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Fast-track Recovery from Crisis Likely for Latin America

May 13, 2009

  • Growth projections for the region have declined by an estimated 0.7 percent of GDP
  • Latin America is likely to bounce back from its economic troubles faster than other regions
  • Countercyclical measures should cushion the economic and social impact of the crisis

WASHINGTON DC, May 13, 2009. — Latin America is likely to bounce back from its economic troubles faster than other regions because of its sound economic fundamentals and better preparedness to fight a global financial crisis, said the World Bank’s regional Chief Economist, Augusto de la Torre.

Although the region has been impacted by the global economic meltdown and its growth projections for 2009 have declined by an estimated 0.7 percent of GDP, Latin America is better positioned to successfully overcome economic challenges, return to its growth path and continue to attract foreign investment, de la Torre said in a presentation of regional economic projections in Washington, DC.

De la Torre linked Latin America´s “bounce back” with that of industrialized countries. The benefits to the region from a fast recovery -he said- depend on how quickly the center recovers, but that growth likely will rebound as the region has not borrowed and managed to save during good times.

The expert added that this crisis demonstrated Latin America’s reduced vulnerability to negative effects compared to past crises and to the performance of other emerging regions.

He noted, however, that although Latin America has prevented a systemic crisis, it cannot prevent an economic slowdown as the multiple channels that transmitted the crisis --financial costs, commodity prices, remittances and external demand-- all have suffered considerable negative impacts.

For example, the cost of international financing for Latin American firms has doubled in the past few months, while commodity prices fell up to 50 percent from a peak in 2008. This has a considerable impact in a region where 95 percent of the economic activity and 90 percent of its population live in countries that benefit from high commodity prices, de la Torre said. This is further compounded by reduced remittances, which account for 10 percent to 20 percent of national income in some Caribbean and Central American countries.

De la Torre said he remains optimistic about the region’s medium-term prospects.

Countercyclical measures in the form of fiscal stimulus packages in Peru, Brazil, México and Chile, among others, will cushion the economic and social impact of the crisis, he said. Multilateral organizations will provide significant economic support to countries that lack the capacity to implement incentive plans –for example, in Central America and the Caribbean– he added.

Additionally, exchange rate flexibility in the region should allow for relatively dynamic domestic economies, thereby making national assets more attractive to foreign investors.

Therefore, when the world begins to activate again, I expect foreign investment to flow to Latin America,” de la Torre said.