Latin America—Taking the Helm

By Christine Lagarde

Managing Director of the International Monetary Fund

(Version in Español)

The eyes of the world are locked on Europe these days. This is understandable. After all, the storm in the euro area casts a long shadow over the entire global economy.

But the IMF has 187 members, and my job is to serve each and every one of them as effectively as possible. For this reason, I am making it a point to visit the different regions of the world—to discuss, to listen, to learn.

This week, I am visiting three important countries in Latin America—Brazil, Mexico, and Peru—a trip coinciding with the transfer of leadership in the Group of 20 to Mexico. Like so many in the region, these countries have done remarkably well over the past few years. They have harvested the fruits of strong fundamentals, sound policy frameworks, and prudent macroeconomic policies and are now enjoying sustained growth with reduced vulnerabilities—an enviable sweet spot.

It wasn’t always like this. In the old days, a disruption on the scale of the 2008-09 global financial crisis would have triggered major upheavals. Latin America tended to be one of the most exposed and vulnerable regions. Not any longer. In fact, the new Latin America can provide some  lessons to the advanced countries—such as saving for a rainy day, and making sure that risks in the banking system are under control.

Not immune

Of course, Latin America is not immune to any storms that come out of Europe. No one is. In our interconnected world, there is simply nowhere to hide. And so countries in the region should take all necessary precautions and make all needed preparations.

They should continue rebuilding buffers, including by maintaining prudent fiscal policies—this would create room for maneuver should the economic situation turn sour. But fiscal consolidation should not come at the expense of either needed social programs or productive investment in education or infrastructure. Better to explore the scope for mobilizing more revenues, where tax collections are low, or making spending more focused and efficient.

For its part, the IMF stands ready to support and assist countries with sound macroeconomic management that might be affected by the global crisis as bystanders.

The challenge for the region going forward is to sustain growth in a very volatile environment. Mexico will need to keep a keen eye on conditions in the United States and Europe, and implement structural reforms to unleash its growth potential. A key challenge for Brazil will be to increase domestic savings to reach higher and sustained growth. And Peru would benefit from continued reforms to achieve more inclusive growth while preserving its hard-won macroeconomic stability.

Social progress

But growth alone is just the first step. The region in general needs more socially inclusive growth, which means efforts to build fairer societies based on shared opportunities and social justice. Historically, inequality has been the bane of Latin America. Not only did this prevent large swaths of the population from sharing in the gains of growth, but it also contributed to social and political instability—which in turn hurt economic prospects.

Indeed, recent IMF research has shown that more equal societies are associated not only with greater economic stability, but with more sustainable growth over time. So growth and social inclusion are really two sides of the same coin.

We can see this playing out in real time in Latin America. One of the factors behind the region’s recent economic progress is its social progress. In countries like Brazil and Peru, indicators of poverty, inequality, and human development have improved dramatically over the past decade or so. Brazil’s Bolsa Familia and Mexico’s Oportunidades programs have enjoyed particular success in breaking the intergenerational transmission of poverty—so much so that they are now models for the rest of the world.

Next generation

One final point: as the global economy is transforming, Latin America is definitely on the rise. And the three countries I am visiting represent—each in their own way—the next generation of global economic leadership.

Mexico and Brazil are now major global economic engines. Mexico is about to take the helm of the Group of 20 and so is in a unique position to shape our collective economic destiny over the coming year. Brazil is a one of the world’s leading emerging markets, and is deeply integrated into the global economy. It will play a central role in the global economic debate, and will be instrumental in harnessing the global cooperation needed to address the urgent challenges of the day. And Peru is a new rising star—surely among the new wave of leading emerging markets.

I believe Latin America is now on a firm foundation, and can look ahead to lasting prosperity and stability that can lift the living standards of all.

From the vantage point of the IMF, I look forward to a new partnership with a new Latin America.

Also published in Spanish on Diálogo a Fondo, a blog that provides commentary and analysis on Latin America.

