CGD's weekly Global Prosperity Wonkcast, event videos, whiteboard talks, slides, and more.
In this CNN interview, Senior Fellow Liliana Rojas-Suarez argues that the recently announced measures in Cyprus that imposes losses on non-insured depositors as part of a full-fledged bank restruct
On January 21st, Senior Fellow Liliana Rojas-Suarez was interviewed by CNN in Santiago, Chile about the recent growth recovery in China and its effect on Latin America. Although Liliana recognized that growth prospects in the region have improved for 2013 in light of China's recent events.
Last month members of the Latin American Shadow Financial Regulatory Committee (CLAAF) convened at CGD to discuss fiscal and monetary issues affecting the region. The claaf, which meets here twice a year, usually offers policy and regulatory recommendations for finance ministers and central bankers in the region. This time the committee proposed something quite different: the five-page statement claaf issued after two days of deliberation recommended the creation of a new regional financial institution—a Latin American Liquidity Fund, to supplement the efforts of the International Monetary Fund (IMF) when the next global financial crisis hits.
In this CNN interview, Senior Fellow Liliana Rojas-Suarez explains that while the region’s economic growth prospects remain strong for 2013, there are some factors that will limit its growth potential. First, external financing needs in the region, as measured by the current account of the balance of payments are widening. This, together with the presence of fiscal deficits in most countries (with the notable exception of Chile and Peru) reduce the region’s resilience to a potential external shocks (such as an exacerbation of the Eurozone crisis). Second, institutional weaknesses and political constraints will hurt some countries in the region, notably Argentina and Venezuela. However, Liliana expects that political constraints to undertake much needed infrastructure investments in Brazil will be eased in 2013, partly motivated by the 2014 World Cup.
Large accumulation of international reserves by Latin American countries was central in containing the adverse effects of the global financial crisis. Lines of credit from the Federal Reserve and the new liquidity facility from the IMF also played a key role, at least for some major countries. However, reserve accumulation is not free of cost, Fed support is not guaranteed and IMF resources might not be sufficient at times of systemic crises and may carry conditionality that make such assistance only contingent. This raises the question as to whether Latin America should actively pursue the effective implementation of regional arrangements capable of ensuring the availability of liquidity at times of acute financial stress. The Latin America Shadow Financial Regulatory Committee dealt with this issue by answering these questions, among others, and shared their statement publicly at this CGD event:
In these interviews Senior Fellow Liliana Rojas-Suarez discusses the risks to growth sustainability in Latin American countries derived from the large vulnerabilities in advanced economies. In particular, she emphasizes risks for emerging markets from the lack of solution to the fiscal cliff problem in the U.S. While Liliana is confident about China's capacity to continue on a solid growth path (albeit at slower rates than those observed in previous years), she believes that the permanent solution to the European debt crisis requires either a comprehensive write-down of the Greek debt or a separation of Greece (and possibly Portugal) from the Eurozone.
Latin America's emerging middle class, defined as those unlikely to fall back into poverty, has grown by 50% in recent years and now includes one of every three people on the continent, roughly equal to the number of people who remain poor. A new World Bank study finds many potential benefits from this surging middle class but cautions that these benefits can only be fully realized if countries can strike a new social contract that links middle class interests to the inclusion of those left behind. The event will include presentation of the report's key findings and a panel discussion with some of the leading experts on the region's middle classes.
In this CNN interview, Senior Fellow Liliana Rojas-Suarez explains that recent policy announcement, while in the right direction, do not imply that a solution to the European crisis is on sight. She emphasizes that only decisive actions by the European Central Bank involving not only provision of liquidity (and purchase of government bonds) but also heavy involvement in the restructuring of banking systems in Spain and other European countries will guarantee a credible and permanent solution of the crisis. Lacking these actions, Rojas-Suarez expects continuous volatility in the international capital markets and a deteriorating trend in the Eurozone’s economic fundamentals.
In this CNN interview Senior Fellow Liliana Rojas-Suarez argued that the Fed's recently announced expansionary monetary policy (QE3) is a response to the lack of action by the US Government and Congress to solve the real problem facing the US: the country's fiscal and debt positions. While not ideal, the Fed's policy is an attempt to improve consumers' expectations who have become highly risk adverse in the face of large uncertainties both in Europe and in the US.
Liliana explained that, in contrast to events in 2010, this time around the effects of the Fed's policies will have less adverse effects on Latin America and other Emerging Market Economies. The central reason is that these countries' current economic cycle is one characterized by declining economic growth resulting from a reduced global demand for their products. This in turn is the result of a global slowdown that includes advanced economies and China. In Liliana's view, to the extent that the Fed's actions can improve markets' confidence, the positive effect--however limited--on US aggregate demand will offset the adverse effects on currency appreciations in Latin America and other economies.
In this interview with Canal N, the most prestigious Peruvian news channel, Liliana Rojas-Suarez, talks about the consequences for Latin America of an intensification of the financial crisis in Europe. In Liliana’s view, while increasing fragilities have started to show in some countries like Brazil, others like Chile and Peru remain quite strong and would remain highly resilient to a severe external shock.
