There is no shortage of areas where the region’s countries can leverage their strengths to assume a more active global leadership role. But if the region is to seize the opportunities that lie ahead, it must accelerate development progress at home.
The post-‘COVID zero’ reopening of the Chinese economy has improved its growth outlook: the IMF projects 5.2% growth (2023), with declines afterward up to 3.5% in 2028. Will economic reopening and Chinese growth be strong enough to repeat previous contributions to Latin America via exports of food, minerals, and oil? This time it will be more gradual and in a different direction. Financial and investment flows will also be different.
This chapter examines the impacts and durable consequences of Europe’s war (in Ukraine), overlapping with the effects of other components of the ‘perfect storm’ (pandemic, severe weather phenomenon, hunger, global inflation) for Latin America. First, we deal with the global tectonic shifts that have conditioned the region’s economic performance since the 1990s. Second, we outline the range of effects stemming from the ‘perfect storm’. The third section discusses how economic relations between China and Latin America have evolved. Finally, we frame the U.S.-China rivalry in a Latin American context.
Latin America's recovery after the perfect storm should not be limited to a simple return to pre-pandemic "mediocre" levels of output growth. Investments in green infrastructure, exploring areas of digital connectivity opened by the pandemic, and improving the business environment and education can lead to more resilient, inclusive, and dynamic growth patterns.
1. Emerging Markets: Economic and Geopolitical Fragmentation 2. LatAm in Focus: How Latin America Is Fighting Inflation 3. Sustainability (Soaring Fertilizer Prices; Brazil's Commitment to Sustainability; UN sustainability goals and developing countries) 4. Slowbalization, Reshoring, Nearshoring, & Friendshoring
(A) OECD Economics Department Webinar: Policy Challenges for Emerging Market Economies (B) A Perfect Storm for the Global Economy? (C) Otaviano Canuto discusses the May Day marches in Latin America
Last March, a proposal of dollarizing Argentina’s economy arrived at its Congress. We summarize here the potential consequences of such a route in case the bill succeeds in getting approval. First, we point out the broad implications of dollarizing an economy. Then, we set out some cases of Latin American experiences with dollarization. Finally, we address the case of Argentina. The main potential benefit of dollarization would be elimination of domestic inflation, but at a very high cost. Argentina’s fiscal imbalances will not be eliminated by dollarization. Even though dollarization would prevent the printing of money, it imposes no constraints on government spending and borrowing. The only result is that monetary policy ceases to be available as an option, leaving almost no response capacity in case of external shocks. Moreover, dollarization creates the possibility of being exposed to pro-cyclical monetary policies unrelated to domestic necessities. It also eliminates seigniorage benefits. On top of more general features of dollarization and case studies, implementing dollarization now in Argentina would have to face hard-to-overcome challenges. Proposing dollarization under current conditions would require a selective default of domestic currency liabilities, a brutal devaluation, and/or a unilateral conversion of public deposits.
On January 28, both Argentina’s government and the International Monetary Fund staff made announcements about an understanding on a new support program. Meanwhile, in addition to the payment of an amortization due on January 28, another payment is also expected in the first week of February. For now, at least Argentina’s default with the IMF has been avoided. The course ahead will depend on IMF disbursements as targets are reached.
Vaccination campaigns and fiscal support have sparked an economic rebound since the second half of last year, despite an apparent loss of momentum in the third quarter of this year. Even up to this point, the region’s recovery has been uneven and the future looks uncertain. Latin America is caught between two major global forces that threaten the region’s growth. Limited policy space and social pressures exacerbate political risks, but rolling back spending means relying heavily on the private sector to drive recovery.
The COVID-19 pandemic brought a halt to the expansion of Latin America’s middle class and pushed millions back into poverty. Reversing this pattern requires addressing the region’s vulnerability to economic shocks and strengthening countries’ resilience.
The massive vaccine disparities between advanced and developing economies may exacerbate what the IMF has dubbed “divergent recoveries” – with dire consequences for Latin America. A robust recovery in the United States, European Union and China, while largely beneficial to the global economy, conceals some important risks for those falling behind. A successful post-COVID recovery in Latin America should be defined as an inflection point towards more resilient, inclusive, and productive growth patterns.
Latin America and the multilateral world — Otaviano Canuto Today's episode with Otaviano Canuto (ex World Bank, IMF, IDB) covers the current state of the region's economy, the role of multilateral organizations, Brazil's economic prospects and the post-COVID scenario for Latin America. ------------------- Macroeconomic Policies in times of COVID-19 in Emerging Markets: Early Lessons Moderator: Andrés Schipani, East and Central Africa Correspondent, Financial Times Speakers: - Otaviano Canuto, Senior Fellow, Policy Center for the New South - Karim El Aynaoui, President, Policy Center for the New South, Dean, Faculty of Governance, Economics and Social Sciences, Mohammed VI Polytechnic University - Célestin Monga, Professor of Public Policy, Harvard Kennedy School
Otaviano Canuto (ex-World Bank, IMF, IDB) covers the current state of the region's economy, the role of multilateral organizations, Brazil's economic prospects and the post-COVID scenario for Latin America.
With Latin America and the Caribbean potentially facing years of difficulties due to the pandemic and related economic crises, attention has shifted to what multilateral institutions like the International Monetary Fund (IMF) might do to help. There’s no doubt they can play a crucial role in preventing another lost decade in the region. But these institutions will also face limitations because of capital constraints and other factors.
How will organizations such as the IDB, IMF, and OAS help Latin America emerge from the wreckage of COVID-19? What kind of support and cross-border leadership is crucial to ensure the region doesn’t endure another “lost decade”?