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She is also the chair of the Latin American Shadow Financial Regulatory Committee (CLAAF). From March 1998 to October 2000, she served as managing director and chief economist for Latin America at Deutsche Bank. Before joining Deutsche Bank, Rojas-Suarez was the principal advisor in the Office of Chief Economist at the Inter-American Development Bank. Between 1984-1994 she held various positions at the International Monetary Fund, most recently as deputy chief of the Capital Markets and Financial Studies Division of the Research Department. She has been a visiting fellow at the Institute for International Economics, a visiting advisor at the Bank for International Settlements and has also served as a professor at Anahuac University in Mexico and advisor for PEMEX, Mexico’s National Petroleum Company. Rojas-Suarez has also testified before a Joint Committee of the US Senate on the issue of dollarization in Latin America.
She has published widely in the areas of macroeconomic policy, international economics and financial markets in a large number of academic and other journals including Journal of International Economics, Journal of International Money and Finance, Journal of Development Economics, Journal of Contemporary Economic Policy, International Monetary Fund Staff Papers. She has also published or being cited in prestigious newspapers such as the Financial Times, the Wall Street Journal and the Washington Post. She is also regularly interviewed by CNN en Español.
Michael P. Dooley & Donald J. Mathieson & Liliana Rojas-Suarez, 1997. "Capital Mobility and Exchange Market Intervention in Developing Countries" NBER Working Papers 6247, National Bureau of Economic Research, Inc.
Rojas-Suarez, L & Weisbrod, S-R, 1997. "Financial Markets and the Behavior of Private Savings in Latin America" Working Papers 340, Inter-American Development Bank, Research Department.
McNelis, P.D. & Rojas-Suarez, L., 1996. "Exchange rate depreciation, Dollarization and Uncertainty: A Comparison of Bolivia and Peru" Working Papers 325, Inter-American Development Bank, Research Department.
Rojas-Suarez, L. & Weisbrod, S.R., 1996. "Banking crises in Latin America: Experience and Issues" Working Papers 321, Inter-American Development Bank, Research Department.
Rojas-Suarez, L. & Weisbrod, S.R., 1996. "Building Stability in Latin American Financial Markets" Working Papers 320, Inter-American Development Bank, Research Department.
Rojas-Suarez, L. & Weisbrod, S.R., 1996. "Managing Banking Crises in Latin America: The Di's and Don'ts of Successful Bank Restructuring Programs" Working Papers 319, Inter-American Development Bank, Research Department.
Rojas-Suarez, L. & Weisbrod, S., 1994. "Achieving Stability in Latin American Financial Markets in the Presence of Volatile Capital Flows" Working Papers 304, Inter-American Development Bank, Research Department.
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In a May 2008 speech at a forum organized by the Central Bank of Colombia, senior fellow Liliana Rojas-Suarez analyzes the effect of the global financial crisis on Latin America before an audience of high-level government officials. Drawing on points made in her forthcoming book, Growing Pains in Latin America, she argues that key actions taken before the crisis to switch to flexible exchange rates and avoid major disruptions in their domestic the banking systems have saved Latin America from what could have been even worse repercussions.
Additional reforms are still needed, however—especially those that would enable the implementation of countercyclical fiscal policy to counteract the effects of adverse external shocks.
Rojas-Suarez makes a similar case in a recent interview with CNN en Español in which she compares the actions during the crisis of U.S. Fed chairman Ben Bernanke to those of central bankers in Latin America.
Growing Pains in Latin America: An Economic Growth Framework as Applied to Brazil, Colombia, Costa Rica, Mexico, and Peru will be launched in the fall. A Spanish-language edition, Los desafìos del crecimiento en la América Latina: un nuevo enfoque will be released in partnership with the Fondo de cultura económica
CGD senior fellow Liliana Rojas-Suarez, principal author and editor of Growing Pains in Latin America, discusses the book with CGD publications coordinator John Osterman. The book comprises chapters by prominent experts on Latin America and lays out a framework for sustainable, equitable growth in the region. A Spanish version will be published by El Trimestre Económico de México later this year.
