Americas Quarterly - Spring 2009

growth of 5. 8 percent in 2008). And Mexico has been revised to negative numbers, expected now by the IMF to contract by -0.3 percent—which looks pretty good compared to the expected contraction of the United States in the same period of - 2.0 percent.

The crisis will continue to deeply affect the central policy challenges in the Americas (investment, trade, economic growth, development, and immigration). And it will sharply underscore our common bonds within the hemisphere—in both directions. For many countries south of the Rio Grande, the primary responsibility lies with the United States to get its financial and economic house in order, as Brazilian President Luiz Inácio Lula da Silva said. Mexico, which depends on the U.S. market for

80 percent of its exports, would obviously be an early benefactor.

But the broader solution must involve more than just the United States cleaning up its financial and economic mess and restimulating the economy. As several of our authors in this issue argue, a global crisis demands a global remedy.

By necessity this will involve a reorganization and recapitalization of the international financial institutions (IFIs). U.S. and international private capital investment is not likely to return soon to the region in anywhere near the amounts that it did in the early 2000s. As Ricardo Hausmann and Pablo Guidotti argue in their articles, the decline in confidence and risk-taking that has followed the crisis has left the IFIs and public sector with the responsibility of restoring credit markets. Failure to do so, they both write, threatens a more protracted and painful economic recession.

The same is true of trade. Getting through the economic crisis intact will require resisting the temptation of economic nationalism. Enter the World Trade Organization ( WTO). The once-thought extinct Doha Round of negotiations under the WTO now represents the best way of sustaining and breathing new life into a flagging consensus over free trade. With the potential of collectively restarting the world’s economic engine, developing and developed countries may now see this as an opportunity.

Beyond action by the U.S. or the IFIs, cushioning the political and social fallout will depend on the domestic

policy choices made by governments in the hemisphere. On the U.S. side this has to do with how Washington treats documented and undocumented immigrants. Rising unemployment and domestic insecurity could fuel a populist, anti-immigrant backlash. But immigrants have fueled the country’s economic competitiveness and consumer boom. Turning up the pressure on foreign-born workers, especially without immigration reform, risks undermining long-term prospects for growth.

U.S. immigration policy also affects Latin American countries, which have depended on remittances for hard currency and as a social safety net. As Marcelo Suarez-Orozco explains in his article, the drying up of this cash flow will have serious implications for rural development.

The return of immigrants to their countries to look for work in already slack labor markets also affects education and social mobility. In her excellent comparative piece on social mobility in Mexico, Florencia Torche writes that the labor surplus, stemming in part from the return of immigrants, may actually provide an incentive for children to remain in school.

The populist pressure on governments across the region is also bound to increase.

Can they judiciously apply the regulatory and legal reforms and countercyclical policies necessary without upsetting the apple cart? The Americas Editor for The Economist, Michael Reid, asserts that the countries that have adopted policies of economic diversification and stability and wisely socked away money from the commodity boom are best poised to weather the storm. Similarly, Benjamin Wolf predicts that the halcyon days of easy credit and booming capital markets are over. Investors and credit will return to those countries that pursue sound fiscal and monetary policies. Those that don’t will be left behind.

Which brings us full circle to a year ago. Sure, the crisis will test the resolve of policymakers, the patience of electorates and the creativity of the international financial system. Ultimately, though, getting through it and minimizing the short- and long-term social damage will depend on sensible economic and social policymaking.