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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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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Does Cheap Foreign Money Bring Risks for Latin America?


By Nicolás Eyzaguirre

Versión en Español

Not so long after the global financial crisis, the supply of foreign financing has become abundant, and cheap, for many emerging market countries.  This sounds like good news for Latin America, and it is—creating opportunities for debt management, saving on interest paid to foreigners, and expanding opportunities for investment.  But it also comes with a number of potential risks that need to be managed.

Our new Regional Economic Outlook for the Western Hemisphere takes an in-depth look at the risks arising from what we call “easy external financial conditions.”  There we analyze how the more financially integrated economies of Latin America have responded to such conditions in the past, with comparison to countries of other regions. Our comparisons focus especially on a group of advanced economies—Canada, Australia and New Zealand, and Norway—that also are commodity exporters, as well as being inflation targeters with highly flexible exchange rates.

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Asia: Leading the Global Recovery


By Anoop Singh

(Version in 中文,  日本語 and 한국어)

I am in China this week to present our new Asia-Pacific Regional Economic Outlook in Shanghai. I remain as impressed as ever by China’s energy and vibrant growth, an impression that is reinforced every time I return to this country.

China is of course an important part of Asia. And Asia is now a key driver of the global recovery. Indeed, as the world climbs out of its deepest recession in over half a century, it is Asia that is leading the recovery. While growth in the advanced world is being held back for now by unemployment and weak household and bank balance sheets, in the emerging world – and particularly Asia – it is rebounding strongly.

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