June 9, 2010

A COMMODITY BUBBLE ISN'T THE BASIS FOR A MODERN ECONOMY...:

Latin Economic Power Conveys Clout: South America's Rebound Translates Into Greater Influence at International Monetary Fund, G-20 (PAULO PRADA, 6/09/10, WSJ)

In the past year, Latin American countries have wielded their economic heft to gain a stronger voice on the world stage. For instance, Brazil has been instrumental in leading a push to rejigger voting rights at the IMF, and has played a higher-profile role at G-20 and other global gatherings.

Mr. Strauss-Kahn, in his third year at the helm of the fund, met recently with Brazilian President Luiz Inácio Lula da Silva, Peruvian President Alan García, and ministers from nations including Mexico, Uruguay, and Bolivia.

He told the leaders, long plagued by crises that required IMF attention, that their new economic resilience gave them greater voice and persuasive power. After meeting with Brazil's president, Mr. Strauss-Kahn cited Mr. da Silva's standing with other global leaders—and the country's ascendant role in international commerce—as assets that could help convince peers that "we have to manage the global economy together."

Their relative economic health, he argued, could give Latin American countries not only greater traction in global markets, but also a bigger seat at the table as leaders seek to reorder the global economy. "It's much easier to push your agenda when you are in a position of strength," Mr. Strauss-Kahn said.

The welcome Mr. Strauss-Kahn received was a departure from what historically was an acrimonious relationship.

Mr. García, once a critic of the fund, joked in a speech in Lima that "the monetary fund has changed." He conceded that that he, Peru, and much of Latin America also had changed.

Because of its role as a financial fireman, the IMF in the past was often the lender of last resort for troubled public sectors in the region. As a condition of lending, it imposed strict economic criteria that were often perceived as invasive. Latin Americans for decades saw their onerous debts to the fund as an instrument of major economies to keep developing nations impoverished.

As economies in the region have improved, however, they paid off billions of dollars in loans and joined China and other developing nations in reforms that by next year are expected to overhaul the stake that smaller countries have in the IMF structure. Instead of rescue packages, countries including Colombia and Mexico are signing up for "flexible credit lines" that the fund began offering in 2009 to give countries with "strong track records" a fallback in case they are shaken by external crises. Brazil, which five years ago owed the fund $15.5 billion, not only paid the debt, but last year agreed to buy as much as $10 billion in IMF bonds to help it finance programs.

The reversal is leading many in Latin America to boast. After a discussion with Mr. Strauss-Kahn in Brasília, Guido Mantega, Brazil's finance minister, offered Europe a lesson in basic economics, saying the region should adopt reforms to enhance productivity and competitiveness. "Only growth generates the income necessary to pay debts," he lectured. Like Mr. García, he saluted the "new monetary fund" under the leadership of "a competent administrator."

Some leaders in the region still prompt raised eyebrows at the IMF and among economists and investors abroad, especially when it comes to market intervention and the independence of regulators. This year, Argentina's central-bank president resigned after resisting a government plan to tap $6.6 billion in foreign reserves to lower the national debt.

The IMF still has critics in the region, namely populist governments in Argentina, Venezuela, Bolivia, and Ecuador.


...but it can buy you time to transition to one.

Posted by Orrin Judd at June 9, 2010 5:36 AM
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