; Here We Go Again
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Here We Go Again


More Things Change, More They...Never Mind In the mid 1970s, skyrocketing commodity prices made Latin America a preferred destination for the ample international liquidity that Middle Eastern petrodollars and lax U.S. monetary policy funneled toward financial institutions. [...] the IMF should also be recapitalized, possibly through an issuance of Special Drawing Rights (SDRs), in order to ensure that the organization has more than enough funds to help reconnect countries to finance.

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									 Largely absent during
    the 2003–2008 boom
 and the post-2008 bust,
   IFIs can play a crucial
  role in restoring global
    liquidity and growth.

   by Ricardo Hausmann

                                                                   Someone: FirSt LaStname

                        a m e r i c a s q u a r t e r ly . o r g
                          This time it was supposed to be different.                 position moved away from short duration and dollar
                              Even as the world economy spiraled into a free         denomination toward safer forms, such as long-term
                          fall, Latin America seemed not only poised to break        domestic currency debt. Credit ratings improved, and
                          the boom-bust cycle of the previous three decades—         a growing number of countries achieved investment–
                          but to survive the debacle of 2008. With the econom-       grade status, becoming at the same time less depen-
                          ic expansion that started in 2003, the region looked       dent on volatile capital inflows.

                          stronger than it had ever been, thanks largely to the          Decoupling was the fashionable concept in ana-
                          structural reforms enacted as a result of previous cri-    lysts’ minds, as the region seemed unaffected by the
                          ses. Most national economies were more efficient           first signs of trouble in the U.S. in 2007. With the
                          and resilient. Fiscal accounts had been put on a solid     price of food, energy and minerals buoyed by soaring
                          track. Debt ratios had started to decline, and debt com-   growth in India and China, Latin America became
Someone: FirSt LaStname

                          a m e r i c a s q u a r t e r ly . o r g                                      spring 2009   americas quarterly   43
the destination of choice for investments in these       Argentina, Mexico, Colombia, Peru, Uruguay, and Ven-
market sectors.                                          ezuela fueled a boomlet in the early 1990s—only to
    Alas, to apply the words of Brazilian samba com-     collapse in late 1994 with the Tequila Crisis. In hind-
poser Vinicius de Morais: “Tristeza não tem fim, feli-   sight, the growth seemed less a product of reform
cidade sim.” (Sadness has no end, but happiness          than of the temporary upsurge in short-term capital
certainly does.) Just as Latin America was getting       inflows brought about by the easing of Washington
used to growth rates that topped 5 percent, the music    monetary policy during the 1990–92 U.S. recession. As
stopped abruptly in the fourth quarter of 2008. The      soon as the U.S. started to raise interest rates in 1994,
fabled decoupling disappeared and the so-called com-     international liquidity tightened, and the region fell
modity super-cycle shrunk super-quickly.                 into currency and banking crises.
    Can Latin America, and the world, recover momen-         The boom-bust cycle continu
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