ABSTRACT
This chapter examines how recent shocks impacted Latin America. Most countries continued a market-based approach, but the 2008 financial crisis and 2020 COVID-19 pandemic tested the region's economies. Many countries weathered the shocks better than in previous periods. Still, informality, high remittance rates, unreformed tax structures, and procyclical monetary and fiscal policies sometimes proved destabilizing. Increasing global commodity prices between 2001 and 2014 eased the fallout from 2008 and helped fund a series of distributional welfare programs implemented at the turn of the twenty-first century to address structural inequality. Countries that had transitioned to countercyclical fiscal and monetary policies fared better, utilizing foreign currency reserves to stabilize exchange rates. The pandemic's impact on production was relatively short-lived: GDP returned to pre-pandemic levels by 2022. The crisis, however, revealed key regional weaknesses. COVID-19 proved particularly deadly among the region's marginalized populations and Latin America's high informality rates meant government aid to the formal sector failed to reach many people. Immigration rates help reveal some of these tensions. Countries heavily dependent on remittances also proved particularly susceptible to global shocks, and when raising interest rates proved unable to control inflation, confidence in national currencies eroded, often leading to dollarization.
