Latin America 2040 — Breaking Away from Complacency: An Agenda for Resurgence

Latin America

Trade and Trade Reform in Latin America and the Caribbean in the 1990s

For many decades, trade policy in Latin America and the Caribbean (LAC) had involved very high levels of protection and of government intervention. The active pursuit of import substitution policies reduced the openness and efficiency of the regions economies. It also increased their external vulnerability, as they became dependent on a narrow range of export products, with little ability to absorb external shocks. This state of affairs changed markedly in the 1980s and 1990s, when most countries of the region moved to liberalize their trade regime. Trade policy reform in LAC in the 1990s has been both widespread and extensive, and the region now shows a fairly open trade regime. Such a sharp policy reversal clearly had an impact on trade flows, and those effectively underwent significant changes in the past decade. They also coincided with a number of other important changes in the LAC economies, including major structural reforms (with the privatization of many public enterprises and the deregulation of most domestic markets), a surge in investment (itself partly linked to the lower relative prices for capital goods resulting from higher openness), higher capital flows, and a more careful pursuit of macroeconomic policy aimed at preserving financial stability to foster sustainable growth. This paper seeks to assess the magnitude of the changes in trade flows in the past decade in the context of changes in the underlying policy framework. Section I summarizes the main trends observed in LAC trade over the 1990-97 period. Section II summarizes trade liberalization in the region since the mid-1980s. Section III attempts to assess how trade liberalization has affected the volume and structure of trade flows. Section IV concludes with some policy recommendations in the area of trade, particularly in the context of the present global financial crisis.

EXTERNAL DEBT SUSTAINABILITY: GUIDELINES FOR LOW- AND MIDDLE-INCOME COUNTRIES

The high debt burden continues to hamper the growth prospects of many developing countries and is increasing their vulnerability. Bilateral official aid has declined sharply and financing by multilateral organizations is low. Developing countries have experienced net negative resource transfers, reducing their ability to invest. Finally, growth in these countries has lagged worldwide growth, particularly in Latin America and Africa. Poorer countries depend heavily on support of official institutions. Aid to poorer countries has diminished and in many cases their debt burden appears to be unsustainable. Countries with access to market borrowing on the other hand, have been affected by high volatility in international capital markets, while having fewer policy options than in the past to absorb shocks. Debt sustainability assessments normally focus on the behaviour of the external debt to GDP ratio, which depends on the behavior of debt, interest rates, the behaviour of GDP, and the movements in the real exchange rate. In crisis situations, countries can have recourse to debt restructuring or reduction, but such action cannot be a regular means of dealing with external financing problems, as it affects access to new financing. The process is defective and new solutions are required. There is good evidence on indicators and predictors of external debt crises. There are key macroeconomic indicators which, in general have a good capacity to predict debt problems, but they work with variable lags, and are not reliable in all cases. Thus, a good tracking system needs to be based on several of these indicators. The impact of sovereign credit ratings on access of developing countries to capital markets and on the terms of borrowing is significant. Worsening ratings can have adverse consequences on debt sustainability. To avoid this problem, credit agencies should expand their use of indicators, and take a broader view of developments than at present, including with regard to programmes that countries are undertaking with the support of the international financial institutions.

A Macroprudential Framework for the Early Detection of Banking Problems in Emerging Economies

This paper develops an analytical framework that can be used to anticipate problems in the banking system and enable supervisors to take mitigating actions at an early stage. This paper has two components. First, it develops an early warning indicator that is intended to capture a number of the systemic risks that can affect the banking system as a whole. Second, it develops a methodology to detect problems at the individual bank level in an effort to identify those firms with financial vulnerabilities. For the systemic component of our methodology, the final output is a banking system vulnerability index to facilitate bank monitoring tasks, as well as some disaggregated subcomponents that are intended to display the relative importance of the different risks (e.g., liquidity, currency, and interest rate risks). Regarding the assessment of the soundness of individual institutions, the paper uses a methodology based on cluster analysis that incorporates the results of the previous framework. There is an empirical application of the systemic component that is based on the 2001 Argentine banking crisis. It shows that the proposed vulnerability indicator started to increase steadily beginning in 1999, following 2 years in which it had remained flat, and it finally peaked in mid-2001, which was just before the onset of the crisis.Banks; stress testing; banking crises; banking regulation; banking supervision; early warning systems

América Latina y el Caribe en la coyuntura económica internacional: ¿cómo sobrevivirá la región?

