Latin American Economic Outlook 2010

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Contrary to prevailing wisdom, Latin American countries that opened their markets to international competition during the last decade have not been more vulnerable to the global economic downturn. The OECD Latin American Economic Outlook 2010 provides a fresh analysis of economic trends in the region with a particular focus on the role that international migration and remittances play in shaping the current context.

“Among the most interesting surprises by the global economic crisis: so far its impact on Latin America has been less than anticipated. This OECD report offers a clear analysis of the factors that explain this phenomenon.” Moisés Naim, Editor in Chief, Foreign Policy

“This essential study shows that countries open to the international economy with serious fiscal and monetary policies were better prepared to confront this crisis. The reprot also explains, with realistic analysis, why why migration policies belong on the international agenda.” Ricardo Lagos,former President of Chile

“This volume suggests that migration can help the development process provided that some interventions are adopted both in the sender and recipient countries.” Mauricio Cárdenas, Senior Fellow and Director of the Latin America Initiative, Brookings Institution

“Policy makers, academics and others interested in Latin American will find here a serious and relevant contribution to advancing their own work.” Santiago Levy,Vice President for Sectors and Knowledge, Inter-American Development Bank

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Remittances and Capital Markets in Latin America

OECD Development Centre

In many Latin American and Caribbean economies low levels of domestic savings or underdeveloped private capital markets have made foreign lenders more reliable suppliers of capital than domestic sources. This chapter asks whether remittances could do something to improve this situation. There is an analogy to their microeconomic role discussed in the preceding chapter: receipt of remittances reduces the vulnerability of households, lessening the risk that they will fall into poverty when hard times hit the home economy. Likewise, inflows at the macroeconomic level which tend to be among the least volatile of foreign flows can make entire economies more stable. Do the actors in the capital markets in recipient countries – the government and major banks at least – take full advantage of the opportunities that an inward stream of remittances provides? Do rating agencies adequately take into account this benefit of remittance inflows when they calculate sovereign risk levels? In answering these questions it is appropriate to examine first how remittances affect the development of capital markets in emerging and developing economies. This chapter approaches this from two angles: first, the financial effect and, second, the impact on sentiment.

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