The commodity cycle in Latin America : mirages and dilemmas

The South American (SA) sub-region of Latin America and the Caribbean (LAC), on which this report focuses for the most part, is experiencing another episode of stress and uncertainty, much of which is related to the bursting of the commodity price bubble. This report complements a number of other reports in this series1 that have analyzed salient aspects of the economic and social developments in the region, throughout the upswing and downswing phases of the cycle. This is the first report in the series that examines the macroeconomics of the cycle taken as a whole. As its title indicates, the report associates mirages with dilemmas. This book is arranged as follows: Chapter 1 sets the ground for the rest of the report. It covers the short-term prospects and attempts to sort out the common external factors driving these prospects from the domestic, country-specific factors. It concludes with a status report on the various policy constraints the region is facing and the progress it has made in adjusting to these constraints. Chapter 2 provides the core analytical and empirical content of the report. It takes a broad swipe at the cycle and looks at its external roots and channels through which the external shocks were transmitted to the region’s economies. The chapter goes into some length trying to differentiate and sort out country experiences and performances according to a series of multiplier-dampener factors and effects. At the same time, it attempts to link the choices and mirages of the past with the constraints and dilemmas of the present. Chapter 3 concludes with a policy discussion that summarizes the lessons of the past and draws some of their implications for the future.