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Higher rates, slowing China, risks to Latam and Caribbean growth


© Reuters. FILE PHOTO – The International Monetary Fund logo can be seen in its headquarters after the IMF/World Bank annual meeting, Washington, U.S.A, September 9, 2016. REUTERS/Yuri Gripas/File Photo/File Photo

NEW YORK, (Reuters) – The possibility of tighter financial terms due to war in Europe, a more hawkish Federal Reserve and concern about a slowing Chinese growth are all key risks for Latin America and Caribbean. These threats require policy actions, according to the International Monetary Fund on Tuesday.

These risks are added to the list of rising inflation for food and other items, which could spark unrest.

“Higher global or domestic financing cost can accelerate capital inflows and present a challenge to the region,” stated the IMF in a blog entry signed by Ilan Goldenfajn, director of Western Hemisphere Department Jorge Roldos assistant director and Santiago AcostaOrmaechea senior economist.

According to the IMF, Russia’s invading of Ukraine had a devastating effect on Latam via higher inflation. That hurts the most vulnerable the most.

They stated that policymakers were responding to the challenge by tightening money and taking measures to ease the burden on those most vulnerable as well as to limit the risk of unrest.

Governments should give targeted support to low income and vulnerable households, while also allowing domestic prices adjust to international price levels,” they said. They claim this would lower the costs for governments and revitalize production.

Latam, the Caribbean, and other countries in the developing world are facing rising interest rates, which could lead to investments flowing to emerging markets looking for higher returns. Latam will have to make sure that the public finances can be sustained to maintain credibility.

After the significant increases in activity seen last year, growth is likely to slow down.

The IMF stated that growth is returning to pre-pandemic trends rate as policies change. It noted that exports and investments are now the main drivers of growth, however central banks had to tighten their monetary policy in order to counter an inflation increase.