ABSTRACT
This chapter discusses the substantial progress the countries of the region have made toward macroeconomic stability. A fundamental reality of the world economy until the 1970s was that oil was a relatively cheap commodity. Organization of Petroleum Exporting Countries was formed in 1960 to mitigate relatively low oil prices. For many of the countries of the region, macroeconomic conditions in 1973 left them ill prepared to deal with rising oil prices. The policy response in much of Latin America to the two major oil shocks was to attempt to stabilize real gross domestic product and unemployment. The fiscal rule was designed for macroeconomic stability and to provide revenues from commodities for future generations. However, in a disaster-prone region, the existence of sovereign wealth funds may provide a buffer against unexpected events such as the earthquake in Chile. The chapter concludes with a discussion of the difficulties that these changes can cause for macroeconomic policy in a country.
