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 of GDP Per Capita(1979=100)

4

5 GDP Per Capita levels are very different

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

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

8 Until recently private flows dominated the current account.

9 And as a consequence, growth rates

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

11 The growth in International reserves and the decline in short-term debt is helping a lot in improving the prospect of the region International reserves Short Term debt Ratio of s t debt to Reserves 2007

12 Fiscal Positions strengthened

13 …debt has declined

14 …particularly with the IMF

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

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

17 …even as terms of trade continued to improve

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

19 And Remittances have become very important.

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

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

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

23 Financially, the region does well, but it is small

24 Financial Market Indicators (2006) (US$ billion) Market capitalization Public Debt Private Debt Bank Deposits Total Assets % of GDP GDP World EU USA Emerging Markets Asia Latin America Share of Latin America Sources; BIS, IMF, Stock Matrket Federación

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