The impact of the global financial crisis on Latin America

This essay argues that while the complete lack of liquidity characterizing the most severe phase of the financial crisis unleashed in September 2008 is now a thing of the past, lending and production activity in the industrialized countries are both contracting rapidly and the financial system is still undercapitalized. Of all the external channels through which the crisis has been transmitted to Latin America, the drop in remittances is the least important. The most widespread negative effects will come from the decline in the volume of international trade and the sharp deterioration in the terms of trade for commodities. In addition, a period of very restricted external private-sector financing lies ahead. The region’s economies have entered this crisis in a stronger position than in the past, mainly because public debt is lower and international reserves are large, but this will only partially mitigate the repercussions of the worst global economic crisis since the Great Depression of the 1930s.