Weaker-than-anticipated growth and financial volatility stemming from prospect of monetary normalization in the U.S. have increased pressure on policymaking. Economic policy is being realigned to sustain growth, which has been facilitated by strong fundamentals and well-balanced policy mixes in most countries.
- The policy response to changing global conditions has varied across countries. It has consisted of reliance on exchange rate flexibility, intervention in exchange markets, and removal of capital inflow controls.
- While the region has achieved broad macroeconomic stability, most countries still measure up poorly in a number of structural areas, which is weighing on productivity. Structural reforms need to be accelerated in order to lift trend growth.
- Policy frameworks also need to be upgraded to smooth out the effects of terms-of-trade fluctuations on local economies.
Latin America Publications
November 18, 2013
Ecuador’s economic growth has become heavily dependent on public spending, which remains elevated despite declining oil revenue. Seeking to sustain growth, the government is increasing its liabilities. This strategy, however, is unsustainable over the medium term, which augurs increasing pressure on the dollarization regime. Meanwhile, attempts to attract foreign investment are being hindered by anti-business policies.Read More
November 06, 2013
Chile stands at a turning point as it goes into presidential elections on November 17, 2013. Well-designed policies to address income inequality could catapult the country to full-fledged advanced-economy status. We expect Michelle Bachelet of the center-left Nueva Mayoría coalition to be Chile’s next president for the 2014-2018 term. Her ability to advance a demanding reform agenda through political cooperation is critical to preserving a stable, vibrant economy.Read More
November 05, 2013
Panama’s economy has achieved stellar growth in recent years. A key factor has been a large public capital investment program, which has coincided with a major expansion of the Panama Canal. As these projects finish up, the key challenge going forward will be unlocking new drivers of growth. This will require a shift in focus from physical capital investment to human capital and institution-building.Read More
October 23, 2013
Peru has weathered well the increased global financial volatility over the last few months. However, growth has softened below-trend under the weight of lower commodity prices and a decline in business confidence. A string of protests exposing widespread frustration with Peru’s political establishment has put further pressure on policymaking. Sustaining high and inclusive growth requires overcoming lingering structural weaknesses and increasing social spending to improve the distribution of benefits.Read More
October 01, 2013
Sound policies have allowed Mexico to weather increased global volatility and provide policy support to the economy. We forecast real GDP growth to accelerate to 4.0% in 2014 from 1.1% this year driven by monetary and fiscal stimulus, the U.S. recovery and confidence-boosting structural reforms. Despite political risks, we expect energy, fiscal and financial sector reforms to be approved thereby lifting trend growth.Read More
September 23, 2013
Policy has responded aggressively to currency pressures to stem depreciation of the real and contain inflation. Monetary policy has been further tightened and dollar liquidity has been boosted via the derivatives markets, thereby limiting use of international reserves. While postponement of QE tapering has, temporarily, eased pressure on the real, better policy coordination and structural reforms are needed to ensure an orderly adjustment to inevitable QE unwinding.Read More
September 10, 2013
President Nicolás Maduro is struggling to boost growth and stem inflation. With very limited policy scope, we expect the government to devalue the bolivar again in 2014 in order to boost its capacity to support growth. Without addressing underlying macroeconomic imbalances, however, a pick-up in growth will likely be short-lived. Unpredictable political conditions and rising external borrowing costs are increasing the risk of stagflation.Read More
March 01, 2013
The main challenge facing Latin America has shifted from counteracting global weakness to coping with currency appreciation pressure from capital inflows attracted by relatively higher dollar yield-risk ratios. While appreciation pressures are putting stress on policy, they also represent an opportunity to accelerate implementation of productivity-enhancing structural reforms, which would help protect competitiveness and lift trend growth.Read More
March 08, 2012
Although global headwinds have moderated growth, Latin America has proven increasingly resilient to external shocks. The region’s improved global standing, however, is putting upward pressure on local currencies, highlighting the need for productivity-enhancing reforms and recalibration of the policy mix in order to protect competitiveness.Read More
September 30, 2011
Latin America is well-positioned to withstand deepening turbulence in the global economy and sustain moderate growth in 2012. In most countries, resilience to external shocks has been bolstered by price stability, strong public finances, flexible exchange rates, high international reserves and more robust banking systems. Countries that have pursued heterodox policies cannot count on these buffers.Read More
March 26, 2011
In 2010, high commodity prices and countercyclical stimulus resulted in rapid recovery from the global slowdown. Regional output increased 6.1%. We project growth to decelerate to 4.5% in 2011 as most key countries counter rising inflationary pressures with monetary tightening. Strong fundamentals have given rise to recovery of capital inflows; currencies have appreciated to pre-crisis levels.Read More
January 20, 2011
Private capital inflows are increasing to pre-crisis levels. Following a sharp depreciation of local currencies during the global crisis, they are now appreciating back to the levels that prevailed before the crisis. Countries trying to moderate appreciation pressures would benefit from fiscal adjustment and productivity-enhancing reforms.Read More
March 12, 2010
Strong fundamentals and counter-cyclical stimulus programs have set the stage for robust economic recovery after the worst recession in 25 years, but timely withdrawal of monetary and fiscal stimulus is essential to repair public balance sheets and preserve hard-won macroeconomic stability. We project 4.8 percent regional GDP growth in 2010.Read More