Juan Cerutti, vice president of economic research at Santander, also called attention to how Latin America has weathered the situation, with strong exchange rates and continued GPD growth in most countries. “The situation is different this time, thanks to the central bank's early action, healthy commodity price levels and strong macroeconomic principles,” Cerruti said in a roundtable with Banco Santander's Latin America chief economists.
He attributes the region's success in responding to changes in interest rate cycles partly to the macroeconomic environment, as evidenced by the strong performance of the external sector. Exports have tripled in 20 years and foreign direct investment is at an all-time high. According to Santander's chairman, “over the next four years, foreign direct investment in Latin America will exceed that in Asia.”
Central bank independence
Mr. Botín also pointed to the central bank's independence in taking such swift and bold steps to combat the rebound in inflation. “One of the most important things for investors, not only foreign investors but also domestic investors, is strong financial institutions. Today, Latin America has an independent central bank,” Botín said. He spoke in front of journalists from five American countries. “We now have a well-regulated and monitored financial system with healthy levels of capital,” she added.
All of this occurred during the so-called “lost decade” of development, when Latin America was hit hard by interest rate hikes led by then-Federal Reserve Chairman Paul Volcker to curb the inflationary spiral. This is in stark contrast to the 1980s.
Latin America has changed dramatically in recent years, with greater economic and institutional stability and central banks wielding greater influence. “The challenge ahead is to lower interest rates without losing money value, which could prevent disinflation,” Cerruti explained. And, as was pointed out at the 2023 International Banking Conference in Santander, growth is the key to further leaps forward.
