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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.
Last week the Latin American Shadow Financial Regulatory Committee (CLAAF), chaired by CGD senior fellow Liliana Rojas-Suarez, considered the impact of the European debt crisis on Latin America. The committee, which includes former top finance officials from the region, then released a statement concerning Latin America's outlook in light of the emerging crisis, emphasizing the region's challenges and opportunities and offering concrete policy recommendations. Rojas-Suarez explains:
Q: What's the biggest financial challenge facing the region today?
A: Large capital inflows, resulting from both external and internal factors. On the external side, the sluggish U.S. economy and the need for public and private liquidity support in Europe are pressing central banks to keep policy interest rates low. But in Latin America, the prospects for growth are quite positive, forecasted at 4 percent for 2010. The region's central banks are therefore increasing interest rates to keep inflation in check. All of this is attracting international investors to the region, who find the risk-return profile to be quite attractive. For the first time since I can remember, country-risk spreads of a number of Latin American countries are below those of a number of developed countries. Since I don't expect any significant policy change soon, I believe that the region will face this challenge at least in the short and medium terms.
Q: This seems like a good problem to have!
A: It's certainly better than capital flight! But large capital inflows are risky if they are not managed well. Two major challenges stand out: First and foremost, they significantly complicate monetary policy for central banks. They might cause local currencies to appreciate excessively, which could be destabilizing, especially if the inflows are temporary and subject to reversal should conditions change. Central banks have been dealing with this through sterilized intervention in foreign exchange markets, which basically means purchasing foreign currency (to contain the appreciation of the local currency) and then issuing bonds to prevent an expansion of monetary aggregates and, therefore, inflation. The problem, however, is that sterilized intervention increases interest rates, which in turn attract capital inflows even further.
Second, most Latin American countries have a number of economic distortions and fiscal budgetary processes that are not as efficient as they could be, leading to some wasteful investments. If funds are inappropriately allocated and the capital inflows suddenly reverse, then Latin American governments, financial institutions, and corporations might find themselves facing severe difficulties serving debt obligations.
Q: You have written that Latin America's financial sector is among the most open in the developing world, so committee members must have a lot of experience dealing with this type of challenge. What does the committee recommend policymakers in the region do now?
A: Latin America needs to carefully monitor the degree of debt in the private and public sectors and implement policies to contain an excessive expansion of banking credit. I should note upfront, though, that the region is in a much better position to deal with the challenges now than in previous episodes of large capital inflows. Strong fiscal positions, low debt-to-GDP ratios, and increased flexibility in managing exchange rates create the foundation for financial stability even with highly volatile international capital markets. Most importantly, central banks have accumulated large foreign exchange reserves. Therefore, this time around the Committee believes that the region is more likely now to deal successfully with large capital inflows than before, when major macroeconomic and financial vulnerabilities led to severe crisis when the inflows suddenly stopped.
Some of the most important recommendations are to (a) implement (or increase when the policy exists) liquidity requirements on domestic and foreign short-term banking-sector liabilities; (b) adopt counter-cyclical loan-loss provisions, which basically means banks setting aside resources in good times to deal with bad loans in difficult times; and (c) adopt multi-period, cyclically adjusted budgetary frameworks to ensure that governments save part of the increased fiscal revenues during expansionary periods. Some countries have begun taking on such changes, but there's a way to go still.
Q: How will we know if the region is managing this challenge well? What warning signs will you be watching for to see if problems are emerging?
A: Bad signs would be exploding levels of credit extended by local financial systems and accelerated increases in other assets, including housing prices. I'd also be worried about decreasing ratios of banks' provisioning to total loans and about increasing debt-to-GDP ratios in both the public and private sectors Basically, if any of the conditions that I mentioned before are not met, then that will be cause for concern.
Q: Is the prospect of prolonged large capital inflows a unique phenomenon in Latin America?
A: No, they're also in Asia. Both regions weathered the storm of the 2008–09 financial crisis and recovered much more quickly than other developing regions and many advanced economies. And both are now faced with the mixed blessing of large capital inflows. The issue now is how they will respond to the new challenge. I believe that both regions will be successful. However, I also believe that Asia is more likely than Latin America to implement capital controls to contain inflows. I think that Latin America will make more use of macro-prudential regulations as a mechanism to limit the impact of capital inflows in the local financial systems.
Q: The committee focused on the implications of the debt crisis in Europe. Does this mean you are confident that the recovery in the United States will be sustained?
