Argentina the exception rather than the rule

Argentina’s currency crisis has put the spotlight on the country’s growing economic fragilities, but vulnerabilities in the region’s other major economies have diminished in recent years. Current account deficits of most countries are now less than 2% of GDP, which is smaller than at any point over much of the past decade. And most shortfalls are more than covered by FDI, which tends to be a relatively stable source of funding. Foreign currency debt is high relative to other EMs in some economies (notably Chile and Peru), but this is mainly in the corporate sector and appears to be well hedged. Economic growth in the region remains relatively sluggish and Brazil’s fiscal position is a long-term concern. But Argentina aside, external vulnerabilities in the major economies in Latin America are much lower than in the past.