IMF raises Latam growth on domestic demand, exports

SINGAPORE, Sep 14 (Reuters) Latin America's economy should expand 4.75 percent this year, up from a prior forecast of 4.3 percent, on firm domestic demand and high prices for key export commodities, the International Monetary Fund said on Thursday.

But the region with the world's second-largest oil and gas reserves has for the most part failed to capitalise on a doubling in crude prices in the past two years to either boost output or invest, it said in its twice-yearly review of the global economy.

Brazil, however, is reaping the benefits of long-term investments by Petrobras which have turned a country that had long been an energy importer into a self-sufficient one in 2006.

Gross domestic product in the region's biggest economy should expand 3.6 percent this year and 4.0 percent in 2007, both increases from the IMF's April forecast, while inflation should slow from 4.5 percent in 2006 to 4.1 percent next year.

Two weeks ago Brazil's central bank cut its benchmark lending rate by 0.5 percentage point to a 20-year low of 14.25 percent, the 10th consecutive rate cut since September 2005. It is targetting inflation at 4.5 percent in 2007 and 2008.

''In rapidly growing Argentina, the monetary policy stance has been gradually tightened in response to double-digit inflation but remains accommodative,'' the IMF said.

Argentine inflation should be 12.3 percent this year before slowing to 11.4 percent in 2007 while growth is forecast to be 8.0 percent in 2006 and 6.0 percent next year.

''The use of regulatory counter-measures will need to be supported by a further tightening of macroeconomic policies to contain inflation,'' it added.

The IMF urged ''adequate foreign exchange rate flexibility'' in managing foreign currency inflows and warned that sustained sterilised intervention would have heavy ''quasi-fiscal'' costs.

Argentina's central bank buys dollars to build reserves and keep the peso weak for exports at around 3 per dollar while Venezuela fixes the bolivar at 2,150 per dollar.

Officials in Caracas last month said they were analysing a possible restructuring to cut up to three zeros off the bolivar.

The IMF openly chided Venezuela and Mexico for low rates of investment in their energy sectors and for only beginning to address governance issues. Both have state-owned energy firms.

Venezuela, the world's fifth-largest oil exporter, should grow 7.5 percent this year and 3.7 percent in 2007. Inflation should speed up from 12.1 percent in 2006 to 15.4 percent in 2007.

Mexico, which only recently boosted investment to make up for dwindling output at its largest oil field, should see GDP growth of 4.0 percent in 2006 and 3.5 percent next year, it said.

Mexican inflation should be 3.5 percent this year and 3.3 percent in 2007 while the current account deficit should narrow to 0.1 percent of GDP in 2006 and widen to 0.2 percent next year.

Most South American countries should have current accounts in surplus except for Colombia where the deficit should be 1.2 percent of GDP this year before growing to 1.7 percent in 2007 and Uruguay where it should narrow from 4.3 percent in 2006 to 3.2 percent next year.

Government spending has increased over the past two years across the region and the IMF said it was concerned that not all of it was well targeted.

Some countries have renewed reform efforts after the financial crises in the late 1990s and beginning of this decade and the IMF urged greater openness to trade across the region's economies.

REUTERS VJ PM0822