have fallen short and press ahead with ones that are pending. The pay-off, he feels, will come in the way of increased economic efficiency and a more equitable distribution of its benefits.

Santiago Fittipaldi