The International Monetary Fund (IMF) on Monday highlighted Latin America "is well-prepared" to face the U.S. dollar volatility thanks to its flexible exchange rate systems.
According to IMF Western Hemisphere Department Director Alejandro Werner, if exchange rate conditions were to tighten, economies would not feel detrimental effects.
In this sense, the official noted that, while certain LatAm economies may see additional depreciation in their local currencies, this trend has benefited countries such as Peru, Chile and Colombia.
"Amid increasingly volatile external conditions, exchange rate flexibility has served the region well and should remain the first line of defense against shocks," Werner suggested.
Likewise, he referred to the region's monetary policy frameworks, which are well-established and "suited to limit the exchange rate pass-through to consumer prices."
On the other hand, Werner underlined strong risk management practices and policies facilitating corporate balance sheet repair, which are also "critical to reduce vulnerabilities arising from a tightening of global financial conditions and sharp currency movements."
In addition, since commodity prices are expected to remain relatively low in spite of the recent uptick, countries should continue to use available space to calibrate fiscal adjustment.
The pace needed for said adjustment will depend on debt levels and market pressures.
"Beyond macroeconomic policy adjustment, structural reforms—such as decreasing informality and red tape, boosting infrastructure quality, and improving education and rule of law—are essential to support medium-term growth," he pointed out.
(END) CNA/MDV/DHT/MVB