Latin American economies are exposed to substantial external vulnerability. Domestic imbalances and terms of trade shocks are often exacerbated by sudden financial distress. This paper explores ways of overcoming external vulnerability, drawing lessons from a detailed comparison of the response...

The author identifies sources of volatility in Argentina that include weak international financial links, a recurrent credit crunch and financial underdevelopment problem, a fragile fiscal situation, and a pervasive profit and collateral squeeze mechanism brought about by a rigid labor market...