Senior Fellow Liliana Rojas-Suarez discusses the recent increased weakness of European banks. She argues that the crisis will exacerbate unless the European Central Bank (ECB) fully exercises its role as lender of last resort in the near future. Timid injections of liquidity will not do the job. In her view, however, Germany's political apparatus is not ready to support the ECB crucial role. At his point, the most likely scenario is a breakdown of the Eurozone and full-blown banking crises in a number of countries in the area.
The misadventures of the North seem to go hand-in-hand with a boom in emerging markets, particularly in Latin America. Spain is looking down a cliff and France threatens to get rid of the Teutonic fiscal belt, increasing angst and uncertainty in the North. In contrast, Latin American economies are trying but failing to prevent sizable currency appreciation, and a surge of credit flows. Given this scenario, is Latin America hopelessly, and counterproductively, fighting a bonanza that is here to stay, given that the North is mired in stubborn recession; or is the fight a worthy quest, necessary in order to prevent a painful replay of a boom-bust cycle? In this latter regard, what policies would be most effective under current conditions? Are macroprudential regulations helpful instruments to keep these economies on track? Does Basel III offer a reliable guide for regulators, or is it in need of major overhaul?
On May 22nd, members of the Latin American Shadow Financial Regulatory Committee (CLAAF), convened at CGD to discuss some of the most pressing fiscal and monetary issues affecting Latin American economies. The result of the committee’s two-and-a-half-day-long discussion was a four page statement and several clear recommendations for rethinking financial policies in the midst of a global crisis.
Conventional wisdom has it that when the United States catches a cold, Latin America gets pneumonia. But when the United States caught financial pneumonia in 2008, Latin America escaped with little more than a cold. What’s changed?
In this week’s Wonkcast, CGD senior fellow Liliana Rojas-Suarez explains why Latin America was mostly successful in coping with the fallout from the 2008 global financial crisis and she introduces a new methodology for predicting how countries will fare in the next global financial crisis. Our conversation draws on her new working paper, Credit at Times of Stress: Latin American Lessons from the Global Financial Crisis, written jointly with Carlos Montoro of the Bank for International Settlements (BIS).
In this interview Liliana Rojas-Suarez argues that for a true and lasting solution to the Greek crisis to occur, a deeper restructuring of sovereign debt is needed (one that is based on the country's capacity to repay, and not on arbitrarily-determined goals for debt ratios; i.e. 120% debt/GPP by 2020) . Since the likelihood of key Eurozone members (especially Germany) to agree on further debt restructurings (including ECB’s holdings of Greek debt) is very low, the most likely scenario is still one where Greece leaves the Eurozone. This would allow for a depreciation of the domestic currency to boost competitiveness. In this scenario, it is essential a re-design of the IMF program to include the avoidance of a banking crisis (which could occur if banks' borrowers, earning' income denominated in a depreciated currency, are not able to make good on payments on Euro-denominated loans).
As part of a special edition of CNN program, CNN Dinero, Senior Fellow Liliana Rojas-Suarez formed part of a panel discussing global economic prospects for 2012. She emphasized that events in Europe will determine growth prospects around the globe. Liliana is not optimistic about the resolution of the Eurozone crisis given the lack of a decisive and coordinated efforts to deal with two major problems: (a) mounting difficulties in the banking sector; and (b) the European Central Bank’s reluctance to behave as a lender of last resort. If this trend were to continue in 2012, a number of defaults will materialize and the Eurozone will not survive in its current form. A much needed large increase in IMF resources to contain the European crisis will also continue to face severe impediments in 2012 in view of the ongoing political mess in the US, whose vote is needed for a formal increase in the lender’s resources.
Most low-income countries (LICs) recovered swiftly from the 2008-9 global crisis and have grown strongly since early 2010. But progress in rebuilding macroeconomic buffers has been slow, and the LICs are now less well prepared to deal with external shocks than they were before the crisis. At a time when the risks to the global outlook are intensifying, a new IMF study finds that many LICs would struggle to cope with a renewed global downturn. In a second report, the IMF and World Bank explore the role contingent financial instruments—such as commodity hedging, contingent debt, and insurance—could play to help LICs manage global volatility. IMF staff will present the key findings of these studies, highlighting the policy implications for LICs and the international community, with comments by expert discussants to follow.
Senior Fellow Liliana Rojas-Suarez was interviewed by CNN en Español on dealing with the current banking problems in Europe. With the escalation of the banking problems, some countries, such as Greece, need a comprehensive restructuring of their banking systems, while many others need a TARP-like program to support re-capitalizations. As the crisis keeps progressing, liquidity support from the European Central Bank (ECB) is proving insufficient. Assistance from the IMF is pivotal to support not only Europe but also the rest of the world should a full-fledged crisis emerge in Europe. The situation is complicated by the fact that the IMF is in need of greater funds and their largest stake holder, the United States, is not in a position to offer support due to their own political challenges.