Trading Out of Trouble in Latin America

By Natalija Novta and Fabiano Rodrigues Bastos

(Versions in Español and Português)

Growth in Latin America and the Caribbean is suffering a double whammy—economic activity has slowed down sharply and the medium-term outlook continues to deteriorate. It is therefore not surprising that policymakers across the region are eagerly searching for ways to revitalize growth.

One answer may be more trade—both within the region and with the rest of the world. Our new study analyzes the export performance in developing and emerging market regions over the past two decades to assess the potential for future export growth in Latin America. We find evidence that most countries in the region “undertrade” compared to what standard models would predict. This has been an entrenched problem for almost a quarter of a century, partly as a result of the region’s geography and a legacy of protectionist policies.

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Uncertain Times, Difficult Choices

By Vitor Gaspar and Alejandro Werner              

(Versions in Español and Português)                                         

Latin America under stress

After a period of strong growth, economic activity in Latin America has slowed sharply. Growth among the six larger, financially-integrated economies—Brazil, Chile, Colombia, Mexico, Peru, and Uruguay—is expected to be negative this year. With heightened financial market pressures and limited policy space, the credibility of policy makers is being seriously tested. In this challenging environment, policy-makers in these six countries face some difficult questions: how to strike the right balance between smoothing the adjustment and strengthening credibility? What role should fiscal policy play in this new, uncertain and rapidly evolving environment?

These and other questions will be addressed at the Annual Meetings in Lima, Peru next week.  As we prepare for these meetings, we offer our thoughts on some of the pressing issues for Latin America.

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The Road to Lima: Paved with Blogs

By iMFdirect

This year’s IMF Annual Meetings are going on the road…to Lima, Peru.  All the big debates will focus on economics, finance, inequality, financial inclusion, emerging markets, commodities and many more.

Since you’ve been reading gossip magazines at the beach busy this summer, we thought you might like a handy refresher on some of our blogs in recent months about Latin America.

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Under Pressure

Jeff Hayden altBy Jeff Hayden

Between 2004 and 2013, Latin America recorded impressive growth and strong progress on a range of social issues. High commodity prices combined with strengthened economic management and progressive social policies to propel the region forward.

This strength was all the more striking against the backdrop of the 2008–09 global financial crisis, which mired many advanced economies in recession but saw emerging markets, including many in Latin America, power ahead. This led some observers to dub the period the “Latin American decade.”

Now, as the world’s economic leaders prepare to gather in Lima, Peru, in October for the Annual Meetings of the International Monetary Fund and the World Bank, the picture looks quite different.

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Making Monetary Policy Decisions in the Dark

By Francesco Grigoli, Alexander Herman, Andrew Swiston, and Gabriel Di Bella

(Version in Español and Português)

In the wake of the global financial crisis, monetary and fiscal policies were used aggressively to counteract the effects of the crisis on economic activity. Policymakers look at a number of indicators to guide them in assessing an economy’s level of activity relative to its productive capacity. But trying to figure out the position of the economy in real time is often quite challenging, with consequences for setting policy.

In the case of Brazil in 2011, for example, policymakers estimated in real time that the economy was at a level of output consistent with its productive capacity. Over time, however, the assessment of the cyclical position of the Brazilian economy changed drastically. It had not just been at full capacity, but was overheating. The economy was actually facing inflationary pressures, requiring policy tightening to bring it back to the central bank’s target.

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Financial Stability Committees: Learning from the Experts

By Jorge Roldos and Alejandro Werner

(Versions in Español and Português)

Macroeconomists and financial sector experts need to talk to each other. Such communication is important to help identify and measure systemic risks as well as to coordinate and/or conduct macroprudential policies—rules that reduce instability across the financial system.

The creation of financial stability committees, including in Latin America, have been a forum for precisely this—working together to share information about evolving risks, develop monitoring and mitigating tools, and to define the decision-making authority, accountability, and communication to the general public. But institutional design and governance of these councils differ across countries.

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A Watershed Moment for Latin America: Nine Takeaways from our High-Level Conference

Alejandro WernerBy Alejandro Werner

(Versions in Español and Português)

Latin America has reached a critical moment. So much better off than two decades ago, and still facing deep-seated problems that get in the way of sustained strong growth and economic development. To better understand these problems from countries’ perspectives, and explore ways the IMF and others can help address them, we brought together experts from the region and beyond—central bankers, finance ministers, and academics—for a high-level conference in Washington, D.C. earlier this week.

Under the theme of “Rising Challenges to Growth and Stability,” participants engaged in lively debates about the current difficulties facing Latin America and the policy priorities for now and the future.

Here are my main takeaways from the event:

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