Fast-track Recovery from Crisis Likely for Latin America
10 Jun 2009
by: The World Bank
Monday, June 8, 2009
Washington, D.C.
— Latin America is likely to bounce back from its economic troubles
faster than other regions because of its sound economic fundamentals
and better preparedness to fight a global financial crisis, said the
World Bank’s regional Chief Economist, Augusto de la Torre.
Although
the region has been impacted by the global economic meltdown and its
growth projections for 2009 have declined by an estimated 0.7 percent
of GDP, Latin America is better positioned to successfully overcome
economic challenges, return to its growth path and continue to attract
foreign investment, de la Torre said in a presentation of regional
economic projections in Washington, DC.
De
la Torre linked Latin America´s “bounce back” with that of
industrialized countries. The benefits to the region from a fast
recovery -he said- depend on how quickly the center recovers, but that
growth likely will rebound as the region has not borrowed, and managed
to save during good times.
The expert added that this crisis demonstrated Latin America’s reduced vulnerability to negative effects
compared to past crises and to the performance of other emerging regions.
He
noted, however, that although Latin America has prevented a systemic
crisis, it cannot prevent an economic slowdown as the multiple channels
that transmitted the crisis --financial costs, commodity prices,
remittances and external demand-- have all suffered considerable
negative impacts.
For
example, the cost of international financing for Latin American firms
has doubled in the past few months, while commodity prices fell up to
50 percent from a peak in 2008. This has a considerable impact in a
region where 95 percent of the economic activity and 90 percent of its
population live in countries that benefit from high commodity prices,
de la Torre said. This is further compounded by reduced remittances,
which account for 10 percent to 20 percent of national income in some
Caribbean and Central American countries.
De
la Torre said he remains optimistic about the region’s medium-term prospects.
Countercyclical
measures in the form of fiscal stimulus packages in Peru, Brazil,
México and Chile, among others, will cushion the economic and social
impact of the crisis, he said. Multilateral organizations will provide
significant economic support to countries that lack the capacity to
implement incentive plans –for example, in Central America and the
Caribbean – he added.
Additionally, exchange rate flexibility in the region should allow for relatively dynamic domestic economies, thereby
making national assets more attractive to foreign investors.
“Therefore,
when the world begins to activate again, I expect foreign investment to
flow to Latin America,” de la Torre said.
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