2017-04-15T14:15:53-05:00November 25, 2011|


  1. Per Kurowski November 25, 2011 at 1:03 pm

    Mme Lagarde, while on your way to Latin America, and with respect to “buffers”, why do you not take the opportunity to think a couple of minutes about the following. I promise you, it will not be a waste of your time.

    If you need a reference of me, ask for the records of the Board of the World Bank, where as an Executive Director, 2002-2004, I probably warned more about the impending crisis than any person then holding a similar position in any multilateral financial institution.

    Mme. Lagarde, if risk models, credit ratings and market intuitions were perfect, then a bank would really not need any capital at all, since all risk considerations would have been correctly priced, in the interest rates, in the amounts and in the duration of the loans. But, since risk-models, credit ratings and market intuitions are as we know often not perfect, the regulators should require the banks to hold some capital, to make sure that there is an adequate cushion provided by the shareholders who are profiting from the bank activity, before creditors and tax payers are called upon to help out. Agree?

    Unfortunately, the current generation of bank regulators, stupidly (sorry, there is no other way to say it) did not base their capital requirements for banks on the possibility of mistakes, but on precisely the same risk models, credit ratings and market intuitions being correct… requiring for instance minimal equity when the ex-ante officially perceived risk of default of a borrower seemed minimal.

    And precisely there, where the perceived risks of default seem minimal, is where the risks for a systemic bank crisis reside, since what is ex-ante perceived as “risky”, does not carry in its DNA the possibility of growing into a dangerously sized exposure.

    And so, instead of helping to cushion for the mistakes of the banks, the regulators, with their distortions, increased the probabilities of the mistakes being made, and their negative financial consequences.

    And that they did by, for instance, allowing banks to hold only 1.6 percent in capital when investing in triple-A rated securities or lending to sovereigns like Greece, which implied an authorized leverage of 62.5 to 1, while requiring the banks to hold 8 percent in capital when lending to job creating small businesses and entrepreneurs, an authorized leverage of 12.5 to 1. And that they did by allowing the banks to lend to the “infallible sovereigns” against no capital at all, not even the sky was the limit.

    And that is why we got those monstrous large bank exposures to what was ex-ante officially perceived as not risky, like triple-A rated securities and sovereigns, and that have ex-post exploded in the whole Western World.

    And that is why the “risky” job creating small businesses and entrepreneurs find access to bank lending so curtailed and expensive.

    And so please Mme. Lagarde, on route to my fellow Latin Americans, why don’t you tell them to take it easy with Basel I, II or III, since these regulators really do not know what they’re doing … and remind them also of the fact that risk-taking is indeed the oxygen of development, and that when push comes to shove, the best way of keeping banks safe, is keeping the economy healthy and moving forward.

    Thank you

  2. Cornelia Graen November 25, 2011 at 3:18 pm

    I wish you a good time in South America!

  3. GS RADJOU November 25, 2011 at 5:10 pm

    I think the Americas are not too bad in terms of development compared to Asia (Africa too).

    Think about Rio + 20 next year (June 2012). Take this event as a launch pad to boost development in a sustainable way.
    Planting trees, breathing fresh air, drinking clean water, having friendly banks, sustainble finance, health, happiness…

    Together, these things can come, if only we are willing and motivated. Turning to the new year 2012, let’s start to initiate new things for tomorrow for a sustainable world.

  4. Javed Mir November 27, 2011 at 7:26 am

    How about visiting a South Asian country like Pakistan which needs much more attention from IMF experts? Our policymakers need more instruction on fiscal consolidation as explained by Madame Christine Lagarde in her article. Probably they are lacking in having a comprehensive understanding of a balanced approach towards an appropriate mix of macroeconomic, monetary, and macro prudential policies.

    A personal visit of the worthy MD will make a positive impact. It appears that our policymakers do need to develop a deeper understanding of the socially inclusive growth and the importance of savings for the future.

