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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U.S. Monetary Policy and Its Effects on Latin America


Alejandro WernerBy Alejandro Werner

(Version in Español and Português)

Some basic realities seem to be getting lost in the debate over the Fed’s “exit” from unconventional monetary policy and its impact on Latin America.

First, the still-loose stance makes sense. U.S. inflation is too low, the output gap too large, and the labor market too weak. And even during tapering, the Fed’s stance will remain highly loose. The 10-year Treasury rate, adjusted for core inflation, is about 230 basis points below its 30-year average and the inflation-adjusted Fed funds rate is 320 basis points below. These rates are likely to remain below their 30-year average for at least the next two to three years.

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The IMF Annual Research Conference: Economics of Crises―Past Experiences and Present Travails


2010 WEO BLANCHARD By Olivier Blanchard

Several years out from the global financial crisis, the world economy is still confronting its painful legacies. Many countries are suffering from lackluster recoveries coupled with high and persistent unemployment. Policymakers are tackling the costs stemming from the crisis, managing the transition from crisis-era policies, and trying to adapt to the associated cross-border spillovers.

Against this background, the IMF’s 14th Jacques Polak Annual Research Conference, entitled  “Crises: Yesterday and Today,”  to take place on November 7-8, will take stock of our understanding of past and present crises.

This year’s conference will be a special one as we shall honor Stanley Fischer’s many contributions to economic research and policy. Stan has extensively studied economic and financial crises, first as a faculty member at the Massachusetts Institute of Technology, and then as a policymaker with many hats over the years―the Chief Economist of the World Bank, the First Deputy Managing Director of the IMF, and the Governor of the Bank of Israel.

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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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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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Time Not On Our Side: Tough Decisions Needed to Strengthen Financial Stability


By José Viñals

(Versions in  عربي中文EspañolFrançaisРусский日本語)

Recent policy actions in Europe, the United States, in emerging markets, and here in Japan, where I’m attending the IMF-World Bank annual meetings, have improved investor sentiment and helped markets rebound in recent months.

Yet our latest assessment is that confidence is still very fragile and risks have increased, when compared to the IMF’s last report in April. Policymakers need to do more to gain lasting stability.

The principal risk remains the euro area. The forces of financial and economic fragmentation have widened the divide between countries at the core and the “periphery” of the euro zone. Faltering confidence and policy uncertainty have led to a pullback of cross-border private capital flows from the periphery—quite an extraordinary phenomenon within a currency union.

This has driven up funding costs to governments and banks, as well as for companies and households, and, in turn, threatening a vicious downward economic spiral.

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Latin America: Riding the Global Financial Waves


By Gustavo Adler and Camilo E. Tovar

(Version in Español)

Latin America has a long history of accidents that have occurred while navigating turbulent financial international waters. With risks looming over the world economy, should the region worry about new global financial waves?

Global financial markets have seen frequent bouts of severe stress since 2008, although this isn’t really anything new for the region. Global financial shocks have occurred on average every 2½ years since 1990, with significant effects on Latin America.

But how costly are these shocks in terms of domestic output, and is Latin America better placed to cope with them this time?

In Chapter 3 of the IMF’s latest Regional Economic Outlook: Western Hemisphere, we analyze whether changes in underlying fundamentals have made the region more or less vulnerable over time. The analysis, which complements our work on the effects of terms-of-trade shocks, looks at what country features and policies make a difference. We focus here solely on the impact of the financial shocks by isolating the effect from commodity prices and global demand shocks.

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Tough Political Decisions Needed to Fix the Financial System


   By José Viñals

(Versions in عربي,  中文EspañolFrançaisРусский)

It was fitting that I should present our latest assessment of global financial stability in Sao Paulo, the financial center of one of the leading emerging economies. In common with many of its peers in Latin America, Brazil is recovering strongly from the crisis. But new financial stability challenges are emerging in this, and other fast-growing regions.

Let me start with three key messages:

  •  First, financial risks have increased since April.
  • Second, as a result, policymakers in both advanced and emerging economies need to step up their efforts to preserve financial stability and safeguard the recovery.
  • And third, we have entered into a new phase of the crisis – a political phase- when tough political decisions will need to be made, because the window for substantial policy action is closing. Time is of the essence.  Continue reading
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