This scenario in which the international financial system faces extreme difficulties resulting from imprudent lending policies, assets of dubious quality, a permissive regulatory framework and an excessive degree of leverage, contrasts with the reality of the domestic monetary and financial system in most of the emerging world. And here the progress of Latin America compared to other emerging market regions is remarkable.
While financial systems in emerging Europe are relatively more vulnerable to a reversal in capital flows, more dependent on external resources (mainly, because of large current account and fiscal deficit), with a credit cycle more exposed to the real estate sector and where transnational banks have the lion’s share of the market, Latin American financial systems are less risky as they have maintained high levels of liquidity, solvency and capitalization.