On A Roll: Sustaining Strong Growth in Latin America


By Sebastián Sosa, Evridiki Tsounta, and Hye Sun Kim

(Versions in Español and Português)

Latin America has enjoyed strong growth during the last decade, with annual growth averaging 4½ percent compared with 2¾ in the 1980s and 1990s. What is behind this remarkable economic performance and will this growth be sustainable in the years ahead?

Our recent study (see also our working paper) looks at the supply-side drivers of growth for a large group of Latin American countries, to identify what’s behind the recent strong output performance.

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Saving Latin America’s Unprecedented Income Windfall


by Gustavo Adler and Nicolás Magud

(Versions in Español and Português)

Commodity exporting countries in Latin America have benefited strongly from the commodity price boom that began around 2002. And the accompanying improvements in public and external balance sheets have fed a sense that this time the macroeconomic response to the terms-of-trade boom has been different (and more prudent) than in past episodes. But, has it?

In our recent work, we analyze the history of Latin America’s terms-of-trade booms during 1970–2012 and quantify the associated income windfall (i.e., the extra income arising from improved terms-of-trade). We also document saving patterns during these episodes and assess the extent of the “effort” to save the income windfall.

Our findings suggest that, although the additional income shock associated to the recent terms-of-trade boom is unprecedented in magnitude, the effort to save it has been lower than in past episodes.

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After a Golden Decade, Can Latin America Keep Its Luster?


Alejandro WernerBy Alejandro Werner

(Versions in Español and Português)

Latin America continues to be one of the fastest growing regions in the world, even though growth slowed down a bit in 2012. Many economies in the region are operating at or near potential, inflation remains generally low, and unemployment is at historically low levels.

In the near term, the region will continue to benefit from easy external financing and relatively high commodity prices. In our May 2013 Regional Economic Outlook, we project that the region will expand by about 3½ percent in 2013. In Brazil—the region’s largest economy—economic activity is strengthening, driven by improving external demand, measures to boost investment, and the impact of earlier policy easing. In the rest of Latin America, output growth is expected to remain near potential.

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Preventing The Next Catastrophe: Where Do We Stand?


David RomerGuest post by David Romer
University of California, Berkeley, and co-host of Rethinking Macro II: First Steps and Early Lessons

(Versions in 中文, 日本語, and Русский)

As I listened to the presentations and discussions, I found myself thinking about the conference from two perspectives. One is intellectual: Are we asking provocative questions? Are interesting ideas being proposed? Are we talking about important issues? By that standard, the conference was very successful: the discussion was extremely stimulating, and I learned a great deal.

The second perspective is practical: Where do we stand in terms of averting another financial and macroeconomic disaster? By that standard, unfortunately, I fear we are not doing nearly as well. As I will describe, my reading of the evidence is that the events of the past few years are not an aberration, but just the most extreme manifestation of a broader pattern. And the relatively modest changes of the type discussed at the conference, and that in some cases policymakers are putting into place, are helpful but unlikely to be enough to prevent future financial shocks from inflicting large economic harms.

Thus, I believe we should be asking whether there are deeper reforms that might have a large effect on the size of the shocks emanating from the financial sector, or on the ability of the economy to withstand those shocks. But there has been relatively little serious consideration of ideas for such reforms, not just at this conference but in the broader academic and policy communities.

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What We Can Do To Improve Women’s Economic Opportunities


Christine LagardeBy Christine Lagarde

Versions in  عربي中文Français, 日本語Русский, and Español

Today, I invite all of you to celebrate International Women’s Day. Let’s celebrate the incredible progress women have made over the past decades in different parts of society, playing a key role in economic life that our grandmothers worked for and dreamed about. Today, although men still dominate the executive suites in most professions, women all over the world hold high positions in the private sector and in public office. Women are no longer the Second Sex Simone de Beauvoir wrote about.

But far too many women face the most fundamental challenges: the right to safety and to choose the life they want.

Across the globe, fewer women than men are in paid employment, with only about 50 percent of working-age women participating in the labor force. In many countries, laws, regulations and social norms still constrain women’s possibilities to seek paid employment. And all over the world women conduct most of the work that remains unseen and unpaid, in the fields and in households.

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The Power of Cooperation


by iMFdirect

The planet’s most successful species are the great cooperators: ants, bees, termites, and humans.

In an article in the new issue of Finance & Development magazine, President Bill Clinton shares his experience working with governments, business, and civil society as part of his Clinton Global Initiative.

He says they are making the most progress in places where people have formed networks of creative cooperation where stakeholders come together to do things better, faster and cheaper than any could alone.

Latin American Firms: Keeping Corporate Vulnerabilities in Check


by María González-Miranda

(Version in Español)

Four years after the Lehman Brothers crisis, private companies in the largest and most financially integrated Latin American countries are doing relatively well, despite continuous bouts of global uncertainty. Like firms in other high-performing emerging markets in Asia, companies in Brazil, Chile, Colombia, Mexico, and Peru (the “LA5”) have benefited from abundant external financing, strong domestic credit, and generally robust demand growth.

These favorable conditions have resulted in robust corporate profitability and valuation, reasonably contained debt ratios, and lower short-term maturity exposures than those observed in other emerging markets.

But some vulnerabilities are starting to build up.

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Building on Latin America’s Success


Christine Lagarde

By Christine Lagarde

(Version in Español)

Next week, I will travel to Latin America—my second visit to the region since November 2011. I return with increased optimism, as much of Latin America continues its impressive transformation that started a decade ago.

The region remains resilient to the recent bouts in global volatility, and many countries continue to expand at a healthy pace. An increasing number of people are escaping the perils of poverty to join a growing and increasingly vibrant middle class.

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Policy Interest Rates in Latin America: Moving to Neutral?


By Nicolas Magud and Evridiki Tsounta 

(Version in Español)

Many Latin American countries have strengthened their monetary policy frameworks in recent years to keep the rate of inflation in check. Some of them have adopted an inflation target and use the policy interest rate as the main tool to achieve that target.

But how do central bankers know whether monetary policy is expansionary or contractionary? Policymakers would need to know how the current policy rate compares to a benchmark or neutral rate.

The neutral interest rate is the real interest rate consistent with the economy operating at full employment and stable inflation. If the economy is operating above its potential capacity and inflation is rising, policymakers should increase the policy interest rate above the neutral level to cool down the economy. Conversely, if the economy is operating below its full employment level, interest rates may need to be lowered below the neutral level.

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Latin America and the Caribbean: Dealing with Another Food Price Shock


By Luis Cubeddu and Sebastián Sosa

(Version in Español)

World food prices are on the rise again owing mainly to global weather-related shocks. This has led to concern that the rise could result in higher inflation and hurt the most vulnerable.

Two points to note are that the recent increase in food prices has been less acute than the two previous episodes (in mid-2008 and early 2011), and features important differences across commodities. For example, while the price of soybeans, corn and wheat are up sharply, coffee and sugar prices are down. Market projections suggest that corn, soy, and wheat prices will stay high through end-2012, but then decline gradually as supply conditions normalize.

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