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She is also the chair of the Latin American Committee on Macroeconomic and Financial Issues (CLAAF) and Adjunct Professor at the School of International and Public Affairs at Columbia University, New York. From March 1998 to October 2000, she served as managing director and chief economist for Latin America at Deutsche Bank. Before joining Deutsche Bank, Rojas-Suarez was the principal advisor in the Office of Chief Economist at the Inter-American Development Bank. Between 1984 and 1994 she held various positions at the International Monetary Fund, most recently as deputy chief of the Capital Markets and Financial Studies Division of the Research Department. She has been a visiting fellow at the Institute for International Economics, a visiting advisor at the Bank for International Settlements and at the Central Bank of Spain. She has also served as a professor at Anahuac University in Mexico and advisor for PEMEX, Mexico’s National Petroleum Company. Rojas-Suarez has also testified before a Joint Committee of the U.S. Senate on the issue of dollarization in Latin America.
She has published widely in the areas of macroeconomic policy, international economics and financial markets in a large number of academic and other journals including Journal of International Economics, Journal of International Money and Finance, Journal of Development Economics, Journal of Contemporary Economic Policy, International Monetary Fund Staff Papers. She has also published or being cited in prestigious newspapers such as the Financial Times, the Wall Street Journal and the Washington Post. She is also regularly interviewed by CNN en Español.
Michael P. Dooley & Donald J. Mathieson & Liliana Rojas-Suarez, 1997. "Capital Mobility and Exchange Market Intervention in Developing Countries" NBER Working Papers 6247, National Bureau of Economic Research, Inc.
Rojas-Suarez, L & Weisbrod, S-R, 1997. "Financial Markets and the Behavior of Private Savings in Latin America" Working Papers 340, Inter-American Development Bank, Research Department.
McNelis, P.D. & Rojas-Suarez, L., 1996. "Exchange rate depreciation, Dollarization and Uncertainty: A Comparison of Bolivia and Peru" Working Papers 325, Inter-American Development Bank, Research Department.
Rojas-Suarez, L. & Weisbrod, S.R., 1996. "Banking crises in Latin America: Experience and Issues" Working Papers 321, Inter-American Development Bank, Research Department.
Rojas-Suarez, L. & Weisbrod, S.R., 1996. "Building Stability in Latin American Financial Markets" Working Papers 320, Inter-American Development Bank, Research Department.
Rojas-Suarez, L. & Weisbrod, S.R., 1996. "Managing Banking Crises in Latin America: The Di's and Don'ts of Successful Bank Restructuring Programs" Working Papers 319, Inter-American Development Bank, Research Department.
Rojas-Suarez, L. & Weisbrod, S., 1994. "Achieving Stability in Latin American Financial Markets in the Presence of Volatile Capital Flows" Working Papers 304, Inter-American Development Bank, Research Department.
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?
Also, should central banks blindly pursue Inflation Targeting, or should Financial Stability (preventing bubbles associated with a capital-inflow episode, for example) also be a central bank objective? How can these two disparate objectives be handled? Should economies in the region coordinate their exchange rate policies, or it is alright to go solo and risk being accused of implementing beggar-thy-neighbor policies?
These are a few of the questions on which the Latin American Shadow Financial Regulatory Committee will focus in its next meeting. Their statement will be shared publicly at this CGD event.
Access to financial services is a key factor in economic development and social welfare. Financial services allow citizens to make use of savings and credit, which are important channels for spurring the accumulation of capital, household welfare and business productivity. However, the promotion of financial services has not always been a priority in developing countries, including several in Latin America.
On February 21, the Latin America Initiative at Brookings will host a discussion on the role that financial inclusion plays in the economic development process in Latin America. The discussion will be based on data from a report by the Corporación Andina de Fomento (CAF), the Andean Development Bank. The report (download PDF here) analyzes access to financial services based on a survey carried out in a sample of 17 cities in Latin America on the obstacles to financial inclusion. Leading experts will discuss the findings of the report, analyze the region’s financial systems and set forth recommendations for governments and policymakers. Brookings Senior Fellow Kevin Casas-Zamora, interim director of the Latin America Initiative, will moderate the discussion.
After the program, panelists will take audience questions.
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Ver el documento de Recomendaciones de Política de CLAAF
WASHINGTON, D.C.(June 7, 2011)—Latin American economies face substantial risks of credit and asset bubbles due to a flood of capital fleeing economic and financial uncertainties in the United States and Europe and should take steps to slow the growth of credit, a group of the region’s top economists and financial experts said in a report released today.
“Rapid increases in real estate and equity prices are raising the concern of the development of asset bubbles in several Latin American economies,” warns the policy statement from the Latin American Shadow Financial Regulatory Committee (CLAFF). “Central banks should consider adopting explicit credit growth caps,” the statement said.
The credit growth caps, a ceiling on bank’s assets or outstanding loans, implemented at the bank level, is one of several measures that the group urged financial policy makers in the region to consider. The recommendation is surprising because it involves setting quantitative limits rather than using price signals.
“In normal times we would not consider such a measure,” said Liliana Rojas-Suarez, a senior fellow at the Center for Global Development and the president of CLAAF.
“But these are not normal times. Uncertainty about debt overhangs and the direction of economic and financial policy in the United States and Europe is likely to persist, causing a flood of capital to Latin America, leading to unsustainable increases in asset prices and credit,” she said. “We need measures to prevent these bubbles before it’s too late.”
The policy statement, Are Uncertainties in the North Seeding a New Crisis in the South? Options for Latin America, warns that economic and financial uncertainties in developed countries are causing problems for Latin America. It proposes a range of policies for addressing the problem.
The Committee was formed in Rio de Janeiro in July of 2000 by a group of prestigious Latin-American economists with strong expertise in financial markets and other macroeconomic issues. Since then, the Committee’s purpose has been to explore the implications of different events affecting the region and to develop independent policy recommendations that can help shape the response of the public and private sectors towards the solution of these problems.
The launch event Tuesday morning included high level panelists who discussed the risks, and explained in detail what the policy recommendations would mean for Latin America. The event was hosted by the Center for Global Development, an influential and independent Washington based think tank. The Center supports CLAAF during its meeting on an annual basis. The current president of CLAAF, Liliana Rojas-Suarez, is a senior fellow at CGD.
Notes to Editors
The Latin American Shadow Financial Regulatory Committee (CLAAF) consists of former senior economic policy makers from across the region who hold a wide variety of views. CLAAF alternates between meeting in Washington, and in Latin America on a twice-yearly basis. At each meeting, the group releases a policy statement on a specific issue affecting Latin America’s financial markets with the goal of influencing the actions taken by the policymakers in the region.
The Center for Global Development (CGD) is an independent, non-profit policy research organization dedicated to reducing global poverty and inequality and to making globalization work for the poor. Through a combination of research and strategic outreach, the Center engages policymakers and the public to influence the policies of the United States, other rich countries, and such institutions as the World Bank, the IMF, and the World Trade Organization to improve the economic and social development prospects in poor countries.
Event materials, including video footage of the event, photos, and a copy of the statement will be available on the Center for Global Development website at http://www.cgdev.org.
Last week the Latin American Shadow Financial Regulatory Committee (CLAAF), chaired by CGD senior fellow Liliana Rojas-Suarez, considered the impact of the European debt crisis on Latin America. The committee, which includes former top finance officials from the region, then released a statement concerning Latin America's outlook in light of the emerging crisis, emphasizing the region's challenges and opportunities and offering concrete policy recommendations. Rojas-Suarez explains:
Q: What's the biggest financial challenge facing the region today?
A: Large capital inflows, resulting from both external and internal factors. On the external side, the sluggish U.S. economy and the need for public and private liquidity support in Europe are pressing central banks to keep policy interest rates low. But in Latin America, the prospects for growth are quite positive, forecasted at 4 percent for 2010. The region's central banks are therefore increasing interest rates to keep inflation in check. All of this is attracting international investors to the region, who find the risk-return profile to be quite attractive. For the first time since I can remember, country-risk spreads of a number of Latin American countries are below those of a number of developed countries. Since I don't expect any significant policy change soon, I believe that the region will face this challenge at least in the short and medium terms.
Q: This seems like a good problem to have!
A: It's certainly better than capital flight! But large capital inflows are risky if they are not managed well. Two major challenges stand out: First and foremost, they significantly complicate monetary policy for central banks. They might cause local currencies to appreciate excessively, which could be destabilizing, especially if the inflows are temporary and subject to reversal should conditions change. Central banks have been dealing with this through sterilized intervention in foreign exchange markets, which basically means purchasing foreign currency (to contain the appreciation of the local currency) and then issuing bonds to prevent an expansion of monetary aggregates and, therefore, inflation. The problem, however, is that sterilized intervention increases interest rates, which in turn attract capital inflows even further.
Second, most Latin American countries have a number of economic distortions and fiscal budgetary processes that are not as efficient as they could be, leading to some wasteful investments. If funds are inappropriately allocated and the capital inflows suddenly reverse, then Latin American governments, financial institutions, and corporations might find themselves facing severe difficulties serving debt obligations.
Q: You have written that Latin America's financial sector is among the most open in the developing world, so committee members must have a lot of experience dealing with this type of challenge. What does the committee recommend policymakers in the region do now?
A: Latin America needs to carefully monitor the degree of debt in the private and public sectors and implement policies to contain an excessive expansion of banking credit. I should note upfront, though, that the region is in a much better position to deal with the challenges now than in previous episodes of large capital inflows. Strong fiscal positions, low debt-to-GDP ratios, and increased flexibility in managing exchange rates create the foundation for financial stability even with highly volatile international capital markets. Most importantly, central banks have accumulated large foreign exchange reserves. Therefore, this time around the Committee believes that the region is more likely now to deal successfully with large capital inflows than before, when major macroeconomic and financial vulnerabilities led to severe crisis when the inflows suddenly stopped.
Some of the most important recommendations are to (a) implement (or increase when the policy exists) liquidity requirements on domestic and foreign short-term banking-sector liabilities; (b) adopt counter-cyclical loan-loss provisions, which basically means banks setting aside resources in good times to deal with bad loans in difficult times; and (c) adopt multi-period, cyclically adjusted budgetary frameworks to ensure that governments save part of the increased fiscal revenues during expansionary periods. Some countries have begun taking on such changes, but there's a way to go still.
Q: How will we know if the region is managing this challenge well? What warning signs will you be watching for to see if problems are emerging?
A: Bad signs would be exploding levels of credit extended by local financial systems and accelerated increases in other assets, including housing prices. I'd also be worried about decreasing ratios of banks' provisioning to total loans and about increasing debt-to-GDP ratios in both the public and private sectors Basically, if any of the conditions that I mentioned before are not met, then that will be cause for concern.
Q: Is the prospect of prolonged large capital inflows a unique phenomenon in Latin America?
A: No, they're also in Asia. Both regions weathered the storm of the 2008–09 financial crisis and recovered much more quickly than other developing regions and many advanced economies. And both are now faced with the mixed blessing of large capital inflows. The issue now is how they will respond to the new challenge. I believe that both regions will be successful. However, I also believe that Asia is more likely than Latin America to implement capital controls to contain inflows. I think that Latin America will make more use of macro-prudential regulations as a mechanism to limit the impact of capital inflows in the local financial systems.
Q: The committee focused on the implications of the debt crisis in Europe. Does this mean you are confident that the recovery in the United States will be sustained?
A: "Confidence" is a tricky word under current circumstances. I give a relative high probability that the United States will maintain a slow and fragile recovery for a prolonged period of time. However, I cannot discard the risk of a double dip recession. A number of events can lead to this. If, for example, intensified problems in Europe lead global demand to decrease significantly or if international financial turbulence aggravates drastically, remaining vulnerabilities in the United States might renew the deterioration in consumers and investors' perceptions about the economy. Under those conditions, recessionary pressures in the United States are a clear risk.
Q: Your scenario also assumed that Europe would manage the current crisis without allowing a financial collapse: no country defaults and no Lehman-style collapse of a major financial institution. Are you confident of that?
A: I think so, but as I mentioned earlier, I prefer to speak of probabilities. I give a larger probability to having no major financial crash associated with events in Europe. My reasoning is twofold: First, and most important, I perceive a strong commitment by the European Central Bank, European governments, and multilateral organizations to prevent a collapse. The €700 billion package arranged by the IMF and EU in April to help contain the crisis is evidence of this commitment. Second, recent fears have been based on emerging problems in the financial system in Spain (a much larger system than Greece!), which derives a significant proportion of revenues from investment in Latin America. Those investments are very profitable, so in sharp contrast with the past, Latin America is now a source of support for the global financial system. Amazing, right?
Q: This year the committee is observing its 10th anniversary, and you have been the committee chair throughout. During this period the committee has issued 22 statements on financial challenges and opportunities for the region. What have you learned?
A: First, Latin America is capable of breaking its reputation of a crisis-prone region. Second, there is a long way to go. Ten years ago, Latin America was in overcoming the exchange rate crisis in Brazil and about to enter the Argentinean crisis of 2001. By 2002, no analyst could have predicted that Latin America could stand strong and resilient through something as major as the 2008–09 global financial crisis. While the region has met with flying colors some of the most pressing difficulties, the remaining challenges are many and hard to deal with. The bottom line, however, is that the resilience of the region during the ongoing global turbulence is giving Latin America a renewed sense of hope.