Over the past 15 years, the countries of Latin America have made tremendous progress in strengthening their economies and improving living standards. A growing and vibrant middle class has emerged. The weight of the region in global economic output increased from about 6 percent in the 1990s to 8 percent in 2012. The region has also achieved impressive gains in terms of macroeconomic and financial stability. Real output growth has been strong and steady, inflation has been low and well contained in most countries, and international reserves have increased significantly. Public debt has fallen, and most countries no longer suffer from “the original sin”—the inability to borrow abroad in their domestic currency—with government debt now issued mostly in local currency. The adoption of flexible exchange rate regimes has strengthened the resilience of countries to external shocks. Financial deepening has proceeded at a steady pace in the context of overall sound and resilient financial systems. These achievements helped the region weather the global financial crisis relatively unscathed. Although output fell temporarily, most countries staged a rapid recovery supported by countercyclical policy.

New Challenges to Growth and Stability