Conclusion

The 2009 global crisis affected Latin American economies strongly. Their deeper integration into the international markets for both trade and finance had the negative consequence of spreading the crisis to the region. But while they undoubtedly suffered, the performance of the region’s economies was surprisingly strong particularly when compared to past crises, and this time their medium-term prospects have emerged largely unscathed. China’s sustained demand for the commodity exports of the region and the timely monetary action of the international community, including IMF liquidity provisions, are two external factors that are undoubtedly part of the explanation. However, positive internal factors played a major role too including greater macro policy resilience, stabilised aggregate balance sheets and, for some countries at least, the ability to adopt counter-cyclical fiscal policies. Stronger financial institutions too were a factor, the result of financial sector reforms in most countries over the last decade.

Important challenges for the future remain. Sustained macroeconomic stability now needs to be institutionalised. Policies pursued based on the knowledge that good times are inevitably followed by bad have been demonstrably rewarded by a rapid recovery and strong performance. But once economies start growing this experience can start to fade. Sustainability of both external and fiscal balances needs to be secured against political pressures for short-term gains.

In the near term, interest-rate and currency risks remain important obstacles for domestic financial development. These risks will need to be addressed through public action such as regulation and education. But if the financial sector is to stop "punching below its weight" and play the role it should in development, its main challenge is to deepen its markets while maintaining sound lending practices.