WASHINGTON — It was short-lived, the decoupling. For a few months — from August 2007 to mid-2008 — Latin America thought it might emerge from the global financial crisis relatively unscathed. Even as the subprime cancer spread through the industrialized world, in Latin America things didn't look bad.
The decoupling oasis was the result of an accelerated increase in commodity prices. A surge of inflation, triggered by high and increasing international prices of grains and fuels and exacerbated by economic overheating in several countries was the main problem in the decoupling phase.
By mid-2008, commodity prices plummeted as the financial crisis spread globally and the world economy entered an acute slowdown. Latin America was no exception, and was hit by this "perfect storm." The region's stock markets joined the global selloff; currencies depreciated dramatically; households, companies, and governments began feeling the credit crunch; remittances weakened; and a process of downward revisions to 2009 growth prospects was set in motion. All of this is happening amid great uncertainty about the future of global economic and financial dynamics.