Archive for May, 2005
An interesting debate is taking place on where Latin America is headed and about the growth prospects for this region. In 2004, Latin American growth was 5.8% – the highest in decades – and this year it will be another high growth year for the region. Since Latin American growth had stagnated for decades below that of other emerging market regions (especially Asia) and was dismal as late as in 2001-2003, the data for 2004 and 2005 lead to the important question: has something fundamentally changed in Latin America – in terms of policies, reforms and productivity trends – that will lead to permanently higher growth? Or is the recent experience all cyclical and driven by lucky/positive external fundamentals that are likely to be temporary (high global growth, low global interest rates and temporarily high commodity prices)?
In the classic Kurosawa film Rashomon, a heinous crime is perpetrated in a forest. This crime is reported by four witnesses, each giving his or her own point of view. Who is telling the truth? Who is lying and what is truth? Which version of the story, if any, is the real truth about what happened in the forest?
Today, the large global imbalances are a similar heinous event that requires explanation and interpretation. In this contemporary Rashomon drama, the basic facts are known: the US is running large fiscal and current account deficits while the rest of the world is running large current account surpluses. The flow of capital that is financing these US twin deficits is mostly (three quarters or so) coming from foreign central banks – mostly in Asia but not exclusively – that are aggressively intervening to prevent an appreciation of their currencies.