The Dialogue Continues

Where Does Latin America Stand After the G-20 Meeting?

Leaders from 20 of the world’s largest economies concluded the two-day G-20 summit June 27 in Toronto with a compromise agreement that includes aggressive targets to cut deficits, but leaves up to individual countries other reforms including a proposal for a global bank tax that Mexico and Brazil both opposed. How big was the rift between the United States and Europe over winding down stimulus measures, and where does Latin America stand? Is the G-20 still a relevant forum for coordinating global economic policy, or has the unity it showed during the depths of the economic crisis been diminished as recovery takes hold?

The differences between the United States and the European Union were obvious and significant. The United States owes the end of the 2009 recession to fiscal and monetary stimulus that have been in place since mid-2008, while Europe is struggling with a loss of credit due to concerns about the strength of its finances and banking system. When faced with a loss of credit like Europe is seeing now, and especially if you’re spending more than you’re bringing in, the only alternative is to lower costs. That’s why you see the fiscal adjustments being announced and the devaluation of the euro. At the same time the United States lowered interest rates aggressively in 2001 and 2002 in an effort to rebound from the short recession of 2001 (which later generated the subprime bubble), Latin America was making significant exchange-rate (Brazil, Uruguay and Argentina) and fiscal (Argentina) adjustments. The consequence during that period of recovery was that Latin America developed (either out of conviction or necessity) countercyclical fiscal and monetary policies that avoided bubbles like the ones that eventually collapsed in the United States and the European Union. So Latin America’s position today is relatively more comfortable than in the past, and during the G-20 meeting in general the region supported the U.S. position of not immediately winding down fiscal and monetary stimulus. Latin America is more worried about maintaining economic recovery than the possibility of a financial crisis like that in Europe. As for the G-20’s relevance, in a globalized economy there has to be coordination of economic policies among countries, just like the European Union is unviable without a common economic policy. Without a doubt, the crisis has been less severe with coordination than it would have been without it, although it’s true that some of the unity shown by the G-20 has diminished as the United States entered recovery. But this is both logical and human; when a crisis is global and threatens everyone equally as in 2009, there’s likely to be more unity than when some countries are doing well and others poorly.