Monday, August 15, 2011

Latin American Economy Outlook

This year’s Outlook identifies why Latin America has done so much better than other regions during the crisis. Its countries were certainly tested – the region experienced a significant economic downturn in 2009 – but this time they were able to deploy policy in a way which was both effective and sustainable. Sustainability, which means implementing policies consistent with the long-run evolution of external, fiscal and monetary balances, was a critical difference. The region proved able to protect its hard-won gains in growth potential and so its scope for long-term economic development.
But there is an unresolved question about what lay behind this good result: was it internal factors like sound macroeconomic and microeconomic policy; or was it external ones, such as China’s economic emergence or timely multilateral action? Although this debate will not be conclusively settled in the near future, we will argue that both sets of factors played an important role. The crisis certainly revealed notable examples of good practices, but to work these also relied on the external environment.

There is room to improve macroeconomic policy

The conclusion is that there is no room for complacency. Global economic prospects remain highly uncertain. Although initial response to the crisis has depleted resources and reduced the scope for future action, there is still room for policy action on both the fiscal and monetary fronts. Combining this with citizens who now appreciate and acknowledge the fruits of sustainable macroeconomic policy brings the chance for the region to improve and further institutionalise structural macroeconomic policy.
This year’s macroeconomic overview looks first at the nature and scale of the negative shock that hit Latin America in 2009, and then at the external and internal factors that lay behind the region’s comparatively good performance. Armed with this, we turn to the options that policy makers have available today, including – in particular – the role that financial regulation might play.

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