Crisis Response in Latin America: Is the "Rainy Day" at Hand?
AbstractThis paper examines the countercyclical policy options available to Latin American countries in the face of the current global economic crisis, concluding that most of the major countries in the region appear to possess the fiscal space (as measured by credible fiscal sustainability and debt headroom) to run prudent countercyclical fiscal deficits. Those countries should undertake a constrained fiscal expansion focused on productive public spending and financed by “rainy day” funds—large stocks of foreign exchange reserves that they have accumulated during recent years—rather than by market borrowing. The recent surge in multilateral financial activity to alleviate market illiquidity, whether intended for reserve or budget support, strengthens the case for this policy prescription: with multilateral support, the appropriate policy response is more expansionary, and its financing is less reliant on market borrowing.
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Bibliographic InfoPaper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4628.
Date of creation: Jun 2009
Date of revision:
countercyclical policy; fiscal space; international reserves; multilateral financial support;
Other versions of this item:
- Eduardo Fernández-Arias & Peter J. Montiel, 2009. "Crisis Response in Latin America: Is the "Rainy Day" at Hand?," IDB Publications 6769, Inter-American Development Bank.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-17 (All new papers)
- NEP-CBA-2009-06-17 (Central Banking)
- NEP-DEV-2009-06-17 (Development)
- NEP-LAM-2009-06-17 (Central & South America)
- NEP-MAC-2009-06-17 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Research Department Publications
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- Eduardo Fernández‐Arias & Peter Montiel, 2011. "The Great Recession, “Rainy Day” Funds, And Countercyclical Fiscal Policy In Latin America," Contemporary Economic Policy, Western Economic Association International, vol. 29(3), pages 304-322, 07.
- Eduardo Fernández-Arias & Peter Montiel, 2010. "The Great Recession, 'Rainy Day' Funds, and Countercyclical Fiscal Policy in Latin America," Center for Development Economics 2010-04, Department of Economics, Williams College.
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