A: "Confidence" is a tricky word under current circumstances. I give a relative high probability that the United States will maintain a slow and fragile recovery for a prolonged period of time. However, I cannot discard the risk of a double dip recession. A number of events can lead to this. If, for example, intensified problems in Europe lead global demand to decrease significantly or if international financial turbulence aggravates drastically, remaining vulnerabilities in the United States might renew the deterioration in consumers and investors' perceptions about the economy. Under those conditions, recessionary pressures in the United States are a clear risk.
Q: Your scenario also assumed that Europe would manage the current crisis without allowing a financial collapse: no country defaults and no Lehman-style collapse of a major financial institution. Are you confident of that?
A: I think so, but as I mentioned earlier, I prefer to speak of probabilities. I give a larger probability to having no major financial crash associated with events in Europe. My reasoning is twofold: First, and most important, I perceive a strong commitment by the European Central Bank, European governments, and multilateral organizations to prevent a collapse. The €700 billion package arranged by the IMF and EU in April to help contain the crisis is evidence of this commitment. Second, recent fears have been based on emerging problems in the financial system in Spain (a much larger system than Greece!), which derives a significant proportion of revenues from investment in Latin America. Those investments are very profitable, so in sharp contrast with the past, Latin America is now a source of support for the global financial system. Amazing, right?
Q: This year the committee is observing its 10th anniversary, and you have been the committee chair throughout. During this period the committee has issued 22 statements on financial challenges and opportunities for the region. What have you learned?
A: First, Latin America is capable of breaking its reputation of a crisis-prone region. Second, there is a long way to go. Ten years ago, Latin America was in overcoming the exchange rate crisis in Brazil and about to enter the Argentinean crisis of 2001. By 2002, no analyst could have predicted that Latin America could stand strong and resilient through something as major as the 2008–09 global financial crisis. While the region has met with flying colors some of the most pressing difficulties, the remaining challenges are many and hard to deal with. The bottom line, however, is that the resilience of the region during the ongoing global turbulence is giving Latin America a renewed sense of hope.
Latin America may be quite vulnerable to events in Europe. Beyond the risk that a deep crisis in Europe may result in double dip recession in advanced economies with deleterious global implications, Latin America's trade and financial channels with Europe are large and growing. On the other hand, as in the 1970s, capital flight from advanced economies (especially Europe) could mean more capital flowing into Latin America, offering at least a temporary relief from real sector shocks. The Committee will address the following issues:
• Under what international scenarios will economic and financial stability in Latin America be compromised?
• Could financial systems in the region withstand a crisis in Spain's banking system?
• Is the recovery in the region sustainable or just the result of temporary capital inflows?
• How should the region's policymakers respond to current vulnerabilities? Is now the time to consider capital controls?
• In light of the recent international experience, should the role of central banks in the region be revised, and should financial regulation be reformed?
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The largest crisis in the history of microfinance is now unfolding in India. After five years of growth so fast it has been described as “indescribable,” and after a lucrative initial public offering (IPO) by the leading firm, the government of the state of Andhra Pradesh has cracked down. Amid reports of microcredit-linked suicides, the state has urged borrowers to stop repaying, and millions have heeded the call. Bankruptcies of some of the world’s largest microcreditors are now a realistic possibility.
What is the reality of microcredit in India? Is the backlash an engineered campaign to protect a government-run (and World Bank–financed) finance program from private-sector competition? Or has the fast growth in credit ensnared the poor in debt? Some of each?
And what lessons does the crisis hold for actors worldwide, including microfinance institutions and investors ranging from the World Bank to Kiva users? When is microcredit—and investment in it—too much of a good thing?
Senior Fellow, Center for Global Development
Technology Program Manager, CGAP, World Bank
Consulting Editor, Economic Times
Contributor, Times of India
Research Fellow, Cato Institute
Senior Fellow, Center for Global Development
Managing Director, Center for Financial Inclusion, ACCION International
Vice President of Communications & Outreach, Center for Global Development
The Center for Global Development presents Are Uncertainties in the North Seeding a New Crisis in the South?
