Concerns about widening current account deficits have been a key factor driving the recent turbulence in financial markets in Latin America. But while the deterioration in the current account positions in some parts of the region is alarming, most countries are now much less vulnerable to an old-fashioned balance of payments crisis than they once were. A much bigger concern, in our view, is that governments in pretty much every country have taken advantage of cheap and plentiful foreign finance over the past five years to fund a consumption binge rather than much-needed investment. Latin America isn’t facing a lost decade. But it may just have experienced a wasted one.
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