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World Economic and Financial Surveys

Regional Economic Outlook: Western Hemisphere

Latin America and the Caribbean

May 2013
©2013 International Monetary Fund

Growth in Latin America is set to pick up to about 3½ percent in 2013, broadly in line with potential. The region continues to benefit from favorable external financing conditions and relatively high commodity prices, but these tailwinds are unlikely to last forever. The key challenges for policymakers today are preserving macroeconomic and financial stability, and building strong foundations for sustained growth in the future. More prudent fiscal policy would help ease pressure on capacity constraints, mitigate the widening of current account deficits, and prepare the economies better to deal with adverse external shocks. Exchange rate flexibility and prudential measures should continue to be used to discourage speculative capital flows. Sustaining strong output growth will require structural reforms to raise productivity growth.

Contents
Executive Summary
1.  The United States, Canada, and the World: Outlook and Policy Challenges
  Global Backdrop: Receding Risks, Three-Speed Recovery
  The United States: Modest Growth, Bright Spots Appearing
  Canada: Moderating Growth Amid Currency Strength
2. Outlook and Policy Challenges for Latin America and the Caribbean
  Overview
  Policy Challenges
   Financially Integrated Economies
   Other Commodity Exporters
   Central America, Panama, and the Dominican Republic
   The Caribbean
3. Is the Growth Momentum in Latin America Sustainable?
  What Factors Drove the Recent Strong Growth Performance?
  Is the Recent Strong Performance Sustainable?
  Policy Implications
  Annex 3.1. Data and Methodology
4. Latin America’s Fiscal and External Strength: How Dependent Is It on External Conditions?
  Introduction
  A Decade of Falling Public and External Debt, 2003–12
  External Factors and Debt Sustainability
  Conclusions
  Annex 4.1. Global Variables under Alternative Scenarios
5. Is Latin America Saving Its Terms-of-Trade Windfall? A Metric
  Introduction
  The Terms-of-Trade Windfall—a Historical Perspective
  A Measure of Windfall Saving
  Concluding Remarks
  Annex 5.1
References
New Publications from the Western Hemisphere Department
Boxes
1.1 U.S. Household Balance Sheets After Five Years of Repair
1.2 Canadian and Mexican Exports to the United States: A Tale of Two Countries
2.1 Taking Stock of European Banks’ Deleveraging in Latin America
2.2 Foreign Ownership of Local Currency Securities and Exchange Rate Flexibility
2.3 Sustaining Progress in Banking Regulation and Supervision in Latin America
2.4 The Caribbean: In Search of Lost Competitiveness
4.1 Optimal Sovereign Debt Levels: The Information in Sovereign Spreads
Tables
2.1 Western Hemisphere: Main Economic Indicators
2.2 Western Hemisphere: Main Fiscal Indicators
2.3 Western Hemisphere: Selected Economic and Social Indicators
2.4 Macroprudential (MaP) and Capital Flow Management (CFM) Measures in Latin America
REO: Western Hemisphere

Video

IMF Says Latin American Growth to Edge Higher in 2013

El crecimiento económico de América Latina repuntará en 2013, según el FMI

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