Abstract

Highly favorable terms of trade and external financing conditions have helped Latin America strengthen its fiscal and external fundamentals markedly over the last decade. But, how dependent are these gains on a continuation of such conditions? This chapter assesses debt sustainability under less favorable external scenarios. It finds that, while some countries are well placed to withstand sizeable shocks, many would benefit from a stronger fiscal position to be able to deploy countercyclical policies, especially under tail events. External sustainability, in turn, does not appear to be a source of concern for most countries yet.

Contributor Notes

Note: Prepared by Gustavo Adler and Sebastián Sosa, with research assistance from Andresa Lagerborg. See Adler and Sosa (2013) for technical details.
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