Latin America: Good Outlook
Date: 2007-10-10
By Rodrigo de Rato, the managing director of the International Monetary Fund.
Latin America’s outlook remains basically good despite the international credit turmoil. But the region needs major reforms.
Over the last several years, we have seen a striking improvement in the economic policies and the economic performance of many countries in Latin America. (..) One of the trends that has supported growth and stability in Latin America during the past decade has been the increased integration of Latin American countries in the global economy. Of course, the price of increased integration is a potential increase in vulnerability to events beyond the region, especially changes in trading partners’ demand for imports and changing conditions in financial markets.
IMPACT FROM TURMOIL
Obviously, the event that is dominating the headlines and the minds of policy makers is the turmoil in credit markets (…) What does the global outlook imply for Latin America? Under the projection of a modest fall in global growth in 2008, the picture for Latin America remains basically good. In 2008, the crisis could knock off about one half of one percent of growth in some countries in the region, although it is too early to assess specific effects on the real economy. If this is correct, then it will be a notable departure from past episodes of disruption. In the past, Latin America has been quite vulnerable, both to reductions in growth outside the region and especially to worsening of conditions in advanced country financial markets. (…)
Reduced demand for Latin American exports could certainly affect growth in the region. However, Latin American countries are offered some protection by changes in the pattern of trade over the past decade. Specifically, the share of the exports going to the United States—the country likely to be most affected by the turbulence—fell from 57 percent of total exports in 2000 to 47 percent in 2006. This reflects a broad global trend in which emerging economies, including those in Latin America, are becoming more important sources of global demand and potential engines of global growth themselves.
GREAT PROGRESS
While I have been Managing Director of the Fund I have seen great progress in many countries, much of it owing to the seriousness and sophistication of leaders and officials in those countries. Over the past years, the Fund has worked very closely with Latin American countries. We have given support to Latin American governments and societies during difficult times of economic crisis and instability.
Sometimes we have been these countries’ only supporter. We know how challenging certain kinds of decisions can be. And we will continue to do our part in such areas as macroeconomic surveillance, institution-building, and crisis prevention. The goals are clear: a more complete integration of Latin America into the global economy, more rapid and sustainable growth, and significant and durable poverty reduction. With good policies and some good luck in external economic developments, these goals are achievable. And the progress that Latin America has already made should give us hope that they will be achieved.
Rodrigo de Rato is the managing director of the International Monetary Fund until November 1 when he retires after three years. He previously served as economy minister in Spain for eight years. This column is based on an excerpt of his speech at the Ibero-American Association of Chambers of Commerce in Madrid, Spain on October 8, 2007.
