For a region buoyed by its smooth ride through rough international financial waters and lifted by the high tide of booming exports, words of caution from the Inter-American Development Bank's chief economist hit like a potential summer squall.
Take away the world's high prices for oil, iron ore, soybeans and the low interest rates and Latin America could be in for a bumpy ride, said Santiago Levy.
RESULT OF `GOOD LUCK'
''Yes, there have been very good policies,'' Levy said during a seminar as the bank's five-day annual meeting started. ``But there has also been good luck.''
Levy was quick to say that he was not trying to be gloomy, but the message was that regional governments should try to control their spending in case the good times don't last and put more revenue into investment for the long term and less into current expenditures.
Levy and other bank economists prepared a report, All that Glitters May Not Be Gold:Assessing Latin America's Recent Macroeconomic Performance, for the meeting. The title was apt since gold is one of the commodities that has led the surge in prices and Latin America has a number of gold mines, including a recent find in Ecuador.
One of the main features of the yearly meetings of the development bank is to give finance ministers and central bank presidents the opportunity to discuss economic performance and assess regional and global challenges.
Latin America and the Caribbean are entering their fifth year of the best economic growth in 40 years. Their economies are growing at the rate of roughly 5 percent annually. The foreign debt is lower, current account deficits have switched to surpluses, the region's international foreign currency reserves have soared to a historic high of more than $400 billion and credit ratings are the highest ever.
Many see the region as having turned a corner on a recent past that was characterized by periodic financial crises, devaluations and deep recessions. Many also view strong fundamentals as having put the region on the path to growth and made it less vulnerable to international turmoil, such as the current crisis caused by the U.S. subprime mortgage implosion.
SOCK AWAY FUNDS
But Levy argued that less of that growth and stability can be attributed to economic fundamentals and more attributed to positive conditions of global financial and trade markets. ''And they may not last,'' said Levy, who was the former deputy minister of finance and director of the Social Security Institute in Mexico.
He suggested that countries could follow the example of Chile, where the government places part of its extraordinary copper export earnings into special funds instead of spending the revenue.
