Colombia devaluation sets mood at IMF-Latam meeting
WASHINGTON, Sept 2 (Reuters) - Finance officials from Latin America's
nine main economies will meet at the IMF on Thursday to discuss the fallout
from global markets turmoil amid worries that Colombia's devaluation could
hurt other currencies in the region.
The International Monetary Fund invited finance ministers and central bank
governors to a two-day "regional surveillance" meeting to exchange views on
how best to cope with the emerging markets rout sparked by the rouble
U.S. Treasury Secretary Robert Rubin is expected to take part in the talks.
Canada's Finance Minister Paul Martin and Bank of Canada governor
Gordon Thiessen will attend.
"The purpose of the meeting is to discuss the impact in the region of recent
developments in the global economy, as part of the IMF's ongoing dialogue
with its member countries," the IMF said in a statement.
The top finance officials from Argentina, Brazil, Chile, Colombia, Ecuador,
Mexico, Peru, Uruguay and Venezuela were on their way to Washington for
Economists said Latin America was in better shape to resist the latest
turbulence than during the 1995 Mexican peso crisis, and there was no
fundamental reason for the IMF get-together.
But the Colombian devaluation changed the mood. Colombia bowed to
pressure on the peso on Wednesday, announcing a de facto devaluation that
analysts called the first significant change in any Latin American country's
exchange rate policy since Asia's financial crisis last year.
The surprise move was expected to step up pressure on neighbouring
Venezuela and Ecuador to devalue their own beleaguered currencies.
The measure announced by the Colombian central bank after an emergency
policy meeting late Tuesday night will allow the peso to drop by a maximum
of 26.6 percent against the dollar in calendar 1998, compared to a previous
maximum of 16 percent.
Colombia's Finance Minister, Juan Camilo Restrepo, has repeatedly cited
the "domino effect" of market turmoil in Asia, uncertainty in Venezuela and
the Russian meltdown for the peso's vulnerability.
Economists said there was little the IMF and the hemisphere's finance
authorities could do to stop the current turbulence, which has battered stock
markets and increased spreads for Latin American debt.
Markets have been concerned about the impact that higher financial costs
and dwindling availability of credit on international markets will have on
Brazil's large deficit. A growing fiscal shortfall in Venezuela, whose public
finances have been badly hit by the fall in oil prices, has also worried the
Investors fear a devaluation of the Venezuelan bolivar could touch off
same domino-effect of currency crises seen in Asia last year.
While just a month ago many economists thought Latin America could resist
the pull of a free-falling Russian economy, they are now predicting rough
Even though no country was expected to publicly ask the IMF for money at
this week's meeting, they will be looking for assurances from the IMF and
the U.S. government that aid will be available if the need arises.
"I think this meeting is going to be a dress rehearsal for a major crisis
America in the fourth quarter. It will be a dress rehearsal for requesting
emergency credit lines later on," said Thomas Trebat, who heads Citibank's
emerging markets research division in New York.
While Venezuela is considered the most vulnerable, investor attention has
increasingly focused on Brazil, Latin America's economic powerhouse,
whose gross domestic product of $800 billion is nearly twice that of Mexico.
Foreign investors pulled money out of Brazil at a frenzied pace in August,
causing the the fastest monthly drain in five years and pressuring Brazil's real.
President Fernando Henrique Cardoso, seeking reelection this year, has
vowed not to devalue. Economists say a devaluation could hurl the entire
region into a recession.
Economists have already ratcheted down regional growth forecasts for 1999
to between 2 percent and 2.5 percent from 3 percent in 1998.
Copyright 1998 Reuters Limited.