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Unformatted text preview: n the quality of its macroeconomic framework, what will be the main consequences of the crisis in Latin‐America? There will be five. First, recession. The region’s average growth will shift from over 4 percent p.a. in 2008 to minus 2‐2.5 percent in 2009. These averages hide important differences across 1 The author is the World Bank’s Director of Poverty Reduction and Economic Management for the Latin‐American and Caribbean region. The views expressed in this note are his own, and do not necessarily represent those of the World Bank Group, its Board of Executive Directors, or its member countries. 2 This paper uses the term “Latin‐America” as a short‐hand for Latin‐American and the Caribbean region. 3 The technical notes presented in this compilation can be found in the LCR Crisis Briefs Series at: http://go.worldbank.org/2IWPN6MH20. 1 countries, but very few of them will escape the downturn (Panama, Peru). Growth will return in 2010, but it is likely to be slow (1‐2 percent p.a.) and uneven. Second, poverty will increase. The World Bank estimates that the crisis will push eight million Latin‐
Americans into poverty.4 To put that in perspective, sixty million of them had left poverty during 2002‐
2008, thanks to faster growth, smarter social policies, and larger remittances. But the crisis is expected to be unusually harsh on the region’s middle class—mostly because of the fall in the demand for non‐
traditional exports that employ formal, urban, technologically‐more‐advanced workers. Third, unemployment will also increase. All countries for which timely data is available, show short‐term rises in unemployment rates—so far between half and a full percentage point. But the reasons for the rise vary. In some cases (Brazil, Chile, Mexico), it is primarily salaried workers who either lost their jobs or saw job openings shrink; in others (Colombia), it is the self‐employed who are suffering the brunt of the recession. Wages are falling in some sectors in real terms. Informality is expected to expand, and productivity may suffer as a result. Fourth, there will be less foreign financing. By the time the global crisis broke out (last quarter of 2008), Latin‐American sovereign borrowers had by and large secured the foreign financing they needed for 2009. Corporations, on the other hand, face a much tighter financial outlook. This is not surprising as net private capital flows to emerging markets for the year are projected to dive to less than US$200 billion—a fraction of its almost one trillion dollars peak in 2007. More importantly, foreign direct investment towards Latin‐America may no longer show the resilience of previous crisis, for the flow of mergers and acquisitions that sustained it then (“fire‐sale FDI”) will not be forthcoming now. Fifth, there will be less remittances. In 2008, the 20 million Latin‐Americans living abroad managed to send home some US$60 billion (a third to Mexico). This made remittances one of the region’s largest foreign currency earners. Those flows will decline between 4 and 8 percent in 2009, and may...
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