In Cautious Praise of Latin America

BUENOS AIRES/WASHINGTON, DC – US President Barack Obama’s trip this month to Brazil, Chile, and El Salvador is a good opportunity to assess the recent performance of Latin America’s economies, and to analyze their prospects and risks going forward.

Latin America showed strong resilience during the international financial crisis. While aggregate output fell in 2009, it recovered extremely fast. As the crisis hit, stronger banking systems and effective macroeconomic policies – including fiscal responsibility and low public debt, exchange-rate flexibility, and a large accumulation of international reserves – allowed Latin American countries to implement unprecedented countercyclical policies. Political peace was also preserved through social policies that reduced organized conflict.

In short, while Latin America’s economies were helped by high commodity prices, it is indisputable that the significant economic reforms adopted in most countries enabled them to have a “good crisis.”

But this successful performance, together with high growth rates from 2004 to 2010, seems to have led to an unhealthy level of self-satisfaction among observers and policymakers in some countries. Indeed, many now apparently assume that their countries have become immune to future shocks.