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  HOME | Latin America (Click here for more)

“Painful” Transition Awaits Latin America, IMF Says

LIMA – David Lipton, first deputy managing director of the International Monetary Fund, or IMF, denied on Thursday Latin America’s dependence on Chinese demand for raw materials has been a “curse,” although he admitted the transition and adjustment will be “painful.”

“The dependence on China has not been a curse, it has been an unexpected benefit,” explained Lipton in an exclusive interview with EFE, at Lima’s Museum of the Nation, one of the venues for the IMF and World Bank Annual Meetings to be held over this weekend.

According to latest IMF estimates, Latin America will shrink by 0.3 percent this year, spurred by the slowdown of the Asian economy and the subsequent fall in raw material prices due to reduced demand from China.

“The countries are going to have to contend with lower (raw material) prices, it will inevitably be a time of transition and transitions and adjustments are painful, but there are also opportunities,” the IMF economist said.

Lipton cited the example of the recently signed Trans-Pacific Partnership, or TPP, between the U.S. and 11 other countries in the Pacific Basin, including Peru, Chile and Mexico, and of which China is not a part.

“It goes to show there can be an integration with Asia that can help Latin America to enter global supply chains which it has so far been unable to penetrate,” said an optimistic Lipton, who served in Bill Clinton’s administration during the 1990s and in the Obama administration more recently, between 2009-2011.

He added even a slowed down China that will grow at 6.8 percent according to IMF forecasts, will still contribute more to the global economy than it did at the beginning of the century because its economy is much larger, and with a shift towards an economic model based on domestic consumption.

“There are 1.3 billion people in China and many people are going to join the middle class, and that means that in the future China will be huge market for services and products,” he said.

“The question is,” he added, “if it is possible to adapt from selling raw materials to China to serving the needs of Chinese households. We’ll see who the winner is.”

 

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