Read the book: Growing Pains in Latin America
Read the brief
Watch the video in English and Spanish
Q: Tell us about the history of this book. Where did the idea for it come from? What problems were you hoping to solve?
A: This book was inspired by a troublesome observation in Latin America: in spite of a significant number of reforms and policies undertaken during the 1990s and early 2000s, the region’s economic growth was disappointing in the years before the current international crisis. It wasn’t that the region was not growing, but that the growth was insufficient to reduce Latin America’s income-per-capita gap relative to other regions. And a lot of people were deeply discontented with the results of market-based policies and were, therefore, unwilling to support additional reforms.
So the book addresses urgent questions: What can Latin American countries do to accelerate growth on a sustainable basis? How can countries break the state of inaction, paralysis, and impasse that prevents the implementation of further pro-growth policies and reforms?
To answer them, Simon Johnson and I led a task force that developed a simple analytical framework specifically designed for Latin America. Growing Pains describes the framework and applies it to Brazil, Colombia, Costa Rica, Mexico, and Peru.
Q: There have been other frameworks for growth before. What makes this one different?
A: This framework takes into account the unique features of Latin America: it is the most financially open (the one with the least controls to the movement of international capital flows), the most democratic and the world region with the greatest economic and social inequality.
That does not mean that the framework does not build on previous analysis. Our framework, like many others, seeks to identify the main foundations that encourage the accumulation of physical and human capital as well as improvements in technology—the three factors that lead to economic growth. The framework identified five “growth foundations” for Latin America: (1) secure property rights; (2) sufficiently equal opportunities for large segments of the society; (3) sufficient economic and political competition; (4) macroeconomic stability; and (5) broad sharing among the population of the benefits from growth. These five foundations must all be firm to ensure the sustainability of a market-based model in Latin America.
Q: Why Brazil, Colombia, Costa Rica, Mexico, and Peru for the case studies? Are these exceptional cases, or can conclusions be applied to all of Latin America?
A: Every country in the region has particular features in its reform-growth history that I would have loved to explore. But since we had to make choices, we went for an in-depth analysis of a few cases rather than for wider but shallower coverage of the region. In selecting the case studies we had two considerations in mind: representation and diversity. Representation in the sense that we wanted to include big (Brazil and Mexico) and small (Costa Rica) countries as well as countries from the different sub-regions: Andean (Colombia and Peru), Southern-cone (Brazil), and Central America (Costa Rica). Diversity in the sense that we wanted to include big reformers (such as Peru), slow reformers (Brazil) and countries that had more difficulties implementing some type of reforms, especially institutional reforms (such as Mexico and Costa Rica). This strategy ensures that lessons from case studies can be applied to many other countries in the region.
Q: Your recommendations are pretty optimistic. What are your reasons for optimism? Has the financial crisis changed things?
A: They’re optimistic because we focused from the beginning on making doable recommendations. An important commonality in the process of implementing reforms that emerges from all the country studies is the emphasis on incremental reforms. Even in the cases where a major revamping is recommended, the proposals are not for “big bang” reforms but for pilot projects designed to build constituencies that will support and endorse further change and reform. Also, the proposed reforms would be implemented through agreement and negotiation rather than by decree, an approach that is fully consistent with the reality of Latin America today as the most financially open, most democratic, but also most unequal region in the developing world.
And, yes, the financial crisis has changed my perception—it has actually increased my optimism about the region. Previous reforms, especially those in the macro and financial regulation areas, have actually helped Latin America weather the crisis quite well, especially given the incredibly adverse circumstances coming from industrial countries. For the first time in decades, Latin America has not succumbed to a path of deep financial crises and prolonged recessions following an adverse external financial shock. While some countries are suffering the impact much more than others (Mexico in particular), it is quite amazing that a country like Brazil has recently even been upgraded to the category of “investment grade,” an achievement rarely seen in periods of deep trouble like the one we are experiencing these days.
Q: What do you hope the impact of this book will be?
