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Latin America: Mildly Vulnerable to Global Volatility

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Washington D.C, April 18, 2012 – Latin America’s record growth in recent years slowed in 2011. Nearly all sources agree that regional growth will not surpass 3.5% to 4% this year.

Nevertheless, slower growth may just be the right framework to enable Latin America to face the risks posed by external threats to the regional economy.

“The region began to decelerate in 2011 because it was already encountering bottlenecks and because it was operating at maximum production capacity and it was necessary to apply the brakes a bit to avoid overheating”, said Augusto de la Torre, the World Bank’s chief economist for Latin America and the Caribbean.

This reduced pace of growth coincided with the debt crisis in Europe. Latin American countries would not have been forced to lower their economic growth estimates had this crisis not occurred, according to economic forecasters. Prepared Currently, Europe is applying measures in an attempt to overcome the crisis.

Video: Economic perspectives for Latin America in 2012

Many Latin American countries have taken advantage of the benefits of growth to reduce their vulnerability to external circumstances. “In that context, the region is much better prepared. Perhaps not as much so as in 2008, but there are still many countries in the region that have a lot of room to lower the interest rate to stimulate their domestic economies, if necessary,” said de la Torre.

Nevertheless, all countries of the region are not equally prepared. The report identifies three groups: countries that are highly exposed to risk but have low vulnerability; countries with high exposure to risk that need to better prepare themselves; and countries with low vulnerability but also a low response capacity.

Obviously, countries are not only subject to the consequences of external threats but also to those associated with errors in national economic policy. Thus, the countries best prepared to confront volatility are those that took advantage of the growth of the past two years and the current slowdown to increase their room to maneuver.

“This was one of the most interesting findings of our report: there is a group of countries which are highly exposed to external shocks but which are not vulnerable. This is because they have the capacity to absorb external shocks, thanks to some more robust macroeconomic policy frameworks,” said de la Torre.

The report “Latin America confronts volatility, the dark side of globalization” was presented this week at the Spring Meetings of the World Bank and the International Monetary Fund in Washington D.C.

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