Fiscal Impact of Lower Oil Prices on Latin America and the Caribbean

By Robert Rennhack and Fabián Valencia

(Versions in Español and Português)

The plunge in world oil prices—from $105 to about $50 per barrel since mid-2014—has been a boon for oil-importing countries, while presenting challenges for oil exporters.

In general, oil importers will enjoy faster growth, lower inflation, and stronger external positions, and most will not encounter any significant fiscal pressures. Oil exporters will tend to face slower growth and weaker external current account balances and some will run into fiscal pressures, since many rely on direct oil-related revenues. One country that stands out is Venezuela, which had been experiencing severe economic imbalances before oil prices began to fall and now finds itself in an even more precarious position.

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A Big Step Forward for Bolstering Financial Inclusion

By David Marston, Era Dabla-Norris, and D. Filiz Unsal

(version in Español)

Economists are paying increasing attention to the link between financial inclusion—greater availability of and access to financial services—and economic development. In a new paper, we take a closer look at exactly how financial inclusion impacts a country’s economy and what policies are most effective in promoting it.

The new framework developed in this paper allows us to identify barriers to financial inclusion and see how lifting these barriers might affect a country’s output and level of inequality.  Because the more you know about what stands in the way of financial inclusion, the better you can be at designing policies that help foster it.

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A Downturn Without Layoffs? Reconciling Growth And Labor Markets In Latin America

Bertrand Gruss 2By Bertrand Gruss 

(version in Español and Português)

It looks as if labor markets in Latin America have not been following the economic news—literally! Economic activity has slowed markedly in the last three years, with some South American countries slipping into outright recession more recently. Yet, labor markets still appear remarkably strong, with unemployment rates, in particular, hovering at record-low levels in most countries (Figure 1). So, what is going on? Has the region discovered how to defy the law of gravity?

ENG.WHD REO Fall.Chart 1

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Policy Interest Rates in Latin America: Moving to Neutral?

Using our estimated neutral interest rates we find that current policy rates are close to their neutral level in several countries (Chile, Colombia, and Peru). For Brazil and Mexico we find that monetary policies remain stimulative (with actual interest rates below neutral). For other countries in the region our analysis suggests that Costa Rica, the Dominican Republic, Guatemala, Paraguay, and Uruguay have lower interest rates than their neutral level. However, these results should be viewed with caution given data limitations and weaker monetary policy transmissions.

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