Monday, September 15, 2008
One of the results of today's events was a sharp drop in commodity prices. It is still unclear whether it will continue in the near future, although there is evidence to think that this will be the case. Both the increasing likelihood of a global recession and the lack of appetite for risky financial investment may contribute to further reductions in oil, gas and minerals (other than oil). This is great news for small countries in Central America and the Caribbean, but what will happen with Latin America? According to an excellent paper by Vernengo and Pérez, the region's recent growth is mainly a result of growing commodity prices. Will countries be now ready to respond to the shock? Will be see anti-cyclical policies for once in the region? This will be the real test for those that claim that things have changed in Latin America in recent times...
Who would know that the next big financial crisis after that in Argentina would take place in the US? Today's title in the Financial Times cannot be clearer: Wall Street in turmoil. What we still don't know is two things: (1) How will the growing crisis affect the real economy? (2) How will affect developing countries? East Asian Central Banks could be particularly affected and is something to follow with care. The effects on Latin America could be larger through a reduction in trade and foreign investment than through any contagion effect... although this is always hard to predict!
As I am about to move to a new post at the University of Oxford, I decided to re-do the blog I tried last year. I would hope that it becomes a place for information and debate on Latin America's political economy, as well as broader issues regarding the global economy and income inequality. We are in particularly interesting times (with a growing global financial crisis and increasing tensions in South America) and I hope this blog can be a place to reflect on the situation and discuss new progressive policy options. Comments and contributions are welcome both in English and Spanish.