Wednesday, December 24, 2014
Latin America under threat?
Many of us have worried about this moment when commodity prices would decrease and the Chinese economy slow down. Eduardo Portes has a great article at the NYTimes explaining the negative consequences that are already materialising. It is clear that at the macro-level the region will have to readjust, yet many questions still remain: a. What will happen with exchange rates? And will non-commodity exports react to any depreciation of the exchange rate? This may depend on what happens with capital inflows, which are decreasing in several countries. b. How should countries react to these changes? Do they have space now to do new production policies? Which countries need to adjust their fiscal policy to the new conditions and which countries have a more diversified tax structure? c. One thing that I don't buy is that countries cannot do any reforms in social policy. Quite the contrary, reforms are even more important now that reforms are more scarce and there are many regulations that can be introduced: restrictions on the private sector (what Juliana Martinez Franzoni and I call the "outside option"), improvements in how the services are delivered, etc.