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De la Torre, Augusto

Chief Economist for Latin America and the Caribbean Region, The World Bank

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Macroeconomics, Financial development

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Chief Economist for Latin America and the Caribbean Region, The World Bank

Last updated January 31, 2023

Biography

Augusto de la Torre, a national of Ecuador, is the Chief Economist for Latin American and the Caribbean. Since joining the World Bank in 1997, he has held the positions of Senior Advisor in the Financial Systems Department and Senior Financial Sector Advisor, both in the Latin America and the Caribbean region. From 1993 to 1997, Mr. de la Torre was the head of the Central Bank of Ecuador, and in November 1996 was chosen by Euromoney Magazine as the year’s "Best Latin Central Banker." From 1986 to 1992 he worked at the International Monetary Fund, where, among other positions, he was the IMF’s Resident Representative in Venezuela (1991-1992). Mr. de la Torre has published extensively on a broad range of macroeconