The impact of the global financial crisis on Latin America

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The impact of the global financial crisis on Latin America

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This essay argues that while the complete lack of liquiditycharacterizing the most severe phase of the financial crisis unleashedin September 2008 is now a thing of the past, lending and productionactivity in the industrialized countries are both contracting rapidly andthe financial system is still undercapitalized. Of all the external channelsthrough which the crisis has been transmitted to Latin America, the dropin remittances is the least important. The most widespread negative effectswill come from the decline in the volume of international trade and thesharp deterioration in the terms of trade for commodities. In addition, aperiod of very restricted external private-sector financing lies ahead. Theregion's economies have entered this crisis in a stronger position than inthe past, mainly because public debt is lower and international reservesare large, but this will only partially mitigate the repercussions of the worstglobal economic crisis since the Great Depression of the 1930s.

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