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LATIN AMERICA AND THE FINANCIAL CRISIS

LATIN AMERICA AND THE FINANCIAL CRISIS. Mario I. Blejer. Latin America: GDP Growth. Source: ECLA. Amlat: Crecimiento del PIB (%). Fuente: Institute of International Finance. Latin America: Larger Fall but Stronger Recovery. Source: Institute of International Finance.

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LATIN AMERICA AND THE FINANCIAL CRISIS

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  1. LATIN AMERICA AND THE FINANCIAL CRISIS Mario I. Blejer

  2. Latin America: GDP Growth Source: ECLA

  3. Amlat: Crecimiento del PIB (%) Fuente: Institute of International Finance

  4. Latin America: Larger Fall but Stronger Recovery Source: Institute of International Finance

  5. Long Term GDP Growth Prospects(% - 10 year rolling average) Source: WEO - IMF

  6. Are there some areas in which particular lessons could be learned? • Pragmatism about Exchange Rate Policies • Capital Controls and Reserve Accumulation • Financial Stability and Banking Regulation • Fiscal Management (Debt and Deficits) • Social Policies to Reduce Political Conflict

  7. Exchange Rate Policies • Following the hyperinflations of the 80s the hard pegs were adopted as centerpieces of stabilization • After the collapse of the regimes floating rates were implemented in the context of inflation targeting • However, there is active intervention in the FX market – In practice there is a Managed Floating Regime rather than a free floating.

  8. Exchange Rate Policies - Lessons • Futility of relying on Exchange Rates as the main stabilization instrument. • Importance of Flexibility. Including the flexibility to intervene and to impose restrictions. None of the extreme regimes preserves competitiveness. • Importance of a good level of International Reserves

  9. Latin America: Exports(in U$S Millions) Source; CEPAL

  10. Latin America: Regional Terms of Trade(yearly change - %)

  11. Latin America: Evolution of the terms of trade Total Central America Mexico South America Source: ECLA (Cepal)

  12. Strong External Accounts CURRENT ACCOUNT DEFICIT - AMLAT Source: Institute of International Finance

  13. Net Foreing Investment Direct in Latin America -2009 Total: U$S 65.269 M (30% less than 2008) Source: ECLA (Cepal)

  14. Financial Stability • The Region Experienced Serious Banking Crises in the Past and Learned the Lessons • Stricter Banking Supervision and Less Use of Sophisticated Complex Instruments • Stricter Standards for Capital, Leverage, and Liquidity Requirements • Relatively Low Exposure to the Public Sector

  15. EM: % Change in Bank Lending

  16. Bank Lending: Advanced vs. EM(% change over year ago)

  17. Fiscal Prudence

  18. Public Debt Source: IIF

  19. PUBLIC DEBT(% of GDP) 113% 44% Source: IIF

  20. Financing Needs, 2010(% of GDP)

  21. Latina America: PublicDebt(in GDP %) 32% Source: ECLA (Cepal)

  22. Latin America: Fiscal Deficit(in GDP %) Source: ECLA (Cepal)

  23. Brazil: Significant Progress in Poverty Reduction

  24. Social Programs • Inequality continues to be a problem but social programs have reduced poverty and largely increased the middle class. • Social programs did not cause fiscal imbalances • Important reduction of Political Conflict and facilitated introduction of structural reforms

  25. THANK YOU!

  26. Source:IIF

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