Latin America and the risk of a sudden stop of capital flows

The sudden stop of capital flow ,is a very well known case study in macroeconomics.It deals with the situation of lacking of financial resources coming from abroad, both important and necessary ,to sustain investment and growth when domestic saving is not sufficient for such a purposes. It happened in the asian economies crisis, in 1997-1998, with severe impact on growth rates everywhere in Latin America. The main problem with sudden stop, goes beyond itself.It comes with the proper policy to face its consequences.So, there two problems at the same time. The sudden stop ,usually happen because of sharp change(negative) in the external risk perception about an economy.So the first policy approach, goes on the line of managing to modify that perception which usually mean to reduce public and private expeditures,moving the economy toward sustainable internal and external equilibrium,which means to reduce growth at a more sustainable rate,that one which it is possible to get the financial resources. The other side of the story, comes with its impact on foreign currency market.Usually it means losses of value (depreciation) of local currency,which can be significant, when the sudden stop make clear the magnitude of the external disequilibrium.This depreciation is not neutral,it also bring along pressure on domestic prices (whether productivity is low),and while export do not react to this change on external prices, the economoy will go on a recession, which can be mild or severe depending upon the abilty to design the proper policies mix. It is expected in the near future,( some estimation indicates 2015), that the interest rate in developed countries , will start its normalization to higher than current low level(0-2,5%).This modification will make more atractive for capital flows, to move away from emerging economies, as well as from latin economies, in a situation similar to the metioned above with the crisis of the asian economies. The key question is about which is the magnitud of such a stop of financial flows, to become substantially negative. The second question is, in what shape are the latin americans economies for such scenario?. Concerning the magnitude it is not clear neither way of the magnitude ( relevant or irrelevant),because there are mixed realities. Probably those economies oriented toward more integration with global economies and reliable policies and institutions,the sudden stop secenario should be moderate.But those economies , with internal disequilibrium (inflation, fiscal deficit),and no clear stand on becoming more global player, will have more difficulties, because the sudden stop may be significant.So , as a whole the net impact will depend upon the overall evaluation about the Latin America economies stand concerning the risk perception, making the distinction between those with higher riks from those with lower risks ,such that it could also be feasible a reallocation , at least of a fraction of those resources, from the former to the later groups of latin america economies. Concerning the second question , again there mixed realities.Those less vulnerable to raw material price fluctuation, are better off than those which depend on raw material high prices.Unfortunately, this is the key weakness of all latin america economies which became short of time to make reforms for improving productivity, and the diversificatioon of its productive areas.Copper,oil,gas ,Coffe,Soja,Wheat are the main export for most of theses economies.This becomes the real problem becasue it is not easy to solve it in the short run .So ,the whole region is in a riskier position whether these prices goes further downward . Thus,it is the combination of a sudden stop ,and further downward commodities prices correction ,which may become the real challenge concerning policy makers decisions.Given even a small probability of such scenario to happen,it could be a proper path to be cautious about supporting and not weakening the chances of growth.-