Latin-America confronts market turmoil and does well

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Latin-America confronts market turmoil and does
wellso far

• Claudio M. Loser
• Inter-American Dialogue/Centennial LA
• XXVI Meeting of Latin American Network
• of Central Banks and Finance Ministries
• IADB-October 16-17, 2007

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Economic Growth in LA has recovered in recent
years. However, it has lagged behind the World
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The region has lagged others in terms ofGDP Per
Capita(1979100)
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GDP Per Capita levels are very different
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There has been a healthy recovery in several
countries, in addition to Chile
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The greatest progress in a short and long term
has been in the inflation front
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Until recently private flows dominated the
current account.
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And as a consequence, growth rates
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With limited foreign reserves and official
borrowing there was limited space for
countercyclical policies
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The growth in International reserves and the
decline in short-term debt is helping a lot in
improving the prospect of the region
2007
International reserves Short Term debt Ratio of s
t debt to Reserves
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Fiscal Positions strengthened
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debt has declined
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particularly with the IMF
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External Accounts improved because of Domestic
Policies...Namely Fiscal Policy
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...and Exchange Rate Policy. However, the current
account has now reversed reflecting movements in
policy variables
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even as terms of trade continued to improve
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Trade with China has grown significantly
Source IMF Direction of Trade Statistics
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And Remittances have become very important

• .

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Financial Markets have tightened

• Spreads had declined to historic lows, but
  jumped recently with existing turbulence

                                                  
                                                  
                                      
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Spreads remain widespread, and with some
deterioration at every level, particularly on the
riskier side
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Foreign Direct Investment has recovered but the
region is investing increasingly outside
cepal
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Financially, the region does well, but it is small
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Financial Market Indicators (2006) Financial Market Indicators (2006) Financial Market Indicators (2006) Financial Market Indicators (2006) Financial Market Indicators (2006) Financial Market Indicators (2006) Financial Market Indicators (2006) Financial Market Indicators (2006)
(US billion) (US billion) (US billion) (US billion) (US billion) (US billion) (US billion) (US billion)
Market capitalization Public Debt Private Debt Bank Deposits Total Assets of GDP GDP
World 50800 25600 43100 70860 190400 395 48200
EU 13070 7700 15500 36640 72900 534 13640
USA 19570 6230 20500 10200 56500 428 13200
Emerging Markets 11700 3880 2180 11270 29020 206 14080
Asia 6860 2020 1490 7490 17860 286 6250
Latin America 1450 1100 460 1430 4440 151 2940
Share of Latin America 2.8 4.4 1.1 2.0 2.3 6.1

Sources BIS, IMF, Stock Matrket Federación Sources BIS, IMF, Stock Matrket Federación Sources BIS, IMF, Stock Matrket Federación Sources BIS, IMF, Stock Matrket Federación Sources BIS, IMF, Stock Matrket Federación Sources BIS, IMF, Stock Matrket Federación Sources BIS, IMF, Stock Matrket Federación Sources BIS, IMF, Stock Matrket Federación
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In the End

• The region is much stronger
• The debt burden is lower and reserves are higher
• The fiscal position is solid
• But, high terms of trade cannot last forever
• Public expenditure is increasing fast
• Financial conditions have tightened somewhat
• A small financial system and increased flows
  abroad are making the region vulnerable, but
  manageablle
• The current liquidity crisis has been a soft
  warning..
• but the region seems too complacent