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latin america

Sustaining

latin america’s Transformation
building on recent successes, latin america now has a chance to raise its profile in the global marketplace

Nicolás Eyzaguirre
“There is nothing so joyous as a Mexican fiesta, but there is also nothing so sorrowful,” wrote Nobel-Prize-winning poet Octavio Paz, in the Labyrinth of Solitude. “Our fiestas are explosions. Life anddeath, joy and sorrow, music and mere noise are united.” cross Latin America, countries will soon join Mexico in celebrating their 200th anniversaries of independence. There are many reasons for Latin America to feel proud of how much it has achieved over the past two centuries, including in recent years. But despite its potential, the region is still underdeveloped and profoundly unequal, with aboutone-third of its people living in poverty. Latin America has long been a region of paradox and contrasts: a land of prosperity and poverty, of independence and dependence, of stability and instability. But things may be changing. throwing off its reputation for boom and bust, over the past decade the Latin American region has

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8 Finance & Development March 2011

three countries in theregion—Argentina, Brazil, and Mexico—are members of the Group of twenty, which is playing an increasingly prominent role in shaping the world economy. the region can advance even more by building on recent progress to lock in economic stability and with the determination to tackle long-standing problems of low productivity and high inequality.

improved policies Better policies played a criticalrole in the region’s recent relative success, supported by much broader social consensus about the importance of macroeconomic stability. In fact, macroeconomic policies remain prudent in many countries, regardless of transfers of power between elected governments of different political orientation. At the same time, keeping fiscal deficits down became easier, thanks to the generally favorableexternal conditions prevailing during much of the past decade. Strengthened macroeconomic policies brought new resilience. the region got through the global economic crisis of 2008– 09 relatively unscathed. Output, after beginning a sharp contraction in late 2008, had rebounded in many countries by the middle of 2009 (see Chart 1). Improved government finances, reduced external debt and higherinternational reserves, more flexible exchange rates, and strengthened financial regulation and oversight in the years leading up to the Federal district of Mexico City, Mexico. global crisis played an important role in limiting the impact of the crisis on the region. In part, that is because the region generprospered. Faster and sustained output growth during much ally did not have to cope with homegrownproblems as it did of the 2000s was accompanied by big improvements in social in the past. Unlike in past international shock episodes—in conditions. In addition, the region strengthened its eco1982, 1998, and 2001—the region was in a stronger posinomic fundamentals and better prepared itself for economic tion to take steps to counteract the effects of the global shocks—so the impact of therecent global crisis was in most recession (see Chart 2). this time, many governments and cases relatively mild and short lived when compared with the central banks were able to fight the impact on output and crushing economic problems during previous episodes of employment by expanding public spending and reducing global turbulence. interest rates, allowing their currencies to depreciate along Withthe global crisis behind it, the region—endowed with the way. And this time, currency depreciation helped Latin a wealth of commodities and now facing favorable exterAmerican economies cope with external shocks without nal conditions—has great economic opportunities and the triggering a severe jolt to inflation or widespread financial potential to become an increasingly important global player....
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