Renewed access to externalfinancing facilitated economicmanagement in Latin America andthe Caribbean during the 1990s, butcreated new sources of externalvulnerability for the region's economies.Access to world capital markets, however,has been uneven: the region's leastdeveloped countries have had very limitedaccess to private credit, depending onmultilateral loans and officialassistance for development.

With few exceptions, during the 1990scountries did not achieve the saving andinvestment levels necessary to sustain highrates of economic growth. Moreover, thepersistence of pro-cyclic macroeconomicpolicies and weak regulatory andsupervisory frameworks for domesticfinancial systems were reflected inunusually frequent domestic financial crises.In its report, Growth with Stability,ECLAC suggests the need to advance instrengthening the world financial system'sability to foresee and manage crises, alongwith designing more preventive domesticmacroeconomic policies, in improvingcountries access to world financialmarkets; and in raising domestic savingand using it to finance investment.

To reduce financial volatility at theinternational level, it is necessary toadvance toward providing three 'globalpublic goods': greater coherence in themacroeconomic policies of the world'smain economies, the development offinancial institutions that prevent thebuild-up of excessive financial risk, andthe ability to respond opportunely whena crisis threatens international financialstability. This last point should be associatedwith better emergency financingmechanisms to face crises, and with toolsthat make it easier to renegotiate debt incritical situations. These interventionmechanisms should also have regionaldimensions, in the form of bettercoordinated macroeconomic policiesamong our countries, mutual watchdogrules and systems for domestic financialsystems, and regional reserve funds fordealing with crises.

  'To reduce financialvolatility... advances mustbe made in terms of three?global public goods'?' Receiving countries are responsible fortaking measures to avoid situations whereeconomic booms associated with largecapital inflows lead to crises. Thesemeasures should aim to prevent public andprivate agents from accumulatingunsustainable debt loads and should alsoavoid major price imbalances, particularlyin the exchange rate. The effectiveness ofmonetary and credit control measuresduring booms will be greater if they areaccompanied by prudent regulations oncapital inflows and on financial systems,and an explicit 'liabilities policy', aimedat improving the temporary profile ofpublic and private debt, both domestic andforeign. The build-up of reserves or accessto contingency lines with private bodiescan also play a complementary'self-insurance' role. 

Stronger access to world financialresources requires recovering officialdevelopment assistance levels.Multilateral, regional and subregionaldevelopment banks play a key role infinancing less developed countries, andprovide counter-cyclic financing, helpingto soften external shocks and showingundisputed advantages in terms ofmaturities and costs over private financing.These bodies also provide financing for awide range of social priority areas and aredeveloping instruments to make privateinvestment easier.

To accelerate economic growth todesirable levels of about 6% per year,investment rates must rise between fourand six points in relation to growthaverages during the 1990s. To avoidadditional vulnerabilities that wouldrequire more external financing, higherinvestment must come from a similarincrease in domestic saving. Achievingthese goals requires simultaneous efforts toraise companies' profit retention, theguarantee of a structural balance of publicfinances; and the development of forcedsavings instruments (especially for pensionpurposes) or mechanisms to encouragefamily saving for specific goals (housingand education, in particular).

Along with the necessary increase indomestic saving, the region must alsoconcentrate on perfecting the channel ofresource flows to finance investment.Given that the market undersupplies areasof high social priority (micro, small andmedium firms; social housing; sustainabledevelopment; productive reconversion; andtechnological innovation), developmentbanking can play an important role. Toavoid the mistakes of the past in this areahowever, it is necessary to maximize thetransparency of fiscal costs of relatedsubsidies, and make developing banksoperate as second floor banks, as aneffective way of privatizing portfoliorisks and loan recovery.