Latin America During the Crisis: The Role of Fundamentals

Could Latin America’s economy have recovered as fast from the global crisis if it was not for China’s performance? Did domestic fundamentals help the recovery along? In this article, we offer some evidence that better fundamentals indeed mattered, as Latin American countries were less vulnerable to external shocks than in the past. Buffers built up in previous years allowed countries to implement countercyclical policies in the aftermath of the Lehman Brothers bankruptcy. But what conditions allowed a sizable monetary stimulus to be implemented? Why the fiscal targets adopted by most countries were not a constraint on fiscal stimulus? In this article, we address these questions and other, more idiosyncratic questions as well (including: why the Mexican peso has underperformed its peers; whether partial dollarization in Peru was a constraint on monetary easing; and what factors allowed Chile to implement a monetary response similar to that of developed economies)