Options for Latin America
Featuring members of The Latin-American Shadow Financial Regulatory Committee (CLAAF):Liliana Rojas-Suarez, President, CLAAF; Senior Fellow, Center for Global Development Guillermo Calvo, Professor, Columbia University; Former Chief Economist, Inter-American Development Bank Carmen Reinhart, Dennis Weatherstone Senior Fellow at the Peterson Institute for International EconomicsGuillermo Ortiz, President of Banorte. Former Governor of Central Bank of MexicoPablo Guidotti, Dean, School of Government and Professor, Universidad Torcuato di Tella; Former Vice-Minister of Finance, Argentina Roque Fernandez, Former Minister of Finance, ArgentinaPedro Carvalho de Mello, Professor, ESALQ, Universidade de São Paulo; Former Commissioner of Comissão de Valores Mobiliários, Brazil
Tuesday, June 7, 2011
at Center for Global Development
1800 Massachusetts Avenue, NW, Third Floor
Closest Metro: Dupont Circle (Red Line)
*Please bring photo identification*
Over the last year, economic and financial uncertainties in developed countries have been increasing. Not only has the European crisis intensified and the camp of analysts predicting one or more defaults in the Euro area has expanded, but also the issue of the sustainability of the United States sovereign debt has taken center stage in the policy debate. Political dithering in the developed world is exacerbating these problems further.
But problems in the North don’t stay there. Instead, they are increasing vulnerabilities in the South, fueling large capital inflows that may be subject to sudden reversals and and very high and volatile commodity prices. The Latin American Shadow Financial Regulatory Committee (CLAAF) will discuss the extent of the potential damage to growth and stability in emerging market economies, especially Latin America, arising from the severe problems facing developed countries. In particular, the Committee will address:
• Whether current difficulties in the North could lead to a fresh global crisis of “Lehman’s dimensions”
• Whether the resilience shown by many emerging markets, especially Latin America, during the 2008-09 global crisis could be repeated if a new severe global disruption were to emerge.
• Whether early signals of economic and financial instability have already appeared in Latin America; and
• What policy options should Latin America take to avoid a “band aid approach” where many small remedies fail to achieve the desired cure.
The CSIS Americas Program is pleased to invite you to
"Latin America: Managing Abundance to Avoid a Bust"
With a lead presentation by:
Western Hemisphere Department, International Monetary Fund
Center for Global Development
Arturo C. Porzecanski
Distinguished Economist-in-Residence, American University and
Senior Associate (Non-resident), CSIS
May 23, 2011
10:00 AM-11:30 AM
Registration begins at 9:30 AM
CSIS B1 Conference Room B
1800 K St. NW, Washington, DC 20006
Exceptional global circumstances have produced a double bonanza of easy foreign financing and high export earnings for most of the large and medium-sized countries in Latin America, particularly all the commodity exporters. However, these favorable conditions may not last beyond this year. Join us for a discussion of the problems and vulnerabilities that the boom is generating; how to best manage this abundance in order to avoid a painful bust down the road; and for an assesment of whether governments are following policies that are appropriate for the circumstances.
Open to the public, however space is limited.
Please RSVP to the Americas Program Coordinator Michael Graybeal at
firstname.lastname@example.org or 202.775.3123
This discussion will be based on the IMF report "Managing Abundance to Avoid a Bust in Latin America."
The Inter-American Development Bank presentsPolicy Seminar: Will the World Relapse into Crisis? Can the Region Remain Immune?
Introductory remarks bySantiago Levy (IDB)
Panel 1: Will the world relapse into Crisis?
Raghuram Rajan (University of Chicago)
Carmen Reinhart (Peterson Institute)
Stephen Cecchetti (Bank for International Settlements)
Will the world relapse into Crisis? Will an anemic recovery in the United States and policy impotency lead to a double-dip recession? Will Europe’s downward spiral lead to a full blown debt and banking crisis? If so, will China’s growth miracle carry on or hard land? Will the G-20 be able to extend effective protection to Emerging Markets this time around?
Panel 2: Can the Region Remain Immune?
Guillermo Calvo (Columbia University)
Paulo Leme (Goldman, Sachs & Co.)
Liliana Rojas-Suárez (Center for Global Development)
Can the Region Remain Immune? The region performed well in the last global crisis, but are there untested threats in this new strain of world crisis? What are the regional vulnerabilities to a global relapse into crisis? How should countries reassess and balance macroeconomic and macro-financial policy priorities going forward in the face of opposing global economic scenarios, where today’s overheating may suddenly transform into tomorrow’s deep freeze?
Date: 23 Sep 2011
Time: 2:15 PM
Auditorium: Andrés Bello (9th floor)
Inter-American Development Bank
1300 New York Ave, NW Washington, DC 20577
In this timely policy seminar, a panel of experts will address a number of questions facing the decision makers around the world today.