Fifth Lecture - John Taylor

Fifth Lecture - May 17, 2005

"Latin America: From Economic Crisis to Economic Growth"

Speaker: John Taylor, former Under Secretary of the US Treasury for International Affairs

Today I would like to talk about some of the good economic news that has been coming out of Latin America. I want to discuss the reasons for this good news, and how the United States can work with people in the region to sustain it, and thereby translate it into substantial reductions in poverty.

I recently returned to the private sector after serving for four years in the job as Under Secretary of Treasury for International Affairs in the Bush Administration. This has given me some time to reflect a bit, and perhaps provide a more academic perspective today. I worked closely with many economic officials in the region. I have good memories of trips to Latin America and the Caribbean, including the universal hospitality of the people and the many new and lasting friendships. I plan to visit the region again next week, my first trip out of the United States in my new private sector capacity.

Restoring Economic Stability and Raising Economic Growth

I remember my fist day on the job as Under Secretary four years ago in early 2001. The economic news in Latin America was not so good then. The leaders in Argentina struggled to contain an ongoing and expanding financial crisis. Brazil's high debt levels were generating growing market concerns. Mexico was feeling the brunt of the recession in the United States. These difficulties came in the wake of the crisis ridden 1990s, so they were a serious cause for concern. Naturally, I was in close touch with the finance ministers and central bank governors from the region.

I am pleased to say that things are much different now as I leave office and transition to the private sector. There are no financial crises in the region. Interest rate spreads have fallen sharply. Capital flows have risen. Investment is growing, including foreign direct investment which increased by $16 billion last year. I am also pleased to see that there is less contagion. Following Argentina's default at the end of 2001, we did not see a repeat of the contagion that afflicted the global economy following the crises in Asia and Russia in the 1990s.

And economic growth has rebounded vigorously. Real GDP for the region as a whole grew by about 6 percent in 2004—the fastest rate in a quarter century. This has translated into millions of new jobs and higher incomes for workers and their families.

What accounts for this turnaround? First and foremost, economic policies are better, especially macroeconomic policy. By macroeconomic policy, I mean fiscal policy and monetary policy.

Regarding fiscal policy, strong political and economic leaders have reduced deficits and brought down debt. Many have also lowered foreign currency-denominated debt and exchange-linked debt, two sources of instability.

Full Speech