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Mexico City (UPI) May 6, 2011 Soaring inflows of foreign direct investment are a mixed blessing for Latin America and need to be handled with caution and intelligent use of the abundant new cash, a new report warns. The problem is that much of the liquidity is going into exploring and developing the continent's vast natural resources and very little is geared toward industrialization. As the FDI flows push upward the value of regional currencies they are doing apparently little to reduce the huge income disparities, uneven industrial growth and modernization. The report from the Economic Commission for Latin America and the Caribbean, a U.N. regional body, coincided with International Monetary Fund warnings that Latin America's most buoyant economies risk overheating and inadvertently reversing impressive economic gains achieved over the past few years. The IMF warned regional governments against complacency over the risk of an unhealthy overdrive spoiling gains made since the 2008 economic downturn. Commodity price rises helped Latin American economies to counteract the effect of the downturn but the boom in raw materials exports also put industrial development on the back burner. Latin America and the Caribbean showed the strongest percentage increases as recipients and sources of FDI, the ECLAC report said. ECLAC Secretary-General Alicia Barcena said the region's FDI inflows in 2010 were 40 percent higher than in 2009 at $112.634 billion dollars, while outgoing FDI almost quadrupled in the same period to reach a historic high of $43.108 billion. Barcena said those FDI trends highlighted the buoyancy of trans-national Latin American and Caribbean enterprises, known as trans-Latins. As FDI into developed countries fell 7 percent and investment in developing countries overall rose 10 percent, the Latin America and Caribbean region increased its share of the recipient market from 5 percent to 10 percent from 2007-10, the data indicated. FDI flows to Latin America and the Caribbean are expected to maintain this trend through 2011 and increase 15 to 25 percent, taking the inflows to record high levels, the report's projections showed. "The figures we are presenting today point to the growing integration of Latin American and the Caribbean in the process of economic globalization," said Barcena. "The region's countries not only remain attractive to foreign investors but they are also increasingly daring to conquer other markets by means of trans-Latins," she added. However, the report echoes warnings issued by regional economic strategists that the region is still ill equipped to absorb FDI at rising levels. "In order to improve the capacity to absorb the benefits of such investment, we are stressing the need to implement productive development policies focused on innovation and on the strengthening of local capacities to promote the creation of quality employment," Barcena said. "FDI must help the region to grow with equality."
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