Latin America fighting against crisis.

Financial crises are not unknown in Latin America - the region has been affected by a number of financial crises in the eighties and nineties of last century and during the years 2001 and 2002. You suffer through the effects of recession in the U.S., decreasing demand, export and worsening access to capital markets. This has placed to cope with global shocks better than during previous crises, since many countries have since improved their macroeconomic fundamental data.

Prospects for growth and the main engines of growth

Forecasts for the world economy expected for the year 2009 a massive decline. In the three largest economies (U.S., euro area and Japan), the economic performance is likely this year and dramatically reduce the visible decline in counts among the emerging markets. The economies of Latin America also very slow. Central banks worldwide have taken a massive and increasingly coordinated action. Our baseline scenario assumes that they are likely to stabilize financial markets and at the end of 2009 will begin a gradual recovery.

End of boom in Latin America, seven Latin American countries grew in the last five years an average of 5% (Lata-7: Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela). While the vulnerability in the direction of the U.S. recession vary considerably from State to State, turbulence in financial markets and the weaker global outlook affect the region in four channels: through lower prices, decreasing foreign demand and declining capital inflows, low volumes of trade as well as lower remittance *. Although in 2010 we expect a resumption of growth dynamics, there are thanks uncertain global prospects for the risk of speaking negative development.

Weaker global conditions and uncertain projections of commodity prices will create pressure on the external economic and fiscal position. Commodity boom in recent years positively affected the balance of payments current account and fiscal positions across the seven Latin American. Lower prices now lead to greater current account deficits. It is expected that in 2009 export region and remittance fall and foreign direct investment forfeited half. As regards the budget balance, decreased Latin America in the last seven years of deficits (from 2.9% in 1998-2002 to 1% of GDP during the years 2003-2007) and alleviate the burden of public debt. Fiscal position, however, are expected to remain tight, as is the development as well as in the past, dependent on the economic cycle.

Policy responses to crisis

The governments announced support measures to limit the impact of the crisis on their economies. Most plans include measures to promote the exchange rate, the injection of liquidity for the banking sector, direct loans to designated sectors and financial assistance for companies. Governments wishing to lowering taxes, direct transfers and spending on infrastructure to stimulate consumption. Brazilian government introduced the most ambitious plan to promote their economies (about 8.7% of GDP in 2008). Chile, Mexico and Colombia also recently announced measures. The tight budgetary situation and the high debt relative to GDP in the region, however, restrict the scope for fiscal stimulus.

Most of incentives resulting from monetary policy. Central banks from the beginning of decreased interest and flagged as a growing fears of an economic downturn. Monetary policy will be in the second half of 2009 likely to be aggressive, but some countries will face restrictions resulting from inflation rate exceeding the target limit.

Important positive factors

A strong banking sector. Unlike in previous crises are the effects of exchange rate weakening in the banking sector is limited. Most countries have floating exchange rate regime, credit expansion was financed by domestic currency deposits and the risk remained low. Improved both indicators in the banking sector and supervisory rules. Rising number of bad loans, while banks suffer, but the high level of equity capital and reserves will serve as a sufficient cushion to cover losses.

Latin America in the last seven years, they accumulate the quantity of external resources (foreign exchange reserves and counter cyclical funds). Most countries in 2009 will not show too much need for external financing and the country will have access to multilateral financial assistance. Countries that implement long-term unsustainable expansionary policy and spent additional revenue from the commodity sector, are much more vulnerable to external shocks.