The Global Financial Crisis: Implications for Latin America

Keynote speaker:

• Pamela Cox, Director, Latin American and the Caribbean Region, World Bank

Speakers:

• Cynthia Arnson, Director, Latin American Program, Woodrow Wilson International Center for Scholars
• Eric Farnsworth, Vice President, Council of the America/Americas Society (Moderator)
• Arturo Porzecanski, Distinguished Economist-in-Residence, School of International Service, American University
• Rebeca Grynspan, Director, Bureau for Latin America and the Caribbean, UN Development Program
• Jorge Domínguez, Antonio Madero Professor of Mexican and Latin American Politics and Economics, Harvard University
• Merilee Grindle, Director, David Rockefeller Center for Latin American Studies, Harvard University
• Robert King, Acting Senior Director for Western Hemisphere Affairs, National Security Council

Summary

On February 5, 2009, the Woodrow Wilson International Center for Scholars, the David Rockefeller for Latin American Studies and the Council of the Americas hosted “The Global Financial Crisis: Implications for Latin America,” which focused on the widespread economic, political, and social effects of the economic downturn felt in the region. The event centered on the need to strengthen relations within the hemisphere, improve state capacity for social welfare programs, and promote economic development in Latin America. Panelists also expressed their expectations of a more stable, mutually beneficial working relationship within the hemisphere during the administration of U.S. President Barack Obama.

Response to the Economic Crisis in Latin America

World Bank’s Pamela Cox emphasized the five years of economic and social growth that many Latin American countries experienced before the financial crisis hit. She credited this prosperity to responsible macroeconomic policies and the commodity boom, which strengthened financial institutions and created a welcoming environment for foreign direct investment. She stressed that, although Latin American countries are feeling the effects of the global downturn, they stand better positioned than the United States to emerge less scathed.

In fact, Cox argued, the financial downturn could serve as an opportunity for countries in the region to restructure state capacity to better provide for social welfare programs and economic diversification. She advocated for Latin American countries to increase social programs involving medicine and nutrition, and to prepare for long-term developmental growth in improving infrastructure, logistics, and trade. She stressed the importance of diversification in commodity-dependent economies such as Venezuela and Ecuador by putting in place sound, long-term macroeconomic policies such as those employed in Chile and Peru—countries that are now more prepared to overcome the global financial downturn. Cox explained that forging policies to strengthen the job market along with free-trade policies could help to overcome a disappointing projected 2009 growth rate of less than one percent. The United States and Latin America must work together to overcome the financial crisis and recreate a strong hemispheric bond that ensures prosperity throughout the region.

Economic, Social, and Political Dimensions of the Crisis

Despite the rapid global deterioration, Latin American countries have been able to maintain stability, with the prospect of a brighter future relative to other economies. American University’s Arturo Porzecanski sought to prove this point in noting that no Latin American country has asked the International Monetary Fund for support, or, with the exception of Ecuador, default on its loans.

Dr. Porzecanski explained that capital flows have been disrupted and that, once credit begins to flow again, prosperity will follow. He and COA Vice President Eric Farnsworth agreed that the best way to stabilize Latin American economies is for the United States to keep international markets open and investment flowing. Panelists concurred that now is not the time for protectionist trade barriers. Instead, the United States needs to continue activities designed to stimulate the global economy.

In discussing the aftermath of the global financial crisis, speakers believed that the focus should remain on restructuring social welfare capacities rather than additional contributions to existing, inefficient programs. UN Development Program’s Rebeca Grynspan argued for the end of financially indiscriminate universal subsidies. In 2008, they accounted for almost 10 percent of Latin America’s GDP but were disproportionately received by the wealthiest 20 percent of the population. She emphasized the need to invest in higher education to protect the emerging job market from social imbalances and to reduce the incentives for organized crime. It is more important for Latin American governments to stimulate their economies rather than pursue budgetary stringency, and potentially risk having ineffectual social welfare programs. Panelists stressed the importance of economic diversification and job creation reforms in such fields as health, infrastructure, infrastructure projects, and education.

Harvard University’s Jorge Domínguez discussed the electoral progress of Latin American countries in the last 30 years. Since 1976, there has not been a successful military coup d'état in any Latin American country that resulted in the overthrow of a democratically elected leader. Sixteen elections are scheduled in Latin America from now through 2010, and the effects of the global financial crisis will play a role in the results.

Policy Options for the United States in the Obama Administration

The direction of the Obama administration with respect to Latin America differs from that of his predecessor, said the National Security Council’s Acting Senior Director of Western Hemisphere Affairs, Robert King. He explained that Obama’s main objective is to strengthen hemispheric relations through dignity and respect to overcome the effects of the global financial crisis. He indicated that the new president is willing to work with Latin American countries to create mutually beneficial trading partnerships, government assistance programs targeted at resolving poverty, and regional security measures for a peaceful hemisphere. His plan includes improved relations with Venezuela and President Hugo Chávez as well as loosened restrictions on Cuba, such as travel bans and remittances. A main goal of the Obama administration, King emphasized, is for the United States and Latin America to work in partnership to produce clean, sustainable energy through biofuel development and new green technologies. He also indicated President Obama’s willingness to work toward building constructive free-trade agreements, including a pact with Colombia, to improve economic relations within the hemisphere at a time of global financial crisis.