Coping with Crisis: Lessons
from Asia and Latin America

Akio Hosono
National Graduate Institute for Policy Studies

1. Introductiony Both Asia and Latin America experienced

serious financial crises.
y Both regions recorded high rate of growthwith sound macro-economic conditions after
financial crisis and reforms
y Common and different lessons Asia and Latin
America learned from their crises andreforms could give us useful insight for African
development

2. Latin America:
Repeated Crises and Recovery
y 1982: Debt Crisis in most of Latin Americancountries
y Reforms in 80s and 90s
y 1994: Financial crisis in Mexico
y 1998: Financial crisis in Brazil
y 2001: Financial crisis in Argentine
y 2003-07: Recovery (6% growth per year, thehighest rate since 70s) with lower inflation ratey LAC 7 (Argentine, Brazil, Chile, Colombia, Mexico, Peruand Venezuela) account for 91 % of LAC’s GDP

IDB, All That Glitters May Not Be Gold: Assessing Latin America’s Recent
Macroeconomic Performance, 2008

IDB, All That Glitters May Not Be Gold: Assessing Latin America’s Recent
Macroeconomic Performance, 2008

Latin America:Lessons learned from crises
y Improvement in fundamentals made Latin

America less vulnerable to adverse
external shocks and financial crisis.
y Improvement in fundamentals allowed
Latin America to sustain high levels of
growth in last five years 2003-07.
(Together with favorable external factors:
strong world growth, high commodity
prices and benign financial conditions)LAC: Sound Economic and FinancialPolicies
y Fiscal position: regions’ overall surplus of

1.5% of GDP in 2007y At the peak of the previous expansionary
period LAC 7 exhibited a fiscal deficit of
0.9% of GDP
y Brazil: a sizable primary surplus (overalldeficit due to a high debt burden)y Other LAC 7: in balance or a surplus

IDB, All That Glitters May Not Be Gold: Assessing Latin America’s Recent
Macroeconomic Performance, 2008

LAC: Lower debt levels andless risky debty Significant reduction in public debt levels: from

51 % of GDP in 2003 to 35% in 2007y Debt riskiness has been reduced (Risky debt
includes foreign- currency debt, short-term debt
and variable interest rate debt)
y Major improvement in debt composition:
Foreign-currency debt in total public debt fell
from 65 % in 1998 to 38 % in 2007y Maturity has been lengthened: Public debt
maturing in the next twelve months has declined
from 6.9 % of GDP to 4.8% of GDP

IDB, All That Glitters May Not Be Gold: Assessing Latin America’s Recent
Macroeconomic Performance, 2008

IDB, All That Glitters May Not Be Gold: Assessing Latin America’s Recent
Macroeconomic Performance, 2008

IDB, All That Glitters May Not Be Gold: Assessing Latin America’s Recent
Macroeconomic Performance, 2008

LAC: Reduced Exposure
to External Shocky Improvement in the current account: LAC 7from a deficit of 3.0% of GDP in 1997 to asurplus of 2.2% of GDP in 2007y Strong build-up of international reserves
y Pre-crisis: Previous expansions wereassociated with large current account deficit
and thus, heavily dependent on a steady flowof external financingy Post-crisis: Exposure to sudden stops incapital flows has been mitigatedIDB, All That Glitters May Not Be Gold: Assessing Latin America’s Recent
Macroeconomic Performance, 2008

IDB, All That Glitters May Not Be Gold: Assessing Latin America’s Recent
Macroeconomic Performance, 2008

IDB, All That Glitters May Not Be Gold: Assessing Latin America’s Recent
Macroeconomic Performance, 2008

Impact of the current financial
turmoil to Latin Americay As mentioned, improvement in fundamentals

made Latin America less vulnerable toadverse external shocks and financial crisis.
y However,y LAC have not “decoupled” themselves fromadvanced nations: Some of them are still fragile
and affected by the current financial turmoil(According to Sebastian Edwards, Ex-chief
economist for LA, WB), and thereforey Price of stocks lowered in LAC stock exchanges
y LAC’s currencies depreciatedy In some of LAC, cost of external financing soared

y Some of LAC “need to create a robust

economy with a high and sustainablegrowth rate.” “Agility, dynamism,productivity and economic policies
that promote efficiency andenterprises are required.” (SebastianEdwards, Ex-chief economist for LA, WB)
y LAC need to strengthen regional
integration and cooperation to reduce
their fragility

Competitive sectors andenterprisesy In the process of reforms after crises,

competitive sectors and enterprises haveemerged in Latin America such as:
y Car and electronics industries in Mexico(due to NAFTA and other FTA or EPA)
y Car, steel, electronics, agro-industry, etc. inBrazily Natural resource related sectors, nontraditional export sectors in Chiley However, as mentioned above, economic
policies that promote efficiency andenterprises are required2. Asia: 1997 Financial Crisis andRobust Recoveryy The East Asian Miracley 1997 Financial Crisisy Reforms
y Robust Recovery

East Asian Miracle

Source: ADB, Emerging Asian Integration, 2008

eSource: ADB, Emerging Asian Integration, 2008

Source: ADB, Emerging Asian Integration, 2008

Asia: Lessons Learned from theCrisisy Reforms
y Regional Cooperation and Integrationy In this process, competitive sectors andenterprises have been expanded in Asia

