In Transition: The Outlook for Latin America and the Caribbean


Event onlyBy Alejandro Werner

Versions in: Português (Portuguese),  Español (Spanish)

Following a rough start at the beginning of the year, both external and domestic conditions in Latin America and the Caribbean have improved. But the outlook for the region is still uncertain.

Commodity prices have recovered since their February 2016 trough, but they are still expected to remain low for the foreseeable future. This has been accompanied by a brake—or even a reversal—in the large exchange rate depreciations in some of the largest economies in the region.

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Uncertain Times, Difficult Choices


By Vitor Gaspar and Alejandro Werner              

(Versions in Español and Português)                                         

Latin America under stress

After a period of strong growth, economic activity in Latin America has slowed sharply. Growth among the six larger, financially-integrated economies—Brazil, Chile, Colombia, Mexico, Peru, and Uruguay—is expected to be negative this year. With heightened financial market pressures and limited policy space, the credibility of policy makers is being seriously tested. In this challenging environment, policy-makers in these six countries face some difficult questions: how to strike the right balance between smoothing the adjustment and strengthening credibility? What role should fiscal policy play in this new, uncertain and rapidly evolving environment?

These and other questions will be addressed at the Annual Meetings in Lima, Peru next week.  As we prepare for these meetings, we offer our thoughts on some of the pressing issues for Latin America.

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Latin America and the Fiscal Stimulus: A Mild Hangover, Not Yet an Addiction


Alexander KlemmBy Alexander Klemm

(Versions in Español and Português)

Latin America is heading for tougher times. Regional growth is expected to dip below 1 percent in 2015, partly as a result of the drop in global commodity prices. How well placed is the region for the coming lean times?

Countries face this slowdown from much weaker fiscal positions than when the global financial crisis hit. Then, Latin America responded strongly with expansionary fiscal policies, including explicit fiscal stimulus programs in many countries. But, as growth has recovered, this increase in spending has proved difficult to reverse.

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A Big Step Forward for Bolstering Financial Inclusion


By David Marston, Era Dabla-Norris, and D. Filiz Unsal

(version in Español)

Economists are paying increasing attention to the link between financial inclusion—greater availability of and access to financial services—and economic development. In a new paper, we take a closer look at exactly how financial inclusion impacts a country’s economy and what policies are most effective in promoting it.

The new framework developed in this paper allows us to identify barriers to financial inclusion and see how lifting these barriers might affect a country’s output and level of inequality.  Because the more you know about what stands in the way of financial inclusion, the better you can be at designing policies that help foster it.

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A Downturn Without Layoffs? Reconciling Growth And Labor Markets In Latin America


Bertrand Gruss 2By Bertrand Gruss 

(version in Español and Português)

It looks as if labor markets in Latin America have not been following the economic news—literally! Economic activity has slowed markedly in the last three years, with some South American countries slipping into outright recession more recently. Yet, labor markets still appear remarkably strong, with unemployment rates, in particular, hovering at record-low levels in most countries (Figure 1). So, what is going on? Has the region discovered how to defy the law of gravity?

ENG.WHD REO Fall.Chart 1

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Banking on the Government


By Jesus Gonzalez-Garcia and Francesco Grigoli

(Version in Español)

Government ownership of banks is still common around the world, despite the large number of privatizations that took place over the past four decades as governments reduced their role in the economy. On average, state-owned banks hold 21 percent of the assets of the banking system worldwide. In Latin American and Caribbean countries, the public banks’ share is about 15 percent, with some of them showing very large shares, for instance, Argentina, Brazil, Uruguay, and Costa Rica are all over 40 percent (see Figure 1).

State-owned banks play an important role in the financial system. They fulfill functions that are not performed by private banks, provide financing for projects that benefit the rest of the economy, and provide countercyclical lending (lending more when the economy is weak). But public banks usually respond to the needs of governments owing to the state’s obvious involvement in their administration. As a result, government’s participation in the banking system may weaken fiscal discipline by allowing the public sector to access financing that they would not obtain from other sources.

In our recent study, we use a panel dataset for 123 countries to test whether a larger presence of state-owned banks in the banking system is associated with more credit to the public sector, larger fiscal deficits, higher public debt ratios, and the crowding out of credit to the private sector. 

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The Trillion Dollar Question: Who Owns Emerging Market Government Debt


By Serkan Arslanalp and Takahiro Tsuda

(Version in EspañolFrançaisPortuguêsРусский中文 and 日本語)

There are a trillion reasons to care about who owns emerging market debt.  That’s how much money global investors have poured into in these government bonds in recent years —$1 trillion.  Who owns it, for how long and why it changes over time can shed light on the risks; a sudden reversal of money flowing out of a country can hurt.  Shifts in the investor base also can have implications for a government’s borrowing costs.

What investors do next is a big question for emerging markets, and our new analysis takes some of the guesswork out of who owns your debt.   The more you know your investors, the better you understand the potential risks and how to deal with them.

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