The Silly Ideas of the South

This is a stark reminder of how contagion works. One of the other silly ideas about the fallout was that in the past, crises began in Latin America and spread north, making this year a very new scenario. Not so. It was Paul Volcker's 1980 decision to raise interest rates that led, two years on, to the Latin debt crisis, which never really affected the creditor countries. The 1987 stock-market collapse began on Wall Street, spread to Mexico and throughout Latin America, but never returned; finally, the Mexican collapse of 1994–95, as well as the Brazilian devaluation of 1997, occurred during one of the longest economic booms in modern U.S. history. All crises that begin in the rich countries spread south; those that originate in the south rarely travel north.

Some countries will emerge from the current crisis better than others. Mexico, Chile, Brazil and Uruguay should manage, with only bruises and scrapes; others will weather the storm, though suffering greater harm (Colombia, Peru). But others will incur severe damage: Venezuela, Bolivia, Ecuador, Central America and the Caribbean. With too much delay, all of their leaders have finally acknowledged what everybody knew: no crisis with this impact in the United States and Europe could avoid ravaging Latin America. Now all these leaders have to do is decide how to protect their societies, and how to pick up the pieces when the time comes.

Castañeda is former foreign minister of Mexico and Global Distinguished Professor at New York University.

© 2008