U.S. Monetary Policy and Its Effects on Latin America

Alejandro WernerBy Alejandro Werner

(Version in Español and Português)

Some basic realities seem to be getting lost in the debate over the Fed’s “exit” from unconventional monetary policy and its impact on Latin America.

First, the still-loose stance makes sense. U.S. inflation is too low, the output gap too large, and the labor market too weak. And even during tapering, the Fed’s stance will remain highly loose. The 10-year Treasury rate, adjusted for core inflation, is about 230 basis points below its 30-year average and the inflation-adjusted Fed funds rate is 320 basis points below. These rates are likely to remain below their 30-year average for at least the next two to three years.

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Less Red Tape, More Credit: How the Private Sector Can Flourish in the Middle East

Min ZhuBy Min Zhu

(Versions in عربي)

To almost all economists it is clear that the private sector is critically important in creating jobs and achieving strong growth. The public sector is already overburdened in most countries. But what is not clear is how to support the private sector for it to play this important role.

To shed some light on how to facilitate strong job creation and growth by the private sector in the Middle East and North Africa, we held a conference in Riyadh, Saudi Arabia, in December 2013, jointly with the Council of Saudi Chambers and the International Finance Corporation.

As the date of the conference approached, registrations kept increasing, and by the time we opened the conference, the registration numbers had skyrocketed to more than 800! I can think of no better sign of the importance of this topic for the people in this region.

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Unleashing Brazil’s Growth

By Martin Kaufman and Mercedes García-Escribano

(Version in Español and Português)

Since the early 2000s, Brazil’s economy has grown at a robust clip, with growth in 2010 reaching 7.5 percent—its strongest in a quarter of a century. A key pillar of its hard-won economic success has been sound economic policies and the adoption of far-reaching social programs, which resulted in a substantial decline in poverty.

In the last couple of years Brazil’s growth slowed down. Although other emerging market economies experienced a similar slowdown, the growth outturns in Brazil were particularly disappointing. And the measures taken to stimulate the economy did not produce a sustained recovery. This is because unleashing sustained growth in Brazil requires measures geared not at stimulating domestic demand but at changing the composition of demand towards investment and at increasing productivity.

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Building Bridges To The Future In The Gulf

Christine LagardeBy Christine Lagarde

(Versions in عربي)

Two days ago, I had the pleasure of visiting Kuwait, a member country of the Gulf Cooperation Council (GCC). It was a whirlwind visit, with many places to see and people to meet, in a thriving corner of the global economy. Kuwait has extended to me its emblematic tradition of hospitality— a testament to its ancient and noble culture. I was awed by the magnificent artifacts of the al-Sabah collection, which I saw in the beautifully restored Dar al-Athar al-Islamiyyah cultural center.

Back to economics. The member countries of the council—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—have some of world’s highest living standards. The region has also become a major destination for foreign workers and a source of remittances for their families back home. And it is a financial center and a hub for international trade and business services.

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Cloudy With a Chance of Rain—Outlook for Latin America and the Caribbean

Alejandro WernerBy Alejandro Werner

(Version in Español & Português)

For many Latin American and Caribbean economies, clouds have appeared on the economic horizon. As the global growth momentum shifts from the emerging to the advanced economies, the strength of domestic economic policies will be crucial for how countries can cope with the combination of lower commodity prices and tighter external financing conditions.

Lower commodity prices have already started to affect the region’s commodity exporters. Even though prices remain high by historical standards, countries can no longer count on the tailwind from ever-improving terms of trade, which had propelled economic activity over the past decade.

Meanwhile, longer-term U.S. interest rates have started to rise, with knock-on effects for emerging markets. Across all of the financially integrated economies of Latin America, bond yields have increased, equity prices have fallen, and currencies have depreciated since May, when the U.S. Fed first mentioned the possibility of tapering its bond purchases later this year. Financial conditions remain fairly benign for now, but the strong tailwind from ultra-low external financing costs may also be gone for good.

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Africa: Second Fastest-Growing Region in the World

Antoinette SayehBy Antoinette M. Sayeh 

Sub-Saharan Africa is the second fastest-growing region of the world today, trailing only developing Asia.  This is remarkable compared to the current complicated state of the global economy, with Europe still struggling and the United States slowly on the mend.

In 2012, Sub-Saharan Africa maintained solid growth, with output growth at 5 percent on average. The factors that have supported the region through the Great Recession—strong investment, favorable commodity prices, and generally prudent macroeconomic management—continued to be at play.

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On A Roll: Sustaining Strong Growth in Latin America

By Sebastián Sosa, Evridiki Tsounta, and Hye Sun Kim

(Versions in Español and Português)

Latin America has enjoyed strong growth during the last decade, with annual growth averaging 4½ percent compared with 2¾ in the 1980s and 1990s. What is behind this remarkable economic performance and will this growth be sustainable in the years ahead?

Our recent study (see also our working paper) looks at the supply-side drivers of growth for a large group of Latin American countries, to identify what’s behind the recent strong output performance.

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Time for Change—Shifting Energy Spending in Africa

Antoinette SayehBy Antoinette M. Sayeh

(Versions in 中文, Français, 日本語, Русский, and Español)

For many years, countries in sub-Saharan Africa have spent large amounts on subsidizing fuel and electricity. For both sources of energy combined, this averages around 3-4 percent of GDP. That’s about the same magnitude as public spending on health in many countries. Now we need to ask some important questions. Is this a good use of scarce resources?  Where does this money go? Is it helping to support the livelihood of the poorest in African economies?  Is it helping to boost the country's competitiveness? The answers are largely, no. I believe this money can and must be used better to invest in the critical physical and social infrastructure required to sustain growth in sub-Saharan Africa. A recent IMF paper backs this up.

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Support the People, Not Energy in the Middle East and North Africa

Masood AhmedBy Masood Ahmed

(Versions in عربي, 中文, Français, 日本語Русский, and Español)

Of all the regions in the world, the Middle East and North Africa region stands out as the one that relies the most on generalized energy subsidies. In energy-rich countries, governments provide subsidies to their populations as a way of sharing the natural resource wealth. In the region’s energy-importing countries, governments use subsidies to offer people some relief from high commodity prices, especially since social safety nets are often weak.

The question is: does this well-intended social protection policy represent the most efficient way to channel aid to the most vulnerable? The answer is no!

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