Latin American, Caribbean Economies Grew 5.7 Percent in 2004

The World Bank (WB) raised its 2005 GDP growth forecast for Latin America, but at the same time warned Latin American countries to take advantage of their economic rebound to reduce high debt levels that threaten sustained growth.

The WB said in its annual outlook report that the growth will be at a more sustainable pace, with Caribbean and Central and South American states seeing GDP increase of 3.7 percent in 2006, after 4.1 percent this year and 5.7 percent in 2004.

In its September report, the WB had forecast GDP growth of 3.6 percent for 2005 and was expecting GDP growth of 4.6 percent for 2004.

´This outlook is not without risks, however, particularly if oil price volatility continues, interest rates in industrial countries rise more sharply than expected, spreads on emerging market debt continue to widen or industrial country growth slows in a prolonged way,´ said the report.

The WB said it is encouraged that many governments have used the recovery of the past three years to strengthen their fiscal positions and debt structures.

But it warned ´public debt in Latin America, while declining, remains high and is a significant source of vulnerability.´

The institution added: ´Fiscal consolidation and more general measures to improve public debt sustainability -including structural reforms to boost growth- remain a priority and the current favorable economic outlook provides an important opportunity to push ahead in these areas.´

The report said inflation has risen in several countries in recent months but central banks have tightened monetary policy to counter this.

´The strong recovery in Argentina continuing,´ said the report. It forecast GDP growth of 6.0 percent this year, after the 9.0 percent growth achieved last year.

Inflation has picked up in recent months but is expected to end the year within central bank targets and with the budget surplus exceeding expectations at 5.1 percent of GDP.

´If the recovery is to be sustained and unemployment reduced, continued prudent fiscal policies -- which facilitate debt reduction, the phased reduction of taxes and increased social and infrastructure spending -- the normalization of relations with private creditors and greater progress with structural reforms will be required.´