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CGD’s work in this area focuses on strengthening financial systems in development countries through innovation and regulation.
Greater access for the poor to the formal financial system—including payments, savings, credit, and insurance—can greatly improve household stability and development prospects. CGD examines how to strengthen, broaden, and deepen financial systems in developing countries through innovation and regulation. We also study the effects of financial crises, to avoid and mitigate future shocks, and how developing countries can improve their business climates to spur inward investment.
This week, Chad became the 36th poor country to benefit from the world’s collective response to the debt crises of the 1980s and 1990s. It took years to reach this point, but in the end, Chad received over one billion dollars in irrevocable debt relief under the Heavily Indebted Poor Country (HIPC) Initiative.
“Latin America is no exception regarding the adverse changes in emerging market conditions that have occurred since the US Fed began reducing Quantitative Easing (QE) in May 2013.” That’s the assessment of the Latin American Shadow Regulatory Committee (or CLAAF) in its latest statement.
On a chilly Monday morning on February 16th, 2009, I walked into the New Government Complex in Harare’s Central Avenue. As I strode for the very first time down a poorly lit corridor, eyes strained and necks stretched behind wide open doors to catch a glimpse of the newcomer with a reputation for short temper. I was ushered into a comfortable office that was to become my home for the next four and a half years.
My guest on this Wonkcast is CGD senior fellow Liliana Rojas Suarez, who serves as chair of the Latin American Shadow Financial Regulatory Committee (CLAAF). CLAAF is comprised of financial economists and former senior financial officials from the region who meet twice a year to study a current policy issue. They then issue a statement offering advice to policymakers in the region and others interested in Latin American financial regulatory issues—or just in the region’s overall economic health.
Latin America has benefited in recent years from an unprecedented and prolonged episode of extremely low interest rates in the US and other high-income economies. Most Wall Street analysts and multilateral bank economists agree that, led by the US, this episode is coming to an end with return of what was once regarded as a normal global macro environment: higher interest rates in advanced economies and lower commodity prices.
How will Latin America weather the return to normal? There is no consensus. Some experts argue that improvement in macroeconomic policies (especially greater exchange rate flexibility) will pay dividends and the region will continue on a solid, albeit lower and sometimes bumpy path of economic growth. Others warn that the return of normal will expose hidden fragilities that in some countries could result in serious economic instability.
CLAAF members will present their views on this debate and will answer the following questions, among others:
How should Latin America’s performance be assessed? Are the typical indicators of fiscal and monetary strength adequate or are we missing an important part of the story?
Can local-currency denominated financial instruments developed in the region during the period of prolonged low international interest rates be sustainable with the return of normal conditions?
How will a less favorable international economic climate and political pressures to sustain high growth rates (in a heavy electoral period in the region) interact to determine outcomes?