Latin America: Making the Good Times Last


By Nicolás Eyzaguirre

(Version in Español)

Last week I attended the Annual Meeting of the Inter-American Development Bank in Montevideo, Uruguay where I gave a preview for growth in the region.

If I had to summarize the global backdrop for Latin America in four words, I would say “favorable, but still risky.” The global setting is favorable for two reasons:

  • First, some of the recent data has come in a bit stronger than expected, particularly figures on U.S. economic activity and employment. In the emerging markets sphere, growth remains fairly solid. Notably, China continues to put in a good performance, even though growth is easing and its exports are down somewhat. Good growth in Asia supports demand for Latin America’s key commodity exports, keeping terms of trade favorable.
  • Second, major countries have taken some important policy steps to underpin global growth and stability. In Europe, the European Central Bank’s Long Term Refinancing Operation has eased liquidity pressures for European banks and sovereigns and headed off a large deleveraging that would have crimped growth. Also, stronger fiscal adjustment programs and progress in resolving Greece’s stresses have supported confidence. In the United States, the Federal Reserve’s lengthening into 2014 of its commitment to maintain ultra-low interest rates, along with the extension of payroll tax relief and unemployment benefits, are bolstering demand and employment.

Overall, conditions and the outlook remain relatively favorable for the region. Commodity prices continue to ride high, despite some recent setbacks, thanks to buoyant emerging-market demand. Accommodative monetary policies in the major countries, and ample liquidity, maintain easy financing conditions for the more creditworthy countries. Indeed, the reemergence of strong capital inflows is again putting unwelcome upward pressure on exchange rates in some financially-open countries.

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