Americas Quarterly - Spring 2009

asK tHe eXPerts

improve the region’s competitiveness and set the stage for recovery and growth.

This crisis opens the door to new opportunities. Governments could now review “universal subsidies” which benefit not only the poor but the middle class and even the affluent. The region annually spends between 5 to 10 percent of GDP on subsidies, with nearly one-third going to the wealthiest 20 percent of the population—enough to triple (or more) direct transfer programs for the poor.

The World Bank Group, meanwhile, is increasing financial support throughout the developing world, including lending for middle-income countries ($100 billon total from 2009 to 2011), grants and concessional lending for low-income nations (more than $40 million), and loans for the private sector through the Interna-

tional Finance Corporation (more than $30 billion).

We made new commitments in Latin America of up to $13 billion for the fiscal year ending June 2009, more than doubling our regular lending volume. These additional resources are critical to sustaining jobs and social gains, boost ongoing public sector programs and inject liquidity into countries that need it.

To move this agenda forward, leadership will be crucial, especially in the context of a dynamic political year. It is precisely during this crisis and in defining political junctures that responsible leadership in maintaining sound economic management combined with an emphasis on protecting recent social gains will be needed to cushion the external shock and facilitate the resumption of growth once the storm has passed.

FRANCISCO ANSWERS:

out of this slump?

FRANCISCO GIL DÍAZ is CEO of Telefónica for Mexico and Central America and was the secretary of finance of Mexico from 2000 to 2006.

AP Photo/Dennis Cook

The one fact public policies should take into account is that the local effects of the worldwide meltdown are unavoidable. They can be mitigated, but attempts to neutralize them through protectionism will be unsuccessful and will return to haunt countries that adopt them like a deadly boomerang.

We should use this opportunity to launch long-term solutions. The countries with the weakest currencies will be hardest hit by the crisis. But falsely propping up a weak currency would be foolhardy. This could, though, present itself as an opportunity. Countries should take advantage now to eliminate tariffs and non-tariff barriers to trade. They don’t even need to wait for reciprocity. They can act unilaterally to resolve them to the optimum tariff: zero. Doing so would generate productivity gains and a faster recovery.

Multilaterals must play a new role. The biggest sinner will not accept IMF

discipline. Therefore resources from the World Bank, the IMF and the IDB can address the affected victims. Expediency is imperative. Given the absence of credit, the international financial institutions (IFIs), should adopt a more creative approach of lending to the private sector. Their assistance should consist of partial guarantees. Government should still be allowed to tap them for new credit, but their demands should not crowd out private needs for refinancing.

Emerging economies have remained mostly outside the sub-prime temptation but are not immune from the toxic assets contagion. As governments consider reforms to regulations and supervisory agencies, they should look to international norms and design them with an eye toward prevention.