Responses to the international financial crisis in Latin America and the Caribbean.

• Author: Moreno, Luis Alberto

LATIN AMERICA AND THE Caribbean are facing a difficult situation. The region, which has enjoyed favorable macroeconomic performance and sustained growth during the last few years, must now confront the rigors of one of the most severe international crises in history. This crisis, exogenous to Latin America and the Caribbean, is especially serious, both because of its scale and because of the speed with which it has destroyed wealth.

At first, the emerging economies and developing countries may have appeared to be somewhat shielded from this crisis that originated in the most advanced countries. Likewise, the fact that Latin America and the Caribbean were in a better position as compared to the past has been a reason for optimism in the face of this new difficulty. Events have shown, however, that the region is not immune to the effects of this crisis, even though our relatively better position is a point in our favor in terms of counteracting its effects.

The spread of the crisis to the region has been varied, occurring through different but interconnected channels. The decline in growth at the global level, reflected in the profound contraction of international trade, has caused a sharp drop in the prices of raw materials that are a key source of income for many of our countries. The crisis has also significantly restricted access to financing, limiting the room that our governments have to maneuver in response to the crisis and forcing them to postpone key investment projects for development in areas as basic as infrastructure. On top of all of this, decreased remittances have dealt another heavy blow to our countries, eroding family income, especially that of the poorest and most vulnerable families.

The impact of these factors on growth, employment, wages, and social development indicators in our countries is far from uniform. Some of our economies are especially vulnerable and, though most countries are better prepared now than before, not all have the same room to maneuver to respond to the crisis.

Countries have differing levels of vulnerability for various reasons. For one, productive structures are very different from country to country and have a direct effect on a country's ability to adapt to changes in international demand. The economies with the most diversified economic sectors are in a stronger position than those whose fate depends on the ups and downs of few products. Likewise, the different macroeconomic situations of the...