BY JOSEPH A. MANN JR.

As the global financial crisis continues to unfold, Latin America is facing 12 to 18 months of ''grim'' economic prospects, with countries highly dependent on commodity exports such as Venezuela, Chile, Argentina, Ecuador and Peru likely to suffer the most, according to economists at a recent Miami conference.

Brazil and Mexico, the region's largest and second largest economies, also must deal with enormous challenges, but their diversified export mix should help ease the impact of the downturn.

Latin American economies are already in decline after several years of generally strong growth. Commodity prices have collapsed, currencies are being devalued, inflation is creeping upwards and credit is extremely tight.

IMF PREDICTIONS

The International Monetary Fund now predicts 2.5 percent growth for Latin America and the Caribbean in 2009, down from its previous projection of 3.2 percent. The IMF expects regional economies to grow by 4.5 percent this year, also down from an earlier estimate. Regional economies grew 5.6 percent in 2007.

Noting that ''It's a tough time to forecast'' since conditions are still in flux, Ernest W. Brown, New York-based chief economist and head of economic research for Latin America at Santander Investment Securities, estimated that a 10 percent fall in commodity prices would cause drops in GDP next year of about 5 percent in Venezuela, more than 2.5 percent in Chile, more than 1 percent in Argentina and Peru and under 1 percent in Brazil, Mexico and Colombia.

The Santander economist and other speakers at the economic outlook forum, which was organized by the University of Miami's Center for Hemispheric Policy, stressed that Latin America is generally better prepared today than it had been during earlier crises.

Most countries in the region now have freely floating currencies, good fiscal management, substantial foreign reserves, conservative levels of foreign debt and credible central bank policies.

`GOOD NEWS'

''The good news is that Latin America is probably not the most vulnerable emerging market,'' said Tulio Vera, chief strategist and head of client relations at Bladex Asset Management in New York. ''But this will really be a test; it will separate [countries] that did their homework'' and achieved real structural reform from the rest.

But in a report distributed at the conference, John Price, managing director of business intelligence at Kroll -- a risk consulting firm in Miami, warned that, ``the real weakness in Latin America is in the irrational exuberance of its rapidly growing and highly indebted corporate sector.''

While finance ministries in Mexico, Brazil, Chile, Colombia and Peru 'have been paying down debt since 2003, the corporate sector piled on record debt levels at unprecedentedly low rates, available in large measure due to the prudent behavior of their home markets' central banks,'' the report said.

These corporate debts, he added, will prove costly as they come due and must be refinanced at higher rates.

Price also warned about big losses from corporate hedging. In recent years, a number of large exporters bought derivatives as their currencies appreciated against the U.S. dollar, betting against the American currency.

''When the region's currencies declined,'' Price said in his report, ``these exporters began realizing massive derivative [hedging] losses, which continue to be counted as their contracts mature.

''An estimated $50 billion to $60 billion of accumulated derivative losses will hit the balance sheets of Latin America's largest companies between September 2008 and June 2009,'' according to the report.

A combination of hedging losses, increased debt and lower commodity prices will overwhelm some of Latin America's big corporations, Price said. ``The ensuing struggle will reshape the competitive corporate landscape in Latin America.''

To survive the ongoing crisis and pave the way for greater economic growth, Latin American governments must overcome the temptation to resurrect populist and protectionist policies, conferees said.

Governments should move to stabilize their financial systems, maintain fiscal discipline and avoid massive economic stimulation programs. New government borrowing should be internal, not foreign, and the region's central banks must try to maintain foreign reserves at around the present level of $400 billion.

Santander's Brown said Latin American nations must avoid using government printing presses in an effort to alleviate the crisis, a move that will drive up inflation.

``The U.S. can print currency until it comes out of its ears, because it's fully convertible. But Latin American governments can't do that. They have to stabilize their economies before they turn to pump-priming.''

Other speakers were concerned that a sharp economic downturn could exacerbate political risk in the region.

Roger Noriega, director of advocacy and government affairs in the Washington office of the Tew Cardenas law firm and a former assistant secretary of state for Western Hemisphere affairs, issued an ominous warning.

While democracies have replaced military dictatorships in Latin America, he said, the region still suffers from fundamental political and social weaknesses, including crime and corruption -- especially from the illegal narcotics trade, relatively weak institutions and a growing threat from authoritarian populism. (In an authoritarian populism model, an elected leader uses power to undermine a nation's democratic institutions.)

''Clearly, this is what's happening today in Venezuela, a galloping dictatorship,'' Noriega said. This process is also occurring in Bolivia and Nicaragua, and to a lesser degree in Argentina and Ecuador, he added. ``Neither democracy nor a free market can be effective without the rule of law.''