Risk of U.S. default worries Latin American ministers

The growing risk of the United States defaulting on its debt worries many Latin American countries who are fearful of damage during the global economic recovery, according to several ministers from across the region on Thursday.

“It’s a topic that worries all of us,” said Chilean Finance Minister Felipe Larraín. 

“It’s a problem for the United States, but at its worst it could kill the recovery of this economy, and that would have a powerful effect for the rest of the world,” Larraín added during a visit to Washington, D.C., at the assembly of the International Monetary Fund and the World Bank. 

“It would be a strong blow to the global economy. It would probably reduce growth in the United States and could affect our growth prospects for the coming year,” said Peruvian Finance Minister Luis Castilla.

According to the IMF, Latin America could close 2013 with a 2.7 percent growth rate, less than hoped for in July. The Fund, however, expects a rebound next year and estimates a 3.1 percent growth rate for the region. 

The ministers expressed their concerns face-to-face with U.S. Treasury Secretary Jacob Lew at a meeting of finance ministers from the Americas on Wednesday in Washington, on the sidelines at the IMF-World Bank assembly.

“We said that this is a subject that really worries us a lot,” Larraín said.

“He was receptive […] but I think that each sector is digging its trenches, there’s no pending agreement and time is running out,” he said.

An eventual default on U.S. debt first would affect commercial relations with Latin American countries but also could provoke a jump in interest rates over the long term, something that “especially” worries Larraín.

“There’s too much to lose and rationality must prevail,” added Castilla. Castilla and Larraín participated Thursday in a forum of the Alliance of the Pacific, an integration bloc made up of their countries and Colombia and Mexico, together with the Colombian finance minister, Mauricio Cárdenas, and Mexican Finance Vice Minister Fernando Aportela.