Argentina, Veneuzuela growth unsustainable-World Bank

[Right, as if I'd believe anything the cheating, liars at the World Bank said!]

Policies that have led to high growth rates in Argentina and Venezuela are unsustainable, the World Bank said on Wednesday, warning there were already signs of overheating in Argentina "which they are hiding".

In its annual Global Economic Prospects report, the World Bank said the pace of growth in the region's two fastest-growing economies was likely to ease by 2008, but cautioned there was a risk of a hard economic landing if the slowdown did not materialize.

It said the slowdown, starting this year, would likely prompt a decline in growth across Latin America to 4 percent by 2008, from a projected 5 percent in 2006 and 4.2 percent in 2007.

Four years after an economic crisis and massive debt default, Argentina's economy has grown nearly 9 percent a year since 2002. But the World Bank estimated the pace should more than halve to 4 percent by 2008, amid tighter economic policies and slowing investment demand as high domestic costs squeeze profits.

"If they don't correct the current stimulus, at some point the correction will be much more harsh, much faster than what you would achieve with a gradual slowing of the economy," World Bank economist Hans Timmer told reporters.

"Clearly at the moment there are already signs of overheating, which they are hiding," he added.

The authorities have rejected the idea that the economy may be overheating. Inflation surged to 12.3 percent in 2005 and is forecast to be in double digits again this year, despite price freezes in a number of sectors.

"Argentina has policies in place that do achieve high growth rates but in our view are very unsustainable and have inflationary pressures which they address by just fixing a couple of crises in their economy," Timmer said.

"That is exactly the kinds of policies in the past that have led to those boom and bust (cycles)," he added.

U.S. DEMAND WORRIES

In Venezuela, the World Bank said growth should slow to 5.5 percent by 2008 from an expected 8.5 percent this year. This is partly because contributions by government spending to increased demand will fall, as lower oil prices and stagnant production will cut revenues, the lender said.

It said supply-side constraints have been exaggerated in Venezuela because cuts in investments by the state oil company and private firms unhappy with government policies, have caused oil output to fall.

Elsewhere in the region, a slowing in U.S. import demand in 2007 is set to affect neighboring Mexico, where growth is likely to fall to 3.5 percent a year through 2008, from 4.5 percent in 2006, the World Bank said.

Brazil's economic outlook is brighter, partly because its economy is not so closely tied to U.S. imports, which would see growth rising to 3.4 percent in 2007 and 3.8 percent in 2008.

Timmer said Brazilian growth was being held back by high interest rates and a strong currency, which restrain exports.

"Brazil still has real interest rates that are way above those of other developing countries, just to ensure stability," he said.

He said the biggest challenge for Latin America was to achieve more sustainable growth levels.