Latin Finance - March/April 2010 - 30

ﬁnance minister scorecard Trial by Fire by Ben Miller s most of Latin America’s economies roar back to life in 2010, it is easy to forget the uncertainty that the region’s governments faced just 12 months earlier. With forecasts of the end of the world and the very foundations of the global ﬁnance industry in mortal danger, ﬁnance ministry o cials could not be certain which tools to use. As enormous stimulus and support packages rolled out all over the world, broad, quick and decisive action was rewarded. “The single most important di erence between this episode and previous ones was that this time we had the policy space to carry out very deep counter-cyclical policy,” says Andrés Velasco, Chilean ﬁnance minister, who was set to step down in March as a new president is sworn in. “This had never happened in Chilean history and never really happened in Latin American history. We were able to act on several di erent fronts at once,” Velasco tells LatinFinance. Though all countries in the region were challenged by events of 2008 and 2009, some started in a better position than others, or enjoyed more freedom to act. Chile’s position of relative strength surely helped. Its performance last year, highlighted by a jumbo stimulus package, won Velasco top honors in the ﬁrst ever LatinFinance Finance Minister Scorecard. However, opinion was by no means unanimous. Mexico’s Agustín Carstens won his share of praise for anti-crisis e orts, pursued against heavy headwinds of a US recession, bloody drug wars, swine ﬂu, and a bickering and divided congress. LatinFinance surveyed analysts, strategists and economists in the region to ﬁnd out which ﬁnance minister best handled the crisis in 2009. Special consideration was given to the dimensions of challenges faced, and weighting was Chile beats Mexico when LatAm ﬁnance ministers are ranked for their handling of last year’s crisis. Unwinding stimulus measures and containing inﬂation are the main challenges. given by size of economy. Most of the larger economies are commended for faster than expected recovery, though some ﬁnance ministries were more directly involved in achieving this than others. Pushing on Multiple Levers “The most important difference between this episode and previous ones was that this time we had policy space to carry out very deep counter-cyclical policy,” says Chile’s Andrés Velasco Chile’s ample public savings and low public debt allowed it to launch in January an unprecedented $4 billion economic stimulus plan that included broad subsidies, tax rebates and a $1 billion capitalization for state copper producer Codelco. The plan caused a 10.7 % increase in ﬁscal spending in 2009. That the central bank also had the credibility and low inﬂation environment to chop interest rates by 775 basis points, bringing rates to a record low 0.5%, also helped. But the ﬁnance ministry wins special praise for its broad and speedy action. “We deliberately pushed on a lot of levers at once,” Velasco says, explaining that the prevailing uncertainty required a response on several fronts. “You couldn’t be sure that one instrument, one policy alone, could get you out of trouble.” There were risks with such aggressive measures, but Velasco believes the response has been vindicated. “The markets took it extremely well,” he says. “We took this as a conﬁrmation that we were on the right track.” The government expects 5.0% growth this year, he says. It shrank an estimated 1.7% in 2009, according to the IMF, and expanded 3.2% in 2008. 30 LATINFINANCE March/April 2010

Latin Finance - March/April 2010

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