South American finance ministers will debate on Friday how to best pool their countries’ foreign reserves to protect the region from global volatility.
One option would be to incorporate Brazil and Argentina – South America’s biggest economies – into the “FLAR” Latin American Reserve Fund to give it added firepower, Brazilian Finance Minister Guido Mantega said.
As of now, the fund’s members include Bolivia, Colombia, Costa Rica, Ecuador, Peru, Uruguay and Venezuela.
Another possibility would be to create a new fund altogether to keep so-called hot money from harming the region, Argentine Deputy Economy Minister Roberto Feletti told Reuters.
“We are not discussing numbers at this time, but it’s worth noting the region has more than $500-billion in reserves, meaning our central banks are well-equipped to intervene in the face of speculative capital,” Mr. Feletti said.
The proposals will be discussed by South American finance ministers and central bank chiefs on Friday in Buenos Aires as they work to forge a regional response to Europe’s debt crisis and concerns over the sluggish U.S. economy.
South America is better prepared than in the past to weather a global crisis thanks to its solid fiscal policies, abundant foreign reserves and high global prices for its commodities exports.
But many countries in the region are losing competitiveness as their local currencies appreciate swiftly against the dollar, raising concerns of an economic slowdown.
Mr. Feletti said the plan of action drafted by lower-level officials on Thursday includes proposals to expand the use of local currencies in regional trade and strengthen the CAF development bank.
Mr. Mantega told reporters that officials will study other financial assistance mechanisms, such as the currency swap agreements used in Asia, which he described as a stronger tool than the FLAR regional reserve fund.
“We have to think of something bigger than the FLAR to protect our countries financially, something like what the Asian countries have done with swaps among themselves,” Mr. Mantega said.
He added, however, it would be best to build first on what is already in place.
The Bogota-based FLAR was created in 1978, in part to help member countries with balance of payment or debt restructuring difficulties through credit lines and other mechanisms.
“[Friday]we should have results” on the anti-crisis measures being discussed, Mr. Mantega said.