ANALYSIS-Currency wars have silver lining for Latin America

* Currency wars push Latin America to be more competitive

* Brazil cites currency tensions in tax overhaul

* Colombia lowers import tariffs, Chile cuts red tape

By Pablo Garibian and Samantha Pearson

MEXICO CITY/SAO PAULO, Nov 23 (Reuters) - The world's so-called currency war could have a silver lining for Latin America as it pushes countries to reform their economies by overhauling tax codes, cutting tariffs and snipping red tape.

Exporters from Brazil to Colombia and Chile have been stung by U.S. policies that have devalued the dollar and made Latin American exports more expensive to American consumers.

Outmuscled by the U.S. Federal Reserve's ability to pump dollars into financial markets and facing perhaps years of strength in their currencies, Latin American governments are scrambling to do what they can to dull the pain.

Last week, a top Brazilian official said President-elect Dilma Rousseff plans to cut payroll taxes to make the economy more competitive, saying it was a good policy "particularly because of the currency war." For more, see: [ID:nN15237853]

Rousseff's reform agenda probably stems more from a growing political consensus over reforms than from frustrations over Brazil's inability to contain the real using capital controls, but currency tensions do lend urgency to the matter.

"(This) is pushing the government to look at these more structural measures because the government understands that over the medium to long-term, the kind of capital controls that were imposed are not very effective," said Tony Volpon, a strategist at Nomura Securities in New York.

The strong real , which has gained about 4 percent since June, is already weighing on the country's steel sector, and overall industrial output fell in August and September .

PART OF THE PROBLEM

In Colombia, which is also feeling the pinch of a stronger peso, currency concerns appear to be having the opposite effect in global trade to that expected by many analysts as it became clear this year that world leaders would not reach a grand bargain regulating exchange rates.[ID:nN09105095]

While some U.S. lawmakers advocate putting up barriers to Chinese imports because the Asian giant keeps its yuan currency artificially weak, Colombia has slashed its own import tariffs.

The government aims to lower the cost of materials imported by Colombian factories while pushing companies to become more competitive.

Colombian President Juan Manuel Santos is also pushing fiscal reforms. Last month he proposed eliminating a tax deduction on investment by next year.

The government hopes a lower deficit will reduce credit costs and trim borrowing from abroad, which aids in driving up the value of the Colombian peso when the government converts its borrowed dollars into local currency.

"We ourselves almost are part of the problem and we have to be part of the solution," Finance Minister Juan Carlos Echeverry said in October.

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For a graphic on Colombia's battle with its currency, click on: http://r.reuters.com/kuv25q For a graphic on Brazil's attempts to curb the real, click on http://r.reuters.com/kuv79p

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In Chile, where the economy grew at its quickest rate in five years during the third quarter, a strong peso nevertheless is creating headaches for exporters. Chile's trade surplus fell in October to its lowest level since the country ran a trade deficit in December 2008.

Chile has responded by changing rules for pension fund estimates and slowing the pace of interest rate hikes. But the peso has continued to appreciate and is up about 13 percent since June.

Seeking alternatives to costly currency market intervention, the government last month launched a program to reduce red tape for exporters. Colombia has also stepped up loans in dollars to exporters.

None of these measures promises to make up for the damage to exporters caused by strong currencies, and in some countries, economic reforms will likely remain on ice. Mexico, for one, looks unlikely to pass substantial economic reforms until at least after its 2012 presidential election. [ID:nN26226254]

But with exporters across the region taking a hit, pressure will only grow on governments to lend them a hand.

"They are going to have to look within themselves for other means to help their economies," said Enrique Alvarez, an economist at IDEAglobal in New York. (Additional reporting by Nelson Bocanegra in Bogota; Writing by Jason Lange in Mexico City; Editing by Dan Grebler)