PARIS (Dow Jones)--Latin American countries Monday criticized rich countries' monetary and fiscal policies that hurt their economies through currency swings.
During a seminar held in Paris on Monday, the Colombian President Juan Manuel Santos criticized the loose monetary policy in rich countries.
"This policy of issuing money to get out of recession is reevaluating currencies in Colombia, Chile, Brazil and all the countries in Latin America," Santos said in a speech in Paris, where he attended a forum to discuss the economic situation.
The strong currencies in Latin America in turn hurt those countries' exporters, who lose competitiveness, he added.
The policy of interest rates close to zero and the massive cash pumping into the economy through a quantitative easing program is counterproductive, Santos added. "If we want to get France, Spain, the U.S. out of recession with dynamic exports, the best recipe is to put countries that imports those goods, not killing their growth capacity."
Santos mentioned the possibility to set up controls on capital inflows toward emerging countries as a possible solution to the currency appreciation.
Santos position is contradictory, Goldman Sachs Economist Alberto Ramos said. Latin American countries' economies are doing well so they are attracting investors and the flow of capitals make their currencies stronger, which is a good indicator. But on the other hand, Latin American countries need a swift recovery in the rich world to secure a demand for the goods they produce.
Quantitative easing is a good way for developed countries to keep their economies afloat. If growth in wealthy countries faltered, commodity prices would plummet and this wouldn't be the best thing for emerging markets.
During his speech, Santos said Latin American countries, which have known devastating crises in the past, can certainly teach lessons to some beleaguered developed countries who struggle under the weight of excessive debt and gaping budget deficits.
Mexican Finance Minister Ernesto Cordero, who also attended the forum in Paris, opposes capital controls. He suggested Latin American countries instead reduce their fiscal deficits so they can loosen their monetary policy, setting lower interest rates, and reduce the effects of carry-trade on their currencies.
The carry-trade is the investment strategy consisting of borrowing in a currency from a low-interest-rate country to invest the proceeds in a currency from a country with higher rates.
Cordero's ideas are more likely to have a positive effect than Santos's, Goldman Sachs's Ramos said.
Cordero, whose country will lead the Group of 20 industrial and developing countries in 2012, also said wealthy nations should focus on fiscal discipline.
As Mexico expects its deficit to reach the equivalent of a modest 0.5% of gross domestic product, excluding the investment program of its state-owned oil firm, its economy is likely to grow a decent 4% in 2011.
As Latin America weathers the financial crisis in a better position than Europe and the U.S., its leaders want more say in the world's financial debates. Santos asked France, who heads the G-20, to consult non-member countries such as his during this year's talks.
Source: http://online.wsj.com
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