Daniel Titelman

Subregional financial cooperation: the South American experience

This paper reviews the experience of South America with subregional financial cooperation. It shows that this experience has been one of the most successful in the developing world, though uneven in terms of country coverage and services provided. The Andean region has been particularly successful in developing multilateral financial institutions, and development financing has been broader in scope than monetary cooperation. The two most successful institutions, the Andean Development Corporation (CAF) and the Latin American Reserve Fund (FLAR), have shown the capacity to provide services to member countries in a timely way, with countercyclical effects and on a large scale relative to other forms of multilateral financing. The strong sense of ownership of these organizations by member states, preferred creditor status, and professional management is reflected in very healthy portfolios, even in the face of default by member countries. The services of these institutions could be broadened to support, among others, the development and integration of the physical infrastructure and macroeconomic policy coordination.

Regional Monetary Cooperation in Latin America

Latin American has the longest history of regional integration efforts in the developing world. This paper analyzes the experience of regional monetary cooperation in Latin America over the past three decades. This experience has been overall successful but also uneven, both in terms of country coverage and services provided. Although strictly not a form of monetary cooperation, development financing does play a useful complementary role by proving counter-cyclical or at least stable financing during crises, when private financing for developing countries dries up.

Macroeconomics for Development in Latin America and the Caribbean

The Macroeconomics for Development blueprint for Latin America and the Caribbean is articulated around two issues: an active strategy of productive development and a countercyclical policy stance. Macroeconomic countercyclicality refers to the management of the level of aggregate demand to dampen the fluctuations and volatility of real and nominal variables around their long-term trends. This paper argues that the cycle and trend are interdependent and that, as a result, countercyclical policies (i.e., aggregate demand policies) are not neutral to the long-run behavior of economies. The way counter cyclical policies are designed and implemented, including their timing and the type of instruments used, shape and determine, along with other factors, the long-run growth trend of economies. The nonneutrality of countercyclical policies is reflected in three specific features of the Latin American and Caribbean business cycle: (1) expansionary cycles are shorter and less intense in Latin America and the Caribbean in relation to other regions; (2) short-run fluctuations affect long-run outcomes through real and financial variables; (3) the financial system tends to act as an amplifier of real fluctuations, and real recoveries occur prior to credit recoveries. The analysis implies that countercyclical policy must not only steer the cycle through variations in the level of aggregate demand. It must also focus on the composition of aggregate demand. This entails, on the one hand, sustaining the duration and intensity of the expansion and avoiding the use of public investment as the adjustment variable during cycle fluctuations. It also means using macro prudential policy as a countercyclical tool to manage the composition and level of aggregate demand.

Challenges for Health and Social Protection in Latin America

Centro de Estudios Distributivos, Laborales y Sociales, Argentina D A N I E L T I T E L M A N United Nations Economic Commission for Latin America and the Caribbean, Chile Challenges for Health and Social Protection in Latin America (GUILLERMO CRUCES is currently with CEDLAS [Centro de Estudios Distributivos, Laborales y Sociales], Universidad National de La Plata, Argentina. Research for this article was performed while with the Development Studies Unit of the United Nations’ Economic Commission for Latin America and the Caribbean, Santiago, Chile; DANIEL

Un Fondo de Reservas Regional para América Latina (A Regional Reserve Fund for Latin America)

This paper analizes and presents empirical evidence on the feasibility, implications and challenges of an expansion of the Latin American Reserve Fund (FLAR) to cover twelve countries (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Costa Rica, Mexico, Peru, Paraguay, Uruguay and Venezuela). The paper argues that a regional reserve fund for these twelve countries should not be conceived as a unique line of defense but rather as part of a wider set of support mechanisms to which countries may resort to confront Balance of Payments difficulties. In order to estimate the possible size of a Fund for the twelve countries, we begin from the premise that regional reserve funds are one of the various mechanisms of the international financial architecture. As a result the size of Fund can be smaller than one built on the idea of a lender of last resort to all its members. In this sense the Fund should not necessarily cover extreme scenarios such as systemic crises or generalized contagion. It should be calibrated to cover the most likely scenarios (according to our results those in which only a fraction of members present simultaneous Balance of Payments problems). A fund calibrated to cover the most likely scenarios is within manageable ranges – between 9 and 10 billion dollars, representing on average between 1.4% and 1.7% of countries’ international reserves – depending on the scenario considered. A Fund of this size could cover a significant share of potential financing requirements of members but, in case of necessity, it should have the capacity to enlarge its pool of resources through other mechanisms of the international financial architecture. One of the main challenges of an extended fund is to reconcile the sense of ownership felt by member states and flexible/timely liquidity allocation with sound surveillance and participative decision making.