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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