A visit by an International Monetary Fund (IMF) official used to be a nightmare for Latin American governments. That is, until the European crisis caused a role reversal: emerging economies are now the ones helping developed nations.
IMF Managing Director Christine Lagarde’s recent trip to Mexico, Peru and Brazil set a different tone; the usual message of economic austerity and brutal adjustments changed to one of partnership to rescue Europe. Both Mexico and Brazil showed interest in reinforcing the IMF’s $390 billion fund, which may not be enough to alleviate the crisis in the old continent.
This is not a 21st century aberration, but the reflection of a changing economic reality in a world of interconnected markets.
First, the IMF’s data shows that Latin America has been at the forefront in economic growth this year, with expansion forecast at 4.5% compared with 1.6% in developed nations. At the same time, the UN has estimated poverty in the region is at its lowest level percentage-wise in 20 years (31%).
This positive continental trend could be affected if Europe’s economy plunges into a depression and there is no consumer market, particularly for Latin American commodities. Peru has already felt the blow.
Europe is at a key point to save the euro-the currency several nations share-and its decades-old common market. Led by Germany and France, the challenge now is getting these countries to accept changes, regulations and austerity to guarantee transparency and collective stability.
Meanwhile, Latin America, which is nevertheless not free from economic hardships, has been afforded the luxury of making recommendations about the European adjustment and of taking advantage of the situation to expand the region’s influence on the financial world.