Volume 44, Number 175,
October-December 2013
The Implications of the Global Financial
and Economic Crisis in Latin America
Susana Nudelsman*

The nucleus of the recent global crisis revolves around the interaction of global imbalances and financial deregulation. This relationship arose in the framework of the highest level of economic interdependence the world has seen. Beyond considering whether Latin American ability to absorb the external shock was the product of better economic fundamentals, the favorable external context, or a combination thereof, in this case, the economies of the region managed to avoid systemic financial collapse. The current global economic panorama is complex and the variety of possible scenarios diverse and Latin American economies provide examples of both strengths and weaknesses. The challenge for these nations will be to consolidate their recent achievements and ensure sustainable economic growth.

Keywords: globalization, financial crisis and international/Latin American economics.

One of the most dynamic forces in the contemporary world, financial globalization has increased substantially since the 1990s. A unique symptom of this globalization has been an explosion of financial and economic crises that have had an especially severe effect on developing countries at the end of the twentieth century. Moreover, the effects previously felt in developing nations are now having an impact on even the most advanced economies. This article begins by describing current financial globalization and introducing the causes of the recent global crisis, the most severe in the post-war period, only comparable to the Great Depression. Secondly, this work explains the onset of the global crisis in Latin America, how this crisis was transmitted to the region and how Latin America has performed in terms of external conditions and internal economic policies. Finally, this study describes addresses the features of the current global economic context and the strengths and weaknesses of Latin America, emphasizing the need for economies in the region to replicate successes and correct mistakes.

The Current State of Financial Globalization

Financial globalization has significantly accelerated over the past decades. The phenomenon of globalization is linked to the international mobility of capital. The development of financial systems and advances in information technology have led to a global system of supply and demand for capital. The presence of a global capital market is considered a feature characteristic of our contemporary economy (Olivera, 2004).

The capacity of financial globalization to produce favorable effects is highly controversial. On the one hand, fast-growing flows of private capital have constituted the basis of economic growth and wealth creation for a considerable number of developing economies. On the other hand, these flows of private capital have also contributed to generating a variety of financial crises, especially severe for these economies. However, the phenomenon that previously affected mainly developing countries now afflicts even the most advanced nations. The global collapse that began in 2007-2008 in these countries is likely the most severe financial and economic crisis of the post-war period, comparable only to the Great Depression.

According to Krugman (2008), a crucial aspect of the ongoing process of globalization is greater connectivity between markets. The current globalized financial system is characterized by a greater level of interdependence. The international finance multiplier – by which changes in asset prices are transmitted internationally through their effects on the balance sheets of highly leveraged financial institutions – is more important than in the past. Krugman (2009) adds that a large part of investments in this new globalized scenario have come from highly leveraged financial institutions and have involved extremely risky operations. When circumstances were complicated in the United States, these cross-border investments served as a transmission mechanism through which a crisis whose epicenter was the real-estate market of a single nation produced a series of ripple effects beyond its borders.

* Researcher at the Economic Research Institute and professor of the Faculty of Economic Sciences at the University of Buenos Aires.
   E-mail: snudelsman@gmail.com

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 193, April-June 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Moritz Cruz. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: June 27th, 2018.
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