Saving Latin America’s Unprecedented Income Windfall

Posted on May 20, 2013 by iMFdirect

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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Filed under: Economic Crisis, Emerging Markets, Fiscal policy, growth, IMF, International Monetary Fund, Latin America | Tagged: , , , , , , , , , , , , , | 1 Comment »

Latin American Firms: Keeping Corporate Vulnerabilities in Check

Posted on December 17, 2012 by iMFdirect

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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Filed under: Asia, Economic Crisis, Emerging Markets, Finance, growth, IMF, International Monetary Fund, Latin America | Tagged: , , , , , , , , , , , , , | 1 Comment »

Building on Latin America’s Success

Posted on December 6, 2012 by iMFdirect

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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Filed under: Economic Crisis, Emerging Markets, Español, Fiscal policy, growth, IMF, Inequality, International Monetary Fund, Latin America, Public debt | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 5 Comments »

Policy Interest Rates in Latin America: Moving to Neutral?

Posted on November 19, 2012 by iMFdirect

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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Filed under: Economic research, Emerging Markets, Employment, Español, Finance, growth, Inequality, Latin America, Low-income countries, Politics, Public debt | Tagged: , , , , , , , , , , , , , , , , , | 3 Comments »

Regional Spillovers in South America: How “Systemic” is Brazil?

Posted on May 29, 2012 by iMFdirect

By Gustavo Adler and Sebastián Sosa

(Version in Español)

The risks that policies and shocks in major economies can spillover on other countries and regions have become a matter of renewed concern since the global crisis of 2008–09. Brazil is South America’s giant; how important is its influence on neighboring countries?

Brazil accounts for 60 percent of South America’s output and its economic fluctuations are closely correlated with those of many of its neighboring countries. This would appear to suggest that economic activity in Brazil’s neighbors is strongly influenced by Brazil’s business cycle.

But these close comovements could also reflect common global factors that affect all South American countries similarly, such as commodity prices, international financial conditions, and global demand.

Our latest Regional Economic Outlook: Western Hemisphere examines this question, quantifying the importance of spillovers from Brazil to the rest of South America.

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Filed under: Economic outlook, Economic research, Emerging Markets, Employment, Español, Finance, Globalization, growth, IMF, Inequality, International Monetary Fund, Investment, Latin America, Politics | Tagged: , , , , , , , , , , , , , , , , , , , | 2 Comments »

Latin America: Vulnerabilities Under Construction?

Posted on May 10, 2012 by iMFdirect

By Luis Cubeddu, Camilo E. Tovar, and Evridiki Tsounta

(Version in Español)

Housing construction projects are sprouting up across much of Latin America and mortgage credit is also growing very fast. Does this sound familiar? It should!

Easy external financing conditions and high commodity prices have led to important improvements in living standards and credit deepening in many countries of the region over the past decade. The credit expansion has been particularly impressive in the mortgage sector, where legal reforms and government subsidies have also played a role.

Although mortgage credit in Latin American countries is relatively low by international standards —at just 7 percent of GDP versus over 20 percent in emerging Asia and over 65 percent in the United States—it has grown at an impressive annual average real rate of 14 percent since 2003, with Brazil leading the pack. Home prices have also risen sharply over this period, particularly in countries where mortgage credit has expanded the fastest (for more details see Chapter 5 in our latest Western Hemisphere Regional Economic Outlook).

So, are housing vulnerabilities emerging?

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Filed under: Economic Crisis, Economic outlook, Economic research, Employment, Finance, Financial Crisis, Financial regulation, growth, Inequality, International Monetary Fund, Latin America, Public debt | Tagged: , , , , , , , , , , , , , | 5 Comments »

Spring Is in the Air in Parts of Latin America

Posted on April 25, 2012 by iMFdirect

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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Filed under: Advanced Economies, Economic Crisis, Economic outlook, Emerging Markets, Employment, G-20, growth, IMF, International Monetary Fund, Latin America, LICs, Multilateral Cooperation | Tagged: , , , , , , , , | 3 Comments »

Going Broke? Why Pension Reforms Are Needed in Emerging Economies

Posted on April 6, 2012 by iMFdirect

By Mauricio Soto

We’re all getting older, and there’s no doubt that pension reform is a hot topic in the advanced economies. But it’s also critical in emerging economies.

Our analysis here at the IMF shows that across emerging economies pension spending is projected to rise as the population ages. On average, these spending increases are not that large. But reforms are needed to increase coverage of the system without making pension systems financially unsustainable over the long term.

Rising spending

In emerging Europe, we’ve seen how pension spending has increased from 7½ to 9 percent of GDP over the past two decades. Spending also increased rapidly in other emerging economies—albeit from much lower levels—going from 2 to 3 percent of GDP over the same period. It seems the relatively low spending in emerging economies outside Europe reflects relatively low coverage (generally only those in the formal sector are eligible) and younger populations.

Populations are aging rapidly in the emerging economies. As illustrated in Chart 1, a rather grim picture is developing where we see that the ratio of elderly to working population will more than double in the next four decades. In the future, there will be many more retirees consuming what fewer workers will produce.

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Filed under: Africa, Emerging Markets, Europe, Finance, growth, Inequality, Latin America, Middle East, Public debt | Tagged: , , , , , , , , | 11 Comments »

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