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Latin-America confronts market turmoil and does well…so far

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  1. Latin-America confronts market turmoil and does well…so 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

  2. Economic Growth in LA has recovered in recent years. However, it has lagged behind the World

  3. The region has lagged others in terms ofGDP Per Capita(1979=100)

  4. GDP Per Capita levels are very different

  5. There has been a healthy recovery in several countries, in addition to Chile

  6. The greatest progress in a short and long term has been in the inflation front

  7. Until recently private flows dominated the current account.

  8. And as a consequence, growth rates

  9. With limited foreign reserves and official borrowing there was limited space for countercyclical policies

  10. 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

  11. Fiscal Positions strengthened

  12. …debt has declined

  13. …particularly with the IMF

  14. External Accounts improved because of Domestic Policies...Namely Fiscal Policy

  15. ...and Exchange Rate Policy. However, the current account has now reversed reflecting movements in policy variables

  16. …even as terms of trade continued to improve

  17. Trade with China has grown significantly Source: IMF Direction of Trade Statistics

  18. And Remittances have become very important .

  19. Financial Markets have tightened • Spreads had declined to historic lows, but jumped recently with existing turbulence

  20. Spreads remain “widespread”, and with some deterioration at every level, particularly on the riskier side

  21. Foreign Direct Investment has recovered but the region is investing increasingly outside cepal

  22. Financially, the region does well, but it is small

  23. 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