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16926&entityID=000158349_20081216092058 LATIN‐AMERICA BEYOND THE CRISIS—IMPACTS, POLICIES AND OPPORTUNITIES—A SYNTHESIS Marcelo M. Giugale1 Introduction and Summary Over the past five years, good policies and good luck had put Latin‐America on a path to prosperity.2 Slowly the mass of its poor was shrinking. In most countries, out went inflation, default, isolation, exclusion, uncertainty. In came budget surpluses, investment grades, free‐trade agreements, cash transfers, institutions. There was still a long way to go, but progress was real. But just when things seemed on track, the first global financial crisis in almost a century reaches the region—and will hit it hard. From fast growth, its economy will suddenly go in reverse. During this difficult period, the World Bank has sought to assist its Latin‐American clients with a package of rapid financial assistance (it tripled its lending) and a large body of crisis‐related policy advice. This paper synthesizes that body of advice.3 It is organized around three core questions: (i)
(iii) How will the crisis impact the region? Slowly and harshly, but without catastrophe; How should Latin governments respond? With focused social assistance, tailored macro stimuli, support for the unemployed, and securing debt roll‐overs; What issues will dominate the post‐crisis regional agenda? The rebalancing of the world’s economy, short‐term growth management, the middle‐class, a new contract between people and the state, the regulation of finance, and global synergies. Impacts The global crisis has entered Latin‐America through four contractions—in external financing (notably, private trade finance), demand for exports, commodity prices and remittances. Different from previous, home‐grown episodes, there have been no massive currency devaluations, bank collapses, debt defaults, inflationary spikes or capital flights. In fact, most countries in the region had, and continue to have, liquid and solvent banking systems, primary fiscal surpluses, and manageable debt burdens. Half a dozen of them also have central banks that have successfully committed to inflation targets, and now find themselves able to allow for flexibility in their foreign exchange rates. So, give...
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