A snapshot of policy trends and successes in the region.
An important lesson of the 2008–2009 financial crisis was that the emerging market economies with high levels of international reserves were better able to withstand the ripple effects of the global meltdown. In Latin America, the cases of Brazil and Mexico provide a clear illustration.
When Lehman Brothers went under in September 2008, Brazil had foreign exchange (FX) reserves of $205.5 billion—equivalent to 12.9 percent of GDP—while Mexico had $83.6 billion, or 7 percent of GDP. While the FX reserve levels easily covered a year of short-term debt maturities, Mexico’s were below the other precautionary threshold of six months of import coverage.
Brazil’s much higher level allowed its central bank (BCB) to more effectively respond. It intervened in the FX market to help stabilize the Brazilian real, provide FX swap lines to Brazilian corporations that faced difficulties rolling over U.S. dollar-
denominated maturities and assist exporters hit by the global dry-out of trade financing lines.
Chile’s educational success over the past two decades would seem to be a model for the region. Ironically, it was precisely those advances—and the problems they created—that led Chilean students into the streets in May last year to call for an overhaul of the country’s higher education system.
Chile´s high school graduation rates have increased (almost 90 percent of 25- to 34-year-olds hold high school degrees, versus less than 40 percent of 55- to 64-year-olds), and access to higher education has greatly expanded over the past 20 years. More than 1 million students are enrolled today in postsecondary institutions, compared to less than 250,000 in 1990. At the same time, national and international tests point to significant improvements in the quality of Chile’s primary and secondary schools. The socioeconomic achievement gap also has narrowed. Today, 7 of 10 Chileans attending university are the first generation in their families to do so.
But student advances have also ushered in new demands.
Brazilian policymakers seem to be making import substitution industrialization (ISI) fashionable again. The dominant economic model between 1950 and 1970 in Brazil and much of the region is often credited with the development of Brazil’s industrial sector—that is, until it fell victim to inefficiencies and to isolation from the more dynamic global market.
Those same risks exist today as Brazil rushes to protect and support domestic industries in certain economic sectors (the so-called strategic development plans) through import barriers and generous public support—at the expense of international competition.
The administration of President Luiz Inácio Lula da Silva first reintroduced the concept of strategic development plans with the launch of the Política Industrial, Tecnológica e de Comércio Exterior (Industrial, Technological and Foreign Trade Policy—PITCE) in November 2003. After 25 years without an official industrial policy, the PITCE was recreated to stimulate innovation in Brazilian companies.