A: I truly hope that the impact of this book will be multidimensional. Some of the book’s authors have been given key roles over the last year. One of the authors has become deputy minister of finance in Peru, and the authors of the Costa Rica chapter are now preparing the economic program of the lead presidential candidate, Laura Chinchilla. And several countries in the region have already begun initiating reforms recommended in the book. I think we’re on the way toward making the proposals reality. I hope that Growing Pains in Latin America will continue to inform the debate among policymakers, the public sector, and civil society on the need to continue the reform process in the countries studied and in the rest of the region.
Mervyn King, governor of the Bank of England, called last week for radical reform of the International Monetary Fund. In a speech in New Delhi, King said that the IMF's role as lender of last resort was much diminished in part because middle-income countries have built up large reserves. To remain relevant, he said, the IMF must give large developing countries a greater say in its governance and analyze the balance sheets of rich countries as well as developing countries. CGD senior fellow Liliana Rojas-Suarez, an international finance expert who chairs the Latin America Shadow Financial Regulatory Committee and previously worked on Wall Street and for multilateral institutions, including the IMF, shares her views on the future of the Fund.
Q: King said in New Delhi that the governance of the IMF should give greater voice to large developing countries, such as China and India. The U.S. supports increased representation on the IMF board and consolidation of European representation, with a single seat for the Eurozone countries. How important are these sorts of changes?
A: Increased representation of key emerging market countries on the IMF board is essential. The days when countries would just follow IMF advice without questioning its appropriateness are long gone. The IMF is suffering a credibility crisis partly because of the widespread perception that its response to the East Asian financial crisis led to declines in output growth beyond what was necessary for crisis resolution. Credibility can only be regained if Fund’s advice is backed by a Board with significant representation from countries that may need IMF programs.
Q: The Financial Times reports that Rodrigo Rato, the IMF's managing director (and a former finance minister of Spain), has been trying to build consensus for incremental reforms, including greater focus in the Fund's surveillance reports and a reform of voting rights. Is there a fundamental difference between King’s views on these issues and where the IMF seems to be headed?
A: The most important differences between Rato's and King's proposals regarding the need for reform of voting rights relate to timing and degree rather than substance and it’s good to see a consensus emerging on the need for such reforms. However, there are important differences on the issue of reforming IMF surveillance. While Rato would like to improve the effectiveness of surveillance using current instruments, King calls for an overhaul of the process, with a more vocal IMF publicly stating early warning signals of inadequate country policies, especially when they generate risks to the global financial system. I think King has it right.
Q: What about King’s assertion that the IMF’s role as lender of last resort is going to become less and less important? Rato argues that it has only been a few years since the people worried that the IMF was overstretched, with huge loans to countries such as Argentina, Brazil and Turkey. He warns that such needs could easily arise again. What’s your view?
A: This is a crucial issue, and on this question my views are much closer to Rato’s ideas than to King’s. The last three years have been exceptionably favorable for developing countries: global growth has been healthy, capital inflows have been abundant and prices of commodity exports have skyrocketed. Of course there has been a drop in demand for IMF lending! Nobody goes to the IMF in good times! However, this unusually favorable environment will not persist forever. If we learned anything at all from the crisis episodes of the last two decades it is that capital flow reversals can be sudden and large, so large that even substantial foreign exchange reserves may not be enough to insulate countries from a sudden stop of external finance.
Q: You worked as principal advisor to the senior economist at the Inter-American Development Bank and recently chaired a joint CGD/Latin America Shadow Financial Regulatory Committee working group that prepared a report on the future of the IDB. That report recommended greater IDB flexibility in responding to the challenges of globalization. Are there any parallels between the challenges facing these two organizations?
A: Definitely. In fact, increased flexibility is more important for the IMF than for any other multilateral organization. The IMF’s main job is to ensure the stability of the international financial system; this role goes beyond country or regional boundaries. The big issue is avoiding unsustainable global imbalances. As we know from the current account balances of China and the United States, global imbalances can involve industrial countries, developing countries or both. IMF flexibility in a globalized world means complementing country surveillance with world surveillance. Since global developments evolve continuously, so should IMF country-specific policy recommendations and financial support.