Asia: Reforms
y Sound Macroeconomic managementy Sound fiscal policyy Limit public debt
y Limit current account deficity Other measures to prevent or reduce

the risk of crises

CSource: ADB, Emerging Asian Integration, 2008

Asia: Macro-economic Soundness
Attained by post-crisis reforms
y Low inflation ratey Lower fiscal deficity Low public debt
y Current account surplus
y Increase of foreign exchange reserves
y Lower non performing loans(Improvement of bank efficiency)

Source: ADB, Emerging Asian Integration, 2008

ASource: ADB, Emerging Asian Integration, 2008

TSource: ADB, Emerging Asian Integration, 2008

Asia: Regional Cooperation andIntegration as Another Measure toReduce Vulnerability to External Shockand Enhance Competitivenessy Trade policy coordinationy Macroeconomic links
y Intraregional tradey Intraregional foreign direct investmenty Equity market
y Tourismy In this processy FTA and regional integration
y Regional cooperation (such as Chang Mai Initiative)y Physical integration by regional or sub-regionalinfrastructure

Source: ADB, Emerging Asian Integration, 2008

Source: ADB, Emerging Asian Integration, 2008

TSource: ADB, Emerging Asian Integration, 2008

Source: ADB, Emerging Asian Integration, 2008

Source: ADB, Emerging Asian Integration, 2008

cSource: ADB, Emerging Asian Integration, 2008

Expansion of competitive sectors andenterprises after crisis both in Asiaand Latin America
y Economic Reforms made private enterprises

more competitive in both regionsy In Asia, in addition, market-led regional and/orsub-regional integration made private
enterprises more competitive. (Strengthened“Flying Geese”)

4. Implications for Africa
y Africa compared with Asia and Latin Americay Recent growth rate: Africa’s growth rate

is higher than Latin America’s growth andlower than Asia’s growth during 2003-07

Causes of African Growthy The good news: many of the factors that havecontributed to growth collapses in Africa have
improved (Page, John, “Hunting for Leopards:
Perspectives on Africa’s Recent Growth” 2008)y – Better economic management (lower inflation,etc.; however economic fundamentals remainweak)y – More competitive exchange ratey – Better institutionsy – Better governancey – Fewer conflicts

Africa still remains vulnerable
y In spite of high growth rate in last fiveyears: The region remains vulnerable tooutside shocks and changes incommodity prices (Page, John,“Hunting for Leopards: Perspectives on
Africa’s Recent Growth” 2008)

Then, How to Reduce Vulnerability
to External Shocks
In order to reduce vulnerability to external shocks:
Lessons from Asia and Latin America suggest theimportance of:y Sound macro-economic management (Commonfactors of growth in Asia and Latin America inpost crises period; certain progress in Africa)
y Regional integration and cooperation (Speciallyrelevant in Asia; some progress in Latin America)y Promotion of competitive sectors andenterprises (Specially relevant in Asianexperience; some progress in Latin America)

Asia has been successful in regional
integration and cooperation:
Implications for Africay World Development Report 2009 mentions

regarding Africa: “……transport links can help
domestic markets grow. And regional and global
integration can promote trade. Regional
integration, labor mobility, investments in trade,
communication and transport infrastructure,peace and stability should remain high on theagenda. They can create good neighborhoods,
and better neighborhoods will facilitate
investment, trade, and factor mobility in a cycleof prosperity” (p.285)

Yokohama Action Plan (TICAD IVProcess) is important not only toattain self-sustainable economic
growth but also to cope with crisisy TICAD IV process will promote a “VibrantAfrica” and its accelerated economic growthand diversification through support ofinfrastructure development, trade,investment and tourism, and agriculture.
(Yokohama Action Plan, p.1)

Infrastructure in Yokohama A.P.
y Regional transport infrastructurey Regional power infrastructurey Water-related infrastructurey Enhanced involvement of regional

institutionsy Promotion of public private partnership ininfrastructureTrade, investment and tourism in
Yokohama A.P.
y Promote and expand tradey Encourage foreign investmenty Assist private sector developmenty Promote tourism

Agriculture and rural development
in Yokohama A.P.
y Enhance capacity to increase foodproduction and agricultural productivity
y Improve access to markets andagricultural competitivenessy Support sustainable management of water
resources and land use

Thank you very muchReferencesy World Bank, World Development Report2009y Asian Development Bank, Japan Bank forInternational Cooperation and World
Bank, Connecting East Asia: A New
Framework for Infrastructure, 2005
y Asian Development Bank, Emerging Asia
Regionalism: A Partnership for Shared
Prosperity, 2008
(continued)

References (continued)
y Inter-American Development Bank, All That

Glitters May Not Be Gold: Assessing Latin
America’s Recent Macroeconomic Performance,
2008
y TICAD IV Yokohama Action Plan, 2008y Edwards, Sebastian, “The financial Hurricane
hits Latin America”, Los Angels Times (Nov.
13, 2008)
y Page, John, “Hunting for Leopards:
Perspectives on Africa’s Recent Growth”
2008References (continued)y Devlin, Robert and Ricardo Ffrench-Davis,

Towards an Evaluation of Regional
Integration in Latin America in the 1990s,
IDB/INTAL, 1998
y Fernandez-Arias, Eduardo, Rodolfo
Manueli and Juan S. Blyde (ed.) , Sourcesof Growth in Latin America: What is Missing?,
IDB 2005