ratio should drop by only half a point. Finally, the growing deficit of
the current account triggered a wave of currency devaluations.
Indeed, with the exception of Venezuela and Peru, between January
2008 and March 2009, the nominal exchange rate of the largest
economies depreciated by between 15% (Argentina) and 35%
(Mexico) (CEPAL 2009b). These devaluations may however be a
blessing in disguise in light of the overvaluation of most currencies
in the region prior to the crisis (Ocampo 2009), and may provide
important incentives to diversify the economic structures of many
countries. As a result, it is expected that the growth rate of GDP of
the region will drop from 4.2 in 2008 to -1.9 in 2009, to recover to
an estimated 3.1 in 2010 (CEPAL 2009b). While the majority of
growth rates range between +1% and -2%, in Mexico the drop (-
7%) is extremely severe.
What is the distributive impact of the crisis? Will the crisis erode the
inequality declines recorded since 2002-03? To answer these
questions, it is important to note that the current crisis hits a region
which exhibits much better conditions than those prevailing during
the crises of 1982-1984 and 1998-2002. To start with, the crisis is
mainly a real economy crisis, and less a financial crisis, as in the US
and parts of Europe or as experienced in the region during the
1980s and 1990s. This means that fewer funds are needed than in
the past to recapitalize ailing banks, and that fiscal policy can
expand pro-poor and pro-growth public expenditures. Second, this
is even more true when considering that many countries in the
region are in a position to follow countercyclical fiscal policies
entailing deficits for a couple of years (the expected duration of the
global crisis). This is due to the decline of the public debt/GDP
ratio, large accumulation of currency reserves, and decline in
inflation achieved over 2002-2008 (see Part 3). In turn, with few
exceptions, Central Banks can also carry out a more flexible
monetary policy without endangering their inflation targets.
Also, the recent devaluations of the exchange rate are likely to
correct recent real appreciations, as in the case of Brazil, with a
possible favorable impact on export growth, diversification of the
economy and inequality. Third, the impact of the recession via
international trade will not affect all countries equally. For instance,