commodity resources of latin america. of course, commodity prices themselves are influenced by global economic activity ; a u. s. slowdown could put downward pressure on commodity prices, providing an indirect but potentially significant link between the two regions. the inter - american development bank background paper for this session argues forcefully that recent strong global growth and high commodity prices provide a very supportive environment for latin american economies. 3 these developments have helped to mitigate the effects on latin america of financial market strains and the slowdown in u. s. economic activity. it is important not to lose sight of the fact that linkages through trade and capital flows continue to be important and, indeed, have even increased over the past decade or so. lessons going forward what are the lessons that latin america should draw from the recent financial strains in light of the growing linkages between latin america and the rest of the world? i think it is extremely important to bolster the great progress that has been made in many countries in the framework of macroeconomic and microeconomic policies and to extend these improvements to those countries that have experienced little improvement so far. the current attractive conditions for commodity exporters should not deceive us into thinking that latin america has permanently escaped international business cycles. on the macro front, the good economic outcomes in most of latin america that i described earlier reflect greater discipline in both monetary and fiscal policy. although there have been some exceptions, central banks in latin america have demonstrated their resolve to prevent inflation pressures from becoming entrenched. governments generally have not allowed spending to absorb all of the increased fiscal revenue from rapid growth. in terms of microeconomics, bank regulation has been strengthened, and local equity and bond markets inter - american development bank research department ( 2008 ), " all that glitters may not be gold : assessing latin america's recent macroeconomic performance " ( washington : inter - american development bank, april ). have been developed and are growing in a number of latin american countries. financial fragility from currency and maturity mismatches in the structure of debt has been pared back. together, these structural improvements reduce the vulnerability of the financial system to external and internal shocks. not only do better macro policy frameworks help to strengthen local financial systems, but they provide confidence to investors that prudent policies will be taken in the face of external shocks. better microeconomic regulatory policies help markets to operate more efficiently, thereby increasing economic growth, which makes continued monetary and fiscal discipline easier to achieve.

funds. 1 foreign capital has surged into latin american equity markets in recent years, helping to push market capitalizations to new heights. finally, foreign direct investment into latin america is substantial and has continued to grow. the imf estimates that total private capital inflows to latin america jumped to $ 173 billion last year, compared with an average of $ 79 billion per year over the previous ten years. 2 an important factor fostering these flows has been improvements in macroeconomic and microeconomic policies. committee on the global financial system ( 2007 ), financial stability and local currency bond markets, cgfs publications no. 28 ( basel, bank for international settlements, june ). international monetary fund ( 2007 ), world economic outlook : globalization and inequality, world economic and financial surveys ( washington : international monetary fund, october ), p. 239. an interesting and potentially important development in the past five to ten years has been the decline of current account deficits throughout latin america and the rise of current account surpluses in many countries in the region. external debt burdens also have fallen substantially. in part, these developments reflect greatly improved fiscal discipline. whereas bond issuance in international markets was an important source of capital in the 1990s, the improving fiscal situation led to negative net international bond issuance for latin america, on balance, during much of the current decade. indeed, brazil recently announced that its foreign assets exceeded its foreign liabilities for the first time ever, reflecting increases in international reserves, buybacks of global bonds, and the retirement of its imf loans. large holdings of foreign exchange reserves provide a valuable cushion against fluctuations in foreign demand for a nation's exports or financial assets. it is important, however, to recognize that the decline of net capital flows to latin america has not been accompanied by an equivalent decline in gross flows. indeed, globalization has led to increasing gross holdings of both assets and liabilities with the rest of the world. thus, to a great extent, all countries have become linked by a common global market for capital in a way that we have never seen before. global shocks constitute a third set of linkages between the united states and latin america. the recent global increases in commodity prices have generally had negative implications for u. s. growth and positive implications for latin american growth, as the united states is a net commodity importer and latin america is a net commodity exporter. high commodity prices have also encouraged foreign investment, and thus capital flows, to help develop the