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World Economic and Financial Surveys

Regional Economic Outlook: Western Hemisphere

Crisis Averted—What’s Next?

October 2009

The impact of the global financial crisis and recession on the Latin America and Caribbean region was substantial, but the worst is over for most countries. The region avoided falling into a crisis of its own, performing relatively well amid strong external shocks. Many countries have now returned to growth. The region now faces the challenge of adapting to a new global environment that will not be as favorable as in the past. The report explores the lessons and policy agenda emerging from the recent performance of the Latin America and Caribbean region, drawing also on the broader international experience.

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Contents

Preface
Executive Summary (20 kb PDF file)
 
I. Global, U.S., and Canadian Outlook
  The Global Backdrop: Recovery Emerges
  United States: Policy Support Bolstering Activity
  Canada: Resilience amid Turmoil
  Sizable Implications for the Latin America and Caribbean Region
 
II. Latin America and the Caribbean: Developments and Outlook
  External Shocks Fading at Different Speeds
  Severe Economic Impact, but Green Shoots Visible . . .
  . . . Helped in Some Cases by Active Policy Responses
  A Phased Recovery Ahead . . .
  . . . Shaping Policy Decisions
 
III. Why Has Latin America and the Caribbean Fared Better This Time? The Value of Being Prepared
  Better Output Performance
  Lower Vulnerabilities
  Stronger Policy Frameworks
  Policy Implications
  Methodological Appendix: Box 3.2
 
IV. Fiscal Policy Response to the Crisis: How Much Room for Countercyclical Policy?
  The Precrisis Context: Prudent Fiscal Policies and Some Profligacy
  The Crisis Hits: Lower Output and Commodity Prices Slash Fiscal Revenues . . .
  . . . But Only Some Countries Can Afford to Keep Expenditure Growing . . .
  . . . Resulting in Varied Fiscal Support During the Crisis
  Why Did Active Fiscal Policy Responses Differ? A Look into Fiscal Space
  Looking Ahead: Balancing Fiscal Sustainability with Sustaining the Recovery
  Technical Appendix
 
References
 
Western Hemisphere: Main Economic Indicators
 
Latin America and the Caribbean: Main Fiscal Indicators
 
Boxes
1.1 Anatomy of the Crisis and Financial Regulation Challenges
1.2 U.S. Potential Growth in the Aftermath of the Crisis
1.3 Spillovers from U.S. Federal Debt Issuance: The Case of Emerging Market Sovereign Borrowing
2.1 LAC Country Analytical Groupings
2.2 The IMF’s Support to the Region during the Crisis
2.3 A Less-Crowded Caribbean Next Year? Tourism Trends
2.4 FDI during the Recent Crisis: Resistant but Not Immune
3.1 Did Latin America Show Greater Resilience during the Current Global Crisis? A Counterfactual Exercise
3.2 The Global Financial Crisis: Why Were Some Countries Hit Harder?
3.3 ¿Qué Pasó? Behind Mexico’s Cycle, by Way of Comparison to Canada
4.1 Fiscal Stimulus Packages in Latin America and the Caribbean
4.2 Measuring the Fiscal Stance: The Cyclically Adjusted Primary Balance and the Fiscal Impulse