MEXICO CITY Peru is in the best shape in Latin America to withstand an economic meltdown while Venezuela and Argentina have the weakest defenses, according to an analysis by International Monetary Fund economists.
Brazil and Mexico, the region's two biggest economies, have solid enough public finances to cope with moderate shocks but would benefit from building stronger buffers, a working paper released on Wednesday showed.
Stress tests against scenarios ranging from a one-off financial shock with no economic impact to a repeat of the crisis following the 2008 Lehman Bros collapse showed that although the region as a whole is more resilient than in the past, individual countries would struggle to cope.
Fast-growing Peru emerged as the most shock-proof economy in the region, with a budget surplus and debt worth only about 20 percent of gross domestic product.
Bolivia, Chile and Paraguay also came in near the top of the scorecard, followed by Colombia, where the government plans to balance the budget by 2014.
Brazil, Mexico, Uruguay and Ecuador would be able to deal with a protracted global slowdown but debt ratios could reach 65 percent of GDP, high by emerging-market standards, depending on whether policymakers tried to counteract the impact with fiscal stimulus.
A more severe crisis would leave limited room for budget support as debt would soar even higher, the model showed.
Although Mexico is aiming for a balanced budget this year, ratings agencies have criticized its reliance on oil revenues. Brazil, which has a debt-to-GDP ratio of 35 percent, failed to meet its surplus target last year, raising questions about its commitment to fiscal discipline.
The IMF paper showed Venezuela and Argentina would have a budget squeeze even in the face of moderate shocks. Venezuela's public debt would balloon to 145 percent of GDP in a severe crisis - about the same as Greece in 2010, at the time of its first bailout.
"These results suggest that the region would benefit from further strengthening buffers, while favorable conditions last, to be in a position to actively use fiscal policy should the external environment deteriorate markedly," the paper said.