Despite contagion in capital markets, the probability of a sudden stop depends on the interaction between the supply of tradable goods (a proxy for potential changes in relative prices) and the degree of dollarization
Sudden Stops Source: Calvo, Izquierdo and Mejia (2007) and own calculations.
Both the size of the banking system as well as the dollar share of credit are key in determining the burden of dollarization (% of GDP)
This type of measures brings Asia “closer” to Latin America
12.4 % Mexico 21.2 % Peru 11.9% Malaysia 4.0 % Chile 7.0 % Brazil 3.5 % Colombia 0.25 % Venezuela 19.5 % Argentina % of GDP LAC-7 27.4 % Thailand 32.0 % Philippines 8.5 % Korea 14.9 % Indonesia % of GDP Emerging Asia
The role of government in commercial banking needs to be defined by specifying the objectives of public banks and evaluating whether they are met in a cost effective manner .
Design the right financial environment :
Increasing creditor protection requires a serious reform of secured transaction laws and enhancing judicial efficiency. The creation of specialized courts to deal with collateral claims may play a role.
Alejandro Izquierdo Andrew Powell Research Department, IADB