Managing Abundance to Avoid a Bust in Latin America

The motivation is to help Latin American policymakers deal with two problems of abundance that are now at play: i) those related to easy external financial conditions; and ii) those coming from high commodity export prices. While these phenomena are distinct, note that the latter tends to reinforce and interact with the challenges coming from the former. So the fact that they are happening together now creates a distinct double tailwind situation for Latin America and compounds the policy response challenges. Focusing on Latin America, the paper naturally takes into account the key structural and conjunctural conditions of the region that influence how it will be affected by these global factors (e.g., Latin America’s advanced cyclical positions, very flexible exchange rates, highly open capital account policies, and the structure of its exports, among others).