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World Economic and Financial Surveys

Regional Economic Outlook: Western Hemisphere

November 2007


In spite of a slower U.S. economy and recent market turbulence, growth in the Latin America and Caribbean region has continued at a robust pace. This reports explores the resilience of the LAC region to external shocks and the policy challenges involved in sustaining the region's improved fundamentals. The analysis focuses, in particular, on real and financial linkages with the United States, the strength of underlying fiscal positions, and the sustainability of the ongoing credit boom.

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Contents

Executive Summary
I. The Global Economy and the Outlook for the United States and Canada
  Global Outlook
  Outlook for the United States and Canada
II. The Outlook for Latin America and the Caribbean
  Overall Developments and Prospects
  Financial Sector Developments
  External Developments
  Monetary and Exchange Rate Policies
  Fiscal Policy
  Social Policies
III. How Resilient Is Latin America's Expansion?
  Channels of Transmission
  Scenario Analysis
  Conclusions
IV. Revenue Growth and the Strength of Underlying Fiscal Positions
  Structural Commodity Revenues
  Structural Noncommodity Revenues
  Expenditures
  Structural Primary Balances
  Conclusions
  Appendix
V. Financial Sector Development in Latin America: Recovery or Overheating?
  Financial Deepening or Bubbles
  Credit Boom or Recovery
  Regulatory Responses and Options
  Conclusions
  Appendix
VI. Caribbean Economic Outlook and Integration Issues
  Recent Developments and Economic Outlook
  Regional Integration Issues
  Financial Integration
  Tax Incentives and Investment
  Trade Preference Erosion
  Conclusions
References
Table
  Financial Sector Overview, 2006
Boxes
1. Recent Financial Market Turmoil: What Happened, and Why?
2. Latin America's Cyclical Position
3. Trends in Latin America's Balance of Payments
4. Real Exchange Rate and Competitiveness
5. Optimal Prudential Reserve Levels
6. Effectiveness of Central Bank Intervention—Evidence from Colombia
7. Escaping Poverty in Latin America
8. Are Remittances to Latin America Influenced by the U.S. Business Cycle?
9. Will the U.S. Subprime Crisis Affect Bank Lending in Latin America?
10. Derivatives Markets in Latin America