WRAPUP 1-Commodity boom weighs on policy in Americas

* Canada says commodity boom here to stay

* IMF warns about Latam inflation, credit bubbles

By Jason Lange and Louise Egan

CALGARY, Alberta, March 26 (Reuters) – Canada says the
current commodities boom could last decades and warned
developing countries against being too timid with interest rate
hikes, while the International Monetary Fund said that much of
the Latin American economy is overheating.

Bank of Canada Governor Mark Carney told policymakers from
North and South America on Saturday that they should not count
on commodities prices coming down any time soon, a position
likely to be much discussed at this weekend’s meeting of
Western Hemisphere finance officials in snowy Calgary.

“It’s a mistake to chalk this all up to cyclical
(factors),” Carney said, referring to the argument that prices
for goods such as copper and grains have risen only because of
an upswing in the global business cycle.

“We’re in an environment that is probably going to be with
us for several decades,” he said during a panel discussion at
the Inter-American Development Bank’s annual meeting.

Across Latin America, inflation is accelerating on both
strong consumer demand and because a soaring commodities market
has pushed food prices higher.

Indeed, the head of the International Monetary Fund warned
that many Latin American economies, which have rebounded from
the global financial crisis with help from strong demand for
their commodities exports, are now growing too quickly.

“In many of them there are worrisome signs of overheating,”
IMF Managing Director Dominique Strauss-Kahn said in a blog,
adding that growth in the region’s financial markets put Latin
America at greater risk of credit bubbles.

Strauss-Kahn said he discussed the region’s policy
challenges earlier in the day in Calgary with Western
Hemisphere finance ministers, who held meetings in parallel
with the IDB meeting.

Some Latin American policymakers have argued that the
food-price boom will pass and that focus should be put on
whether the temporary price shock will poison inflation

But Carney said in a speech on Saturday that the outlook
for underlying demand is strong because of the rapid
development of emerging markets.

He warned that misguided policies in emerging markets for
dealing with high inflation and a flood of capital could lead
to financial instability and weak global economic growth.

“That’s where one can make pretty big mistakes and delay
too much, both on the monetary side, or on the pretty
fundamental structural reforms,” he said.

As the world recovers from recession, nations have clashed
over foreign exchange policy as many countries adjust to
ultra-low U.S. interest rates and China’s reluctance to let the
yuan appreciate more freely. Investors seeking high yields have
put their money into Latin America, exacerbating these

Referring to what Brazil’s finance minister dubbed the
“currency wars,” Carney said that when large economies keep
their currencies from appreciating, others feel pressured to
follow suit. This leads to a chain reaction of other
distortional policies.

“The collective impact of this behavior risks inflation and
asset bubbles in emerging economies and, over time, subpar
global growth,” he said.


Carney sees the current high commodity prices persisting
for much longer than in past boom cycles because of the rapid
urbanization and mushrooming middle classes in emerging
economies such as China and India.

“Even though history teaches that all booms are finite,
this one could go on for some time,” he said.

The other thing that is different about this commodity boom
— and which could lead to dangerous global imbalances — is
that the strong demand from emerging markets is combined with
tepid growth in core advanced economies such as the United

This shift to a “multipolar economy” is permanent and
should not be underestimated, Carney said.

“Some countries are postponing monetary tightening in the
hope that old relationships reassert.” Others have introduced
measures to curb capital inflows. “All appear to be
underestimating the scale of what is happening. Therein lies
the risk of another crisis,” he said.
(Additional reporting by Jeffrey Jones; editing by Peter

WRAPUP 1-Commodity boom weighs on policy in Americas