  5. gsradjouGS RAJOU November 28, 2011 at 6:59 am

    I totally agree. Latina America has experience of development. Emerging countries are linked to the general trend of world development because of the world trade nexus (exports) — but at the same we can see regularly in media that the green economy is at stake. For example, opposing the building of a dam or clear cut of a forest for highways, health, education. Asia needs to have open eyes, and the IMF should participate too.

  6. Javed Mir November 28, 2011 at 12:56 pm

    For the kind attention of Mr.G.S. Radjou
    Thank you for showing soft attitude towards Asia. The same affection is expected from IMF.

    Kind regards

    Javed Mir

  7. Amir Dewani November 29, 2011 at 4:21 am

    I think the Chief of the IMF is still trying to look at the things in Latin America with rose colored glasses. A small percentage of the rich getting super rich in those three countries can’t create a positive impact on the quality of life of their population at large. Drug barons,aristocrats, and feudal lords don’t make a sound economy. In these countries the governments may be getting richer but the people continue remaining poor. They need to invest more on human resource development.They lack social safety nets, more employment opportunities and investment in infrastructure development, which is not happening even now.
    While visiting those countries please get in touch to know how many new schools/colleges have been opened, how many new hospitals they have established and ask why so many people want to take recourse to illegal immigration to America, Canada, and Australia. So, all that glitters is not gold. The IMF will utterly fail unless we realistically take a look at some of the African and third world countries where energy, food, and commodities plus health/housing/education are costly, in short supply and beyond the reach of the poor.The latest examples are the recent flood disasters in Pakistan and Thailand, where the poor are languishing and their children are crying. Please do something for disaster management and poverty eradication in that part of the world while you are busy pouring billions of IMF funds in bailing out the ‘bad-guys’ in the eurozone.

  8. Arne Krueger November 29, 2011 at 1:23 pm

    But that’s their job, isnt it? Governments have no relevance, they distract from the truth, they impoverage, they steal, they murder, they fool the ordinary man, they game the legal and moral system with their created entities underneath. Remember, a free market is based on trust. If there is no trust anymore, the system fails. Time to let the IMF fail too.

  9. Per Kurowski November 29, 2011 at 9:25 pm

    The first part Mr. Krueger is quite an unproductive line of thought that, though it might help to release some of your tensions, leads to nowhere. The IMF needs to respond to the governments, and does not elect them, responsible for that are the citizens, and unfortunately, quite often, if perhaps not always, the citizens get the government they deserve. Are you suggesting the IMF should respond to you, like I would sure like it to respond to me? But then, what are we to do if you and I want the IMF to respond differently?

    Now on that a free market is based on trust on that I fully agree. One big problem is that since the market has not been given the truth of what has happened, what caused the crisis, and IMF is engaged, perhaps unwittingly, in some cover up activity in order not to embarrass close bank regulating friends and colleagues, the market does not trust anyone.

    Look for instance to Europe, it might go up in flame just because many Europeans are led to believe that all what is happening was really Europe´s and the eurozone´s fault. As we know, it was clearly the bank regulating butlers who did Europe in. Occupy Basel!

  10. Rachel Kasumba December 10, 2011 at 8:29 am

    Christine, about time! We are living and operating in such a small world that it has become imperative for global leaders to focus on the big picture more than ever so, if they wish to make the necessary changes to move us all forward.

    It is ironical but also timely that Mexico takes the helm of the G-20! Most times, that is one of the best ways to learn and adjust. Given the high and still risky immigration maneuvers, and dependence on Canada and especially U.S.A., where millions of Latin Americans (mostly Mexicans), still risk their necks to eck out a living, the opportunity to step back and review what is actually happening on the ground, will go a long way in addressing some of the challenges encountered by ordinary folks.

  11. […] good news is that many countries in the region are entering 2012 from a position of strength. These countries have managed their economies and markets skillfully since the 2008 crisis. In […]

  12. […] good news is that many countries in the region are entering 2012 from a position of strength. These countries have managed their economies and markets skillfully since the 2008 crisis. In […]

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