Growth with stability: financing for development in the new international context

Foreword In contrast to its situation during the lost decade", in the 1990s the Latin American and Caribbean region regained its access to international capital markets. Its return to these markets, in combination with a commitment to achieving basic macroeconomic equilibria, was manifested in smaller fiscal deficits and lower inflation, but the region has recovered only part of the ground it had lost in terms of its pace of economic growth. Thus, the region's economies have not been growing fast enough to strengthen their labour markets or to reduce poverty significantly. This situation is reflected in the volatility exhibited by sources of external finance other than foreign direct investment and official credit. That volatility, in its turn, is not solely a consequence of the instability that is so typical of financial markets; it is also being exacerbated by the international financial system's serious problems of governance. This state of affairs also attests to the Latin American and Caribbean countries' vulnerability to the financial cycles generated by procyclical macroeconomic policies and to their inability to raise their savings and investment rates enough to achieve higher rates of economic growth. Finally, it is also a reflection of shortcomings in the region's financial development process and the weakness of the countries' mechanisms for regulating and supervising their national financial systems, which has opened the way for unusually frequent financial crises in those systems. In order to turn this situation around, in this study ECLAC has proposed a strategy for attaining growth with stability based on three lines of action: strengthening the international financial system's ability to prevent and manage crises and the countries' ability to design more preventive macroeconomic policies to back it up; picking up the pace of export development and improving access to international financial markets; and boosting national savings rates while furthering the countries' financial development so that national resources can be mobilized and channeled into investment. The original version of this study was prepared by ECLAC as a contribution to the Latin American and Caribbean Regional Consultation on Financing for Development, which took place in Bogota, Colombia, in November 2000. The final version being presented here constitutes the Commission's contribution to the International Conference on the Financing of Development to be held in Monterrey, Mexico, in March 2002. Both in its organization of the Regional Consultation and in the preparation of this document, ECLAC received generous support from the Inter-American Development Bank. José Antonio Ocampo Executive Secretary, ECLAC July 2001"