Q: King has called for the IMFs board to refrain from micromanagement. Instead of having a resident board, he suggests that the board should meet six times a year, with directors comprising senior finance ministry or central bank officials. Do you agree that the IMF management should be given greater latitude?
A: Absolutely. Independence is especially important for surveillance and policy prescriptions directed to industrial countries. How often has an appropriate recommendation by IMF staff not been made public because of political constraints imposed by the Board? There is an obvious and useful analogy for thinking about this. The IMF appropriately tells countries to make their central banks free from political interference. The IMF is essentially the world’s central bank. Like national central banks, its job is to provide liquidity to control crisis episodes and avoid contagion. Seen this way, it is only natural to protect the IMF from political interference by a Board that largely represents the interests of a minority of its membership.
Q: Some people argue that such reforms are desirable but politically impossible.
A: I disagree! I think that reform is inevitable. This is not because I’m an optimist. It’s just a matter of time before the major players in the world economy realize that they cannot afford to be without an adequate surveillance mechanism for global financial stability.
The attached slides illustrate my views on the causes, consequences and outlook of the international financial crisis that emerged in June 2007 with the US sub-prime crisis. Three major points are emphasized. First, although the upward trend in commodity prices, including oil and food, respond to structural factors, the recent acceleration of these prices are closely related to the financial crisis. Second, the resolution of the financial crisis will imply a deterioration of macro fundamentals in the US, especially the fiscal deficit; this will exert upward pressures on the long-term interest rates and further depreciation of the US dollar relative to Asian currencies. Third, prices of oil and food will remain above trend as long as the financial crisis is not resolved. This will hurt growth prospects of many developing countries. I have presented versions of these slides at a number of conferences and policy seminars worldwide during the past year.
La presentación adjunta ilustra mis puntos de vista sobre las causas, consecuencias y proyecciones sobre la crisis financiera internacional que se inició en Junio del 2007 con la crisis sub-prime ene Estados Unidos. La presentación destaca tres puntos: El primero es que, aunque la tendencia creciente en el precio de las materias primas, incluyendo petróleo y alimentos, responde a factores estructurales, la reciente aceleración de estos precios está íntimamente relacionada a la crisis financiera internacional. El segundo punto es que la resolución de la crisis financiera traerá consigo un deterioro en los fundamentos macroeconómicos de Estados Unidos, especialmente en el déficit fiscal; esto presionará al alza las tasas de interés de largo plazo y una mayor depreciación del dólar con respecto a las monedas asiáticas. El tercer punto es que los precios del petróleo y alimentos continuarán por encima de su tendencia de largo plazo mientras no se resuelva la crisis financiera. Este último resultado atentará contra el crecimiento de muchos países en vías de desarrollo. He presentado diferentes versiones de estas transparencias en muchas conferencias y seminarios de política económica alrededor del mundo durante el último año.
La Crisis Financiera Internacional
Latin America’s response to the global financial crisis has been remarkably strong. Effective use of fiscal, monetary and exchange rate policies allowed Latin America to fare better than other parts of the world and better than the region itself during previous global economic crises. But macroeconomic disequilibria in high-income countries—especially rising fiscal deficits and sovereign debt in the United States and parts of Europe—run the risk of becoming unsustainable.
The Latin America Shadow Financial Regulatory Committee will meet in December 2009 to discuss the following related issues, and then share its conclusions in a public presentation.
• What are the main economic imbalances in industrial countries threatening the stability of Latin American countries?
• Are we, as some analysts argue, witnessing the formation of another bubble, this time involving the value of assets of emerging markets, especially those in Latin America?
• Does Latin America have adequate tools to face fresh disruptions in international capital markets? Or did it exhaust its arsenal of policy options in dealing with the recent crisis?
• Should countries follow the example of Brazil and try to dampen the effects of volatile capital inflows through capital controls? Can controls work in the current environment?