Volume 44, Number 175,
October-December 2013
The Implications of the Global Financial
and Economic Crisis in Latin America
Susana Nudelsman
Strengths of the Region ( ...continuation )

Calderón, De la Torre, Ize and Servén (2011) emphasize the relevance of implementing a macroprudential approach in Latin America. This argument is based not only on the fact that financial cycles in the region were more frequent and accentuated, with effects sometimes more severe than in other regions, but also on the fact that the region has had to face a potentially risky and volatile combination of external pressures as reflected in the strong inflow of capital, a boom in the price of raw materials and new risks of financial turmoil. In general, financial oversight has improved in the region and countries have deployed a set of macroprudential instruments that allow them to mitigate the risks of the crisis.

A third strength reveals that in general, the external financial balances of Latin America have experienced substantial progress. As has been mentioned earlier, this may be interpreted as the most relevant achievement that allowed the economies of the region to face the recent global collapse. Specifically, a significant reduction in external vulnerability in terms of net external debt of the accumulation of reserves in foreign money constituted a real milestone in the economic history of these nations (Ocampo, 2009).

Before the crisis, primary product exporting economies had resources to decrease their vulnerability by reducing gross liabilities and increasing gross assets. With fewer resources, the importers of these products found themselves in a more vulnerable situation. Following the crisis, the structure of balance sheets changed. Exporters of primary products received large portfolio inflows in the form of shares and debt. However, the liabilities of foreign direct investment are still double those of portfolio investment, both expressed as a proportion of the gdp. While the share of these liabilities in the private sector has increased, external public liabilities have strongly declined. For importers of primary products, public sector liabilities have not changed significantly while those of foreign direct investment have increased. Even so, banking and portfolio investment liabilities in shares are still very elevated.

In terms of assets, the international reserves of exporters of primary products have grown at a greater proportion than those of importers of the same products. Moreover, the composition of the public debt in the region has undergone a key change. In general, there has been a reduction in external public debt and an increase in debt issued in local currency (idb, 2012).

A fourth strength has to do with the application of anti-cyclical fiscal policies in the majority of economies in the region. At the beginning of the global collapse, Latin American countries implemented a broad set of measures to safeguard liquidity and maintain confidence. In the majority of the region, fiscal measures were expanded, allowing, in many cases, an increase in deficits with the objective of encouraging levels of activity. The fiscal stimulus packages encompassed three categories: anti-cyclical measures to maintain aggregate demand, including tax reduction, investment in infrastructure and other measures to drive the private sector; emergency measures to stimulate demand for employment, such as temporary jobs programs; and, finally, the expansion of social protection programs to protect the incomes of the most vulnerable sectors of society. The global panorama has shown that the fiscal realm of anti-cyclical policies varies among the countries in the region. As a result of this process, recent experience in fiscal issues aiming to deal with external global effects will help countries in the region to select fiscal policies subject to a more limited fiscal space than currently exists (idb, 2012).

Figure 5. External Debt (As % of gdp at Exchange Rates in the Year 2000)

Source: José Antonio Ocampo, estimates by the author based on eclac data, in Ensayos Económicos,
num. 61-62, the Central Bank of the Republic of Argentina.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 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,
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