Enduring poverty and conflict are so stark in Africa that it is sometimes difficult to see what else is happening. In April 2011, a study published by the Columbia Journalism Review titled “Hiding the Real Africa” documented how easily Africa makes news headlines in the West when a major famine, pandemic, or violent crisis breaks. But less attention is given to positive trends and underlying successes. In many cases, despite accelerated economic growth over the past 10 years, the rise of a middle class of consumers, and a more dynamic private sector attracting indigenous entrepreneurs, the narrative about Africa has remained focused on the bad news. That has, fortunately, started to change. This week’s cover story in The Economist, on “Rising Africa”, is testament to that. So too is the just-released December 2011 issue of Finance and Development (F&D) magazine on “Changing Africa: Rise of a Middle Class”, which explores Africa's potential.
Not so long after the global financial crisis, the supply of foreign financing has become abundant, and cheap, for many emerging market countries. This sounds like good news for Latin America, and it is—creating opportunities for debt management, saving on interest paid to foreigners, and expanding opportunities for investment. But it also comes with a number of potential risks that need to be managed.
Our new Regional Economic Outlook for the Western Hemisphere takes an in-depth look at the risks arising from what we call “easy external financial conditions.” There we analyze how the more financially integrated economies of Latin America have responded to such conditions in the past, with comparison to countries of other regions. Our comparisons focus especially on a group of advanced economies—Canada, Australia and New Zealand, and Norway—that also are commodity exporters, as well as being inflation targeters with highly flexible exchange rates.
We’ve released a new paper earlier this week assessing the effectiveness of IMF-supported loan programs in combating the crisis in emerging markets. Although it is a bit early to be evaluating these programs, “real-time” cross-country reviews are important. In today’s blog, I want to pick up a few takeaways from our latest review.
First, there is the sheer scale of the challenges the program countries, and the IMF, have faced. In Chart 1 below, each bubble is a Fund program—its size being the amount of lending and the vertical distance being the GDP loss associated with the crisis. You can see how, after a few quiet years while emerging markets boomed, the crisis hit hard: multiple simultaneous crises involving severe output crashes, and massive Fund financing. From our perspective at the IMF, it’s been quite a challenge to manage all these new programs, some of which were put in place within weeks of the crisis hitting. (click on each chart for a larger image)