A group of influential Latin American economists is urging the IMF, World Bank, and other multilateral institutions to launch a new fund with about $250 billion to help the region cope with the global financial crisis in 2009.
The group, the Latin America Shadow Financial Regulatory Committee, said that companies and governments in the region were having trouble rolling over their debts due to the sudden freezing up of international capital markets. The group released a statement (PDF, 17KB) following a two-day meeting at the Center for Global Development (CGD) last week.
Without measures to ease the sudden lack of credit, the group said, the region could face a "significant drop in economic activity, loss of jobs, rising poverty, bankruptcies in the private sector, problems in the banking sector and, perhaps, payment difficulties in some sovereigns of the region."
Liliana Rojas Suarez, the committee chair and a CGD senior fellow, said that the seriousness of the international situation calls for the commitment of an unprecedented amount of resources.
"Business as usual is not enough," she said. "Our estimates suggest that about $250 billion may be required to address the potential rollover needs and budget support for Latin American governments in 2009."
Because such sums would exceed the capabilities of the international financial institutions, the group urged that a new funding mechanism be established to "recycle" funds that are currently fleeing to U.S. Treasury bonds. The proposed fund would purchase Latin American loans and bonds, thus pumping liquidity back into the region.
"The role of multilateral institutions should be enhanced through additional resources and new facilities. One possibility is to resort to capital replenishments and such actions should be pursued," the group said. "However, in order to avoid protracted negotiations and for the sake of expediency, the Committee recommends establishing a specific Emerging Markets Fund (EMF)."
EMF resources would be channeled to the region via multilateral institutions including the World Bank, IMF, Inter-American Development Bank, the Inter-American Investment Corporation, and the Corporación Andina de Fomento.
The proposed fund would channel resources to both firms and national governments, through new facilities described in the statement.
"This problem is not of the region's making but we are now suffering the effects," said Rojas-Suarez. "By helping Latin America to avoid a prolonged recession, the United States and other rich countries can aid their own recovery," she added.
The Latin American Shadow Financial Regulatory Committee, also known as the Comité Latinoamericano de Asuntos Financieros or CLAAF, comprises former top economic officials from the region, including finance ministers and heads of central banks.
The new statement (PDF, 17KB) is the nineteenth that the group has issued since it began meeting in 2000. Most of the statements have offered advice to Latin American economic policy makers.
In addition to Rojas-Suarez, the following CLAAF members participated in the meeting:
- Guillermo Calvo , Former Chief Economist, Inter-American Development Bank
- Alberto Carrasquilla, Former Minister of Finance, Colombia
- Pedro Carvalho de Mello, Former Commissioner of Comissão de Valores Mobiliários, Brazil
- Roque Fernandez, Former Minister of Finance, Argentina
- Pablo Guidotti, Former Vice-Minister of Finance, Argentina
- Ernesto Talvi, Former Chief Economist, Central Bank of Uruguay