Este ARI revisa los antecedentes a la crisis actual en Latinoamérica y el Caribe, en el contexto más general de la crisis global. La crisis financiera en la que el mundo se ha sumergido es, sin lugar a dudas, la más grave de los últimos 50 años y quizá de una intensidad equivalente a la depresión del periodo 1929-1933. Aunque esta comparación es una exageración difícilmente avalada por los hechos, el daño causado a la economía mundial es de enorme magnitud. La compleja interacción entre la economía financiera y la economía real como consecuencia de la turbulencia actual ya ha comenzado a tener consecuencias graves en las economías de América Latina y el Caribe, y las perspectivas de una rápida recuperación están cada vez más alejadas. Los mercados financieros se han tranquilizado, pero la situación de la economía real se están agravando día a día. Hasta hace poco la mayoría de los gobiernos latinoamericanos habían estado bajo la falsa pero conveniente impresión que en las circunstancias existentes no corrían peligro, y podían absorber fuertes golpes externos. Esta impresión se veía convalidada por precios de las materias primas que aumentaban a un ritmo febril, y con la percepción de que esta tendencia era sostenible. Así, fueron sorprendidos por el colapso de los precios de las materias primas y la violenta contracción de los mercados financieros. Ahora están comenzando a responder a los desafíos provocados por un ambiente externo que se deteriora rápidamente, y con la certeza que la recuperación llevará bastante tiempo. Este ARI analiza los antecedentes a la crisis actual en Latinoamérica y el Caribe, en el contexto más general de la crisis global. Con ese fin se discuten las circunstancias específicas de América Latina en el último decenio y lo que se puede esperar en el próximo año para la región, con expectativas de recesión y dificultades financieras que pueden persistir por largo tiempo

Detection of chlorides and moisture in concrete structures with ground penetrating radar

Corrosion of re-bar within reinforced concrete is a major problem in countries where salt is applied to roads for de-icing. Concrete structures are periodically inspected in order to monitor possible damage caused by chloride induced corrosion of the reinforcement. However, bridge decks covered with asphalt pavements are not accessible for visual inspection and probing is limited. As a result, the planning of rehabilitation of bridge decks is usually based on a small number of probes. Consequently, the condition of bridge decks can only be assessed with low certainty. Therefore, a method enabling to study the conditions of concrete bridge decks covered by asphalt pavements is desirable. This paper describes a laboratory experiment aiming at the investigation of the effects of moisture and chloride content on the amplitudes of radar signals. It can be shown that both, moisture and chloride content have a measurable influence on signal amplitudes. This may enable the future use of ground penetrating radar for the planning of probing campaigns or for the extrapolation of results obtained at single probing point

Financial Crisis - The Liability of Banking Institutions

This article outlines what roles the banks have played in the subprime crisis and whether liability for damages sustained may be incurred. Apart from the conventional responsibility of banks towards their clients within the framework of wealth management or advisory services, the particular issue of possible liability for the creation and placement of investment products on the market is explored. Many questions which remain unanswered or are barely discussed are raised in the article. Independently of prospectus liability arising under specific legislative provision, is there a general tortious responsibility for providing incorrect information in connection with the issuing of securities? Is strict liability for the creation of dangerous products a realistic alternative - or supplement - to liability based on fault? Can individuals or institutions who were only indirectly involved as secondary victims claim compensation? In addition to the grounds of liability, other delicate legal questions are addressed, particularly relating to causation. For instance, it may not be clear whether an error in information or rather general market euphoria was the decisive factor in the investment decision. If, moreover, one wanted to extend liability to a large number of persons involved, the causal contributions of the individual banks may barely be determinable and could well be minimal. This leads to the question of whether procedural law is capable of dealing with such cases of los

Shrinkage and restrained shrinkage cracking of self-compacting concrete compared to conventionally vibrated concrete

Self-compacting concrete (SCC) used in Switzerland contains about 80l/m3 more volume of paste than conventionally vibrated concrete (CVC). Consequently, there are some systematic differences in the properties of the hardened concrete. Normally, shrinkage of SCC is higher than shrinkage of CVC. Therefore, risk of cracking in case of restrained deformations can be increased for SCC. In this study shrinkage of thirteen different SCC mixtures using volume of paste, water content, type of binder, grain size distribution or content of shrinkage reducing admixture (SRA) as variables was compared with shrinkage of three different CVC mixtures with constant volume of paste but variable w/b. Furthermore, the risk of cracking of the different SCC- and CVC-mixtures in restrained conditions was studied under constant and varying curing conditions. The results show that shrinkage is mainly depending on volume of paste. Due to the higher volume of paste, SCC displayed higher shrinkage than CVC. Adding an SRA was the only measure to reduce shrinkage of SCC to values of CVC. Restrained shrinkage cracking is depending on shrinkage rate, mechanical properties and drying velocity. For slow shrinkage stress development, cracking risk of SCC can be lower compared to CVC despite the higher shrinkage rat