The Outlook for Latin America and the Caribbean in 2014


Alejandro WernerBy Alejandro Werner

(Version in EspañolPortuguês)

Looking to the year ahead, how do we see the global economic landscape, and what will this mean for our region? This question is especially on people’s minds today, given the risks of deflation in advanced economies and of sustained turbulence in emerging markets.

Despite these risks, we expect that the region will grow a little faster than last year—increasing from 2.6 percent in 2013 to 3 percent in 2014. Stronger global demand is one part of the story, but not the whole story; volatility is likely to be a significant feature of the landscape ahead. And regional growth rates will still be in low gear compared to historical trends, and downside risks to growth remain. So, let’s start with the global scene.

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Make the Most of What You’ve Got: Small States in the Spotlight


Min ZhuBy Min Zhu

The economies of small states have unique features. They have relatively higher costs, higher public spending needs, and more volatile economies. And their growth has not matched the improved economic performance of the rest of the world since the late 1990s, despite their many efforts over the years. We wanted a better grasp of why this is so we can better tailor our advice and support. Here is what we found.

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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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Spring Is in the Air in Parts of Latin America


By Nicolás Eyzaguirre

(Version in Español)

Here in Washington D.C., Spring is showing its early signs, so we naturally feel a bit more upbeat. But spring comes in fits and starts—a day of sunshine, followed by cold rain, followed by sunshine again. So, we carry an umbrella on sunny days—but also have sunscreen ready.  It’s much the same for most of Latin America and the Caribbean, as we discuss in our Regional Economic Outlook for the Western Hemisphere. So, on a spring day, how do we see things?

Well, before explaining what I mean, let me start with a broad overview.

Most of Latin America stands out from much of the rest of the world—not for great economic performance, but for good performance in a subpar environment. Growth is generally solid, despite a slowdown late last year owing to policy tightening and global volatility. Under our baseline scenario, we expect regional growth to moderate to near 3¾ percent in 2012, down from 4½ percent last year (but modestly up from our January projections).

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Why We Need a “Marshall Plan” for Haiti


By Dominique Strauss-Kahn,

Managing Director of the International Monetary Fund

The saddening and horrific pictures from Haiti after its devastating earthquake brought back vivid memories for me. I lived through an earthquake when I was a young boy in Morocco, and I know how harrowing it is. At that time, there were forty thousand casualties—nothing close to what has happened in Haiti—but I still recall the traumatic scenes of collapsed buildings and mourning families.

Haiti has now been devastated on a far larger scale. The earthquake—the worst in the region in more than 200 years—is the latest in a series of natural and manmade disasters that have, over the years, turned the Caribbean country into the poorest nation in the Western Hemisphere. Some 80 percent of its nine million people live below the poverty line.

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The Commodity Connection: Rising Commodity Prices and the Outlook for Latin America and the Caribbean


By Nicolás Eyzaguirre

(Version en español)

As the world economy emerges from recession, it’s worth thinking about how the composition of this recovery, in terms of which countries expand faster, will affect commodity prices—and how those prices influence the outlook for economies of the Latin American and Caribbean (LAC) region.

Commodity prices usually follow a pattern of sizable declines in episodes of world recession, followed by some degree of recovery—and the current episode is no exception (Figure 1).

But within that pattern, what is notable is that this time the recovery of global activity is uneven, with emerging Asian countries already taking the lead, while the most advanced economies are recovering more slowly. Because the former countries consume relatively more commodities, this uneven composition of global growth is a key reason for the recovery recently seen in commodity prices, and for thinking that this will continue.

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This pattern of commodity prices’ being sensitive to the condition of Asian economies is not new: the crisis in East Asia in the late 1990s sent commodity prices down, even while the advanced economies maintained growth. And in the early 1990s, when advanced economies had a downturn that was not shared by other countries, commodity prices avoided a big decline.

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Why Did Latin America Do Better in This Crisis? The Benefits of Being Prepared


By Nicolás Eyzaguirre

(Version en español)

Although this time the external shocks were very strong in this year of global crisis, the Latin American and Caribbean (LAC) region has performed notably better than in the past, and also better than many other emerging market countries.

This improvement can be attributed to the fact that the region faced the crisis equipped with economic policy frameworks that were more solid and credible than in the past, and with smaller financial, external, and fiscal vulnerabilities. This allowed a number of countries of the region to implement countercyclical monetary and fiscal policies.

Figure 1 shows a measure of the benefits that this better preparation has brought. It compares the fall in average growth of GDP actually observed in Brazil, Chile, Colombia, Mexico, and Peru (solid line) with our best estimate of the decline that would have occurred if their policy frameworks and vulnerabilities had not been changed (dashed line). The estimates here suggest that these countries were able to “save” about 4 percentage points of GDP during the crisis, thanks to their better preparations for confronting external shocks.

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Figure 2 shows that various countries of the region had the room or “space” to apply countercyclical fiscal and monetary policies during this crisis. The figure depicts changes in interest rates (vertical axis) and in fiscal deficits (horizontal axis) for each country of the LAC region, where the colors group countries according to certain general characteristics and the diameter of the circles represent the relative size of each economy.

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Latin America and the Caribbean During the Global Crisis: Better than the Past, Better than Other Regions


By Nicolás Eyzaguirre

(Version en español)

In contrast to what happened in past episodes of world recession, this time the fall in growth of the Latin American and Caribbean (LAC) region has not exceeded that of the world economy. In fact, the performance of the region has been as good as, or better than, many other emerging market economies.

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