The Sky's The Limit

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If Asia has begun to search for new paths back up the mountain to prosperity, much of Latin America is only in the foothills. No region offers a more sobering picture of how volatility translates into vulnerability than Latin America. In 1999 it was nature that buffeted the region--El Nino, the effects of 1998's hurricanes Georges and Mitch, the floods of coastal Venezuela--but a collapse on Wall Street could have a no less devastating effect. Moises Naim, editor of the journal Foreign Policy, based in Washington, noted that 1999 set a series of dismal records for Latin America: the highest unemployment rates ever recorded, the highest fiscal deficits in a decade, a near unprecedented collapse of foreign investment and trade. By necessity, said Naim ruefully, "Latin Americans are now the best in the world at managing crisis."

For all that, Naim saw growth possibilities of 2% to 3% in the region. U.S. trade and foreign investment have made Mexico a comparative bright spot, and Brazil has begun to recover from a slump. But the improving prospects depend on continuing prosperity outside the region. "It is wrong that a stock-market crash in the U.S. could benefit emerging markets," said Naim. "When there is a correction, money flows out of the American stock market into bonds--not to emerging markets."

How likely is such a correction? The board didn't foresee its happening soon, but members didn't rule it out. Nor did they see a major slippage in stock markets as the end of the world economy. A slide of 35% in the value of the New York Stock Exchange would surely wipe out the U.S. "wealth effect" and decimate public confidence. But, Courtis argued, the fundamental transformations brought about by globalization and the Internet would provide a foundation for another boom. Besides, as Hormats put it, "investors have a greater sense of confidence that when the markets go down, governments know how to deal with it." On the other hand, no one wants to see that confidence put to the test.