CGD in the News

The Challenge of Fiscal Balance (CNN en Espanol)

July 01, 2010

CNN en Español and Fortune Magazine hosted a special report during CNN’s program titled “Economia y Finanzas”. The program featured CGD senior fellow Liliana Rojas-Suarez and Carmen Reinhart, professor of Economics at the University of Maryland and former visiting fellow at CGD.

Both evaluated the status of the current global economic recovery and hypothesized their expectations for the rest of the year. Both Rojas-Suarez and Reinhart agreed that the recovery has been expedited in Latin America and Asia while the United States and Europe still face difficult times. In particular, Europe is in a much more precarious situation.

In response to Paul Krugman’s article “The Third Depression”, Rojas-Suarez does not agree with his views, disputing that seeing the recovery as one global entity is incorrect since different regions are experiencing varied stages of recovery. Reinhart felt that talk of a third depression is overly dramatic, but that debt was still very concerning, a fear shared by Rojas-Suarez.

Their outlook for Latin America is positive as a result of low international interest rates and high capital inflows to the region, largely facilitated by uncertainty in Europe. Both warned that Latin America should be cautious of becoming dependent on short term capital inflows. Learning from past crises, Latin America has acquired a flexible exchange rate system which allows for flexibility in monetary policy. While the region has new policy tools to deal with capital inflows, it still needs to improve its productivity and governability.