Latin America and the External Crisis of the Second Half of the 1990s

Vittorio Corbo

Chapter 2 in Latin American Economic Crises, 2004, pp 24-39 from Palgrave Macmillan

Abstract: Abstract Latin America suffered a series of external shocks in the second half of the 1990s. The first shock, which followed the initiation of the 1997 Asian crisis, took the form of a sharp deterioration in the terms of trade, due to a sharp fall in the price of primary commodities in international markets. Following the Russian crisis, the region received a second external shock in the form of higher costs and reduced access to foreign financing. The external crisis surfaced in Brazil in early 1999, following a severe attack on its currency which forced the country to abandon the defence of its peg exchange-rate system and adopt a floating exchange rate. The response to the crisis was twofold. First, macroeconomic policies were altered to avoid excessive current account deficits that could not be financed, and, second, protective measures were introduced to mitigate the effects of a capital flow reversal. When the crisis came, Latin American countries were better prepared than at the time of the debt crisis of the early 1980s, as a result of the deep reforms implemented in recent years. The policy response to these shocks was more appropriate.

Keywords: Monetary Policy; Current Account; Latin American Country; Asian Crisis; High Real Interest Rate (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:pal:intecp:978-1-4039-4385-9_2

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DOI: 10.1057/9781403943859_2

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