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Unformatted text preview: 3 half, of the borrowing towards domestic sources—in the few countries that can count on those sources. But it still leaves a large gap. And the ability to roll‐over debt remains the largest single risk in the region’s short‐term horizon. Policy Responses – Tomorrow’s Opportunities For all the problems the crisis will cause to Latin‐America, it can also become the event that finally unleashes the region’s enormous potential. A broad agenda of reforms may now, or soon, be possible, based on an unprecedented constellation of new economic realities, political will and technical advances. The first of those realities is that world growth will no longer be driven by G7 countries consuming beyond their means. At the margin, emerging markets will need to rebalance their export‐led growth models towards domestic absorption. In Latin‐America, this will be easier for the larger countries, but will put smaller economies to the test. Many, large and small, will see their currencies uncomfortably appreciate. All of which will put a new premium on trade competitiveness—even to preserve the same slice of a smaller trade cake. Many of the long‐delayed reforms that make integration worthy, from infrastructure and logistics to tertiary education and property rights, will now become inescapable. At the same time, the crisis has brought about a new faith in the power of public investment to affect growth in the short term. This may transform that investment, for it will cease to be a de facto source of funding—cut whenever revenues fall or current expenditures rise. Much as in the early 1990s concerns about inflation forced the region’s governments to surrender money printing as a source of fiscal deficit financing, concerns about recession may now force them to formally link public investment to short‐ term growth prospects—systematically doing more in the downturn and saving during upturns. It may also lead the marginal dollar of public investment towards projects that bring bigger private contributions, as they will have the largest total impact on growth. And it may usher a much‐needed improvement in implementation capacity. Of course, the technical and institutional issues around giving public investment a growth stabilization role are not minor. But the core principle of saving in good times to spend in bad ones made its debut in Latin‐America during this crisis (in Chile), and it has proven a success that many will seek to replicate. The crisis may also transform social policy in Latin‐America, making it much more about equity than equality, that is, more about giving all the same opportunities rather than the same rewards. This will help the region progress beyond a debate that has for far too long been politically divisive and strategically paralyzing—a debate about whether the very purpose of the state is to protect private property or to pursue wealth redistribution. A combination of factors will account for the transformation. On the one hand, the crisis revealed that the...
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