Foreign-bank lending to emerging markets during the global crisis differed from continent to continent. Lending by foreign banks is an important part of international capital flows to emerging markets and a defining feature of financial globalization. In the years preceding the recent global crisis, foreign-bank lending to emerging economies expanded rapidly—whether directly from foreign-bank headquarters (cross border) or through affiliates operating in host countries. In many countries, especially in Latin America and emerging Europe, lending by foreign banks became a significant source of funding for households and corporations. Although it had its pros and cons, on balance the presence of foreign-owned banks was generally believed to have enhanced competition and aided overall financial stability.
Inflation in the region1—which rose to over 8 percent in August 2008—is expected to remain high through end-2008, before beginning to decline gradually in 2009. For Latin America and the Caribbean, this surge in inflation is the first real on the region’s commitment to low inflation. To asses the challenges of keeping inflation under control, a recent study by IMF staff analyzes two related questions: (1) what are the main determinates of the inflation surge? and (2) how monetary policy has responded so far?.