One of the most striking features of the recent financial crisis was its global nature. But for some emerging economies, including Brazil and Peru, the downturn was less severe and the recovery stronger than for the developed economies.
In "Brazil and Peru Economies Set to Flourish in Postrecession World," featured in the first quarter 2010 issue of EconSouth, Amy Ellingson examines the reasons why these emerging economies escaped the worst of the damage.
One factor is that the financial crisis began in the secondary financial markets of the developed countries, explains Ellingson, an economic analyst in the Atlanta Fed's Research Division. Brazil, Peru, and many other emerging economies have no such "shadow banking system," she writes. Additionally, Brazil and Peru benefited from a host of structural reforms and prudent macroeconomic policies that were implemented prior to the crisis. Yet another boost came from high commodity prices and growing demand—especially from China—for the region's exports.
Importantly, many of the reforms left these countries well positioned to mount a meaningful response. "Brazil and Peru's governments were able to respond to the crisis with active policies that boosted output and employment and contained declines in real income," writes Ellingson. Moreover, both countries established inflation-targeting regimes and flexible exchange rates, allowing the central banks to provide liquidity during the crisis.
Although the economic outlook is positive for Brazil and Peru, they still must take some important steps. Notably, Ellingson writes, the commodity boom has highlighted the need for these countries to diversify their economies.
Be sure to read the full article, featured in the first quarter 2010 issue of EconSouth, for more information on how Brazil and Peru have built resilient economies.