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Argentina poised to grow 6% in 2011, but highly exposed to Brazil dependency

Strong demand in Brazil and Latin America has created the conditions for a stronger-than-expected economic rebound in Argentina, an IMF official said on Monday.
IMF economist Jorg Decressin recommends anti cyclical policies

“As far as growth is concerned, we are seeing a stronger rebound in Argentina than what we had expected, partly driven by very buoyant demand in the region including in Brazil” IMF economist Jorg Decressin told reporters in Washington.

However, he said Argentina needs to change some policies to be in stronger shape to withstand future shocks.

“Over time we believe that policies in Argentina will need to become somewhat less pro-cyclical than they are right now to rebuild policy space for the future. And if that happens, then the economy will also be in good shape to weather new shocks, if and when they arrive,” Decressin said.

“Given the systemic significance of Brazil in the region, many neighbouring countries are benefiting from its strong growth. Inversely, an unexpected downfall in Brazilian economic activity could affect adversely the region”, warns the IMF.

Argentina with a growth estimate of 6% for 2011 is one of the main beneficiaries of Brazilian demand, said IMF spokesperson Jorg Decressin.

IMF also warns that if the world economy becomes a prisoner of the crude price because of the Middle East and North African political turmoil, this could have a serious impact on the region’s exports.

Further more a quick rise in US interest rates could lead to a quick reversion of capital inflows to the region, even when the IMF considers this eventuality excessively dangerous.

Therefore as it was states last week and breaking a decades’ long policy, the IMF recommends combating the excessive influx of capital the use of the control tools, when considered necessary.


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