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Pablo Lopez Murphy, Mr. Mauricio Villafuerte, and Mr. Rolando Ossowski
This paper analyzes recent fiscal policies of nonrenewable resource exporting countries in Latin America and the Caribbean in the context of sharp swings in resource prices. Fiscal policies were predominantly procyclical during the boom period 2003-08 but to significantly differing degrees within the sample. Countries that pursued more conservative fiscal policies during the boom were then able to implement countercyclical fiscal policies during the downturn; moreover, they reduced or maintained their fiscal vulnerability to resource shocks, while their long-term fiscal sustainability positions improved or were broadly unchanged. However, these dimensions of fiscal policy did not seem to be linked to fiscal rules or resource funds, as countries with such institutions displayed a broad range of fiscal responses to the recent cycle.
Pablo Lopez Murphy, Mr. Mauricio Villafuerte, and Mr. Rolando Ossowski

This paper analyzes recent fiscal policies of nonrenewable resource exporting countries in Latin America and the Caribbean in the context of sharp swings in resource prices. Fiscal policies were predominantly procyclical during the boom period 2003-08 but to significantly differing degrees within the sample. Countries that pursued more conservative fiscal policies during the boom were then able to implement countercyclical fiscal policies during the downturn; moreover, they reduced or maintained their fiscal vulnerability to resource shocks, while their long-term fiscal sustainability positions improved or were broadly unchanged. However, these dimensions of fiscal policy did not seem to be linked to fiscal rules or resource funds, as countries with such institutions displayed a broad range of fiscal responses to the recent cycle.

International Monetary Fund. Western Hemisphere Dept.

exporter. First, some commodities held up well (the price of beef, for instance, actually rose by 15 percent between July and November). Second, many oil-importing countries stand to benefit from cheaper oil. Nevertheless, given Latin America’s high dependence on commodities, such a swift change in prices is bound to necessitate a sizable macroeconomic adjustment in many economies of the region. 2 But how much have the terms of trade worsened across individual commodity exporters in Latin America? Is the shock temporary or permanent? What is the likely impact on fiscal

International Monetary Fund. Western Hemisphere Dept.

Abstract

The economic outlook for Latin America and the Caribbean remains very challenging. Regional growth is projected to decline for a fifth consecutive year in 2015, dipping below 1 percent. Weakness is concentrated among South America's commodity exporters, where falling global commodity prices have compounded country-specific challenges. Meanwhile, growth is projected to be steady or stronger for most of the Caribbean, Central America, and Mexico, supported by lower oil bills for importers and robust economic recovery in the United States. The analysis in this report examines core challenges facing the region: the impact of lower commodity prices on fiscal and external positions, the drivers of the slowdown in investment, and the role of economic diversification for longer-term growth prospects.

International Monetary Fund. Western Hemisphere Dept.

Abstract

Alongside weaker prospects, lower oil prices, and currency swings, global growth remains modest and uneven. The outlook and policy challenges in Western Hemisphere economies are shaped by many of the same factors. First, a substantial fall in oil prices will affect the near-term pattern of growth—positively for the United States, negatively for Canada, and broadly neutral for the region as a whole. In this context, a stronger U.S. dollar has been helpful, but more volatile exchange rates also pose risks. Second, weaker expectations for medium-term growth in many emerging markets and advanced economies dampen current investment. Global and regional growth rates have been marked down, although risks are now more balanced than before. Key policy challenges center on raising actual and potential growth and supporting rebalancing.