Latin America better girded for financial crisis
The region is affected by global downturn, but more prepared this time thanks to greater foreign reserves and less external debt.
SOURCE: International Monetary Fund/Rich Clabaugh–STAFF
Mexico City and Sao Paulo, Brazil
As leaders in Washington rushed to stem the growing financial crisis in the United States, Latin American leaders thought they'd be unscathed. Brazil's president, Luiz Inácio Lula da Silva, when asked what repercussions he expected at home, retorted, "What crisis?" Venezuelan President Hugo Chávez called it the "crash of capitalism."
A few weeks later, the tone has changed remarkably for a region heavily dependent on the international prices of minerals, crude oil, and food – all of which have taken a hit – not to mention remittances, tourism, and investment.
Mexico and Brazil, the region's two largest economies, spent chunks of their federal reserves to stem unexpected currency declines. Mexico introduced an emergency stimulus package, while Brazil offered $2 billion in loans to exporters through local banks. The era of uninterrupted economic growth and fiscal surpluses, it seems, could be on the wane.
Yet even as nations await the full impact of a crisis that is reaching every corner of the world, Latin America is better placed today to weather the downturn than at any other time in the past half century, says Gray Newman, senior Latin America economist at Morgan Stanley in New York. Countries in the region have, overall, kept spending within budget and built up their currency reserves. Many have solved external imbalances and adopted flexible exchange-rate systems.
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