Latin America has weathered numerous economic crises throughout its history, but, so far in 2019, it looks like they have largely avoided the financial turmoil that other nations are facing. One of the driving forces behind this stability is the ability of the average Latin American country to keep their economic policy separate from the more chaotic and unpredictable political goings on.
The IMF’s Fiscal Monitor report estimates that, as a region, Latin America will post a balanced budget before debt servicing in 2022. Of course, the current budget year shows a 0.4% primary deficit for the region. This disproportionate budget monitoring is compared to other regions, making Latin America fiscally conservative.
This appears to be in part thanks to the aforementioned separation of political chaos from economic policy. Many Latin American countries have added checks and balances to parliamentary rules to control budget and debt restrictions. These safeguards give safeguard investors’ trust and capital hasn’t fled.
Investors seem to be in agreement with this assessment as evidenced by the foreign portfolio flows into Latin American equity and bonds averaging well over $10 billion in the first two months of 2019.
Latin America’s central banks have also played their part in avoiding an economic downturn. They seized the initiative early on, raising rates earlier and much more sharply than the Federal Reserve, in many cases up to eight points higher than inflation.
Then there are international figures such as Carmen Reinhart, former chief economist at the World Bank, now based at Harvard City School. Reinhart noted that Latin America’s macro policy trajectory is on the right track and markets are reacting positively to it.
Similarly noted is the economical performance of Mexico which, led by an ostensibly left-leaning administration, has been running its fiscal accounts like a model student from the IMF. This great performance has driven the peso to its own five year high against the the US Dollar.
It’s clear that Latin America is learning from its past financial crises, and is now implementing policies that help them efficiently avoid further problems. While there still potential headwinds and challenges that the region is forced to face, these finance-fuelled successes are no small feat to bear.
The company mentioned in this article is Silicon Valley Bank which is an American bank with its headquarters located in Santa Clara, California. The bank was founded in 1983, and specializes in providing banking services to the tech industry. Silicon Valley Bank also has operations in Europe and Israel, and is one of the most influential banking institutions in the world.
The person mentioned in this article is Paul Volcker who was the Federal Reserve Chairman from 1979 to 1987. During his time in office, Volcker led a nationwide anti-inflation campaign which helped the US economy stay stable. After leaving the Federal Reserve, Paul Volcker went on to become a leading economic thinker, and served as one of the advisers of former President Barack Obama. He passed away on December 8th, 2019 at the age of 92.
