Latin America has gone from a period of prosperity to a period of peril. Between 2004 and 2013, the region experienced extraordinary economic growth and social progress. Demand—mostly from Asia—for the commodities that constitute the region’s main exports increased sharply, pushing up both the prices of those exports and the volumes traded. Revenues from this trade, in turn, stimulated regional economies and helped fill governments’ coffers. This unprecedented demand coincided with a period of very low interest rates, abundant credit, and surging foreign investment flows into Latin America.
Recently, however, China’s economic sluggishness and weak global economic growth have brought down commodity prices, foreign investment has slackened, and monetary policies have become less expansionary. This year, economic growth in Latin America is expected to be lower than in the previous year for the fifth consecutive year. Between 2010 and 2015 the economies of the region are likely to grow at only 40 percent of their growth rate between 2003 and 2010.
Sudden, painful transitions from economic prosperity to slowdown and even meltdown are nothing new in Latin America. The opposite, in fact: Between 1970 and 1998, Latin America experienced an economic crisis every two years. From 1979 to 1998, Peru had such a crisis nearly every year. Indeed, Latin America is one of the most economically volatile regions in the world. Regional indicators such as GDP growth, exchange rates, and fiscal deficits are roughly two to three times more volatile than those of industrialized countries. In terms of monetary policy and inflation rates, Latin America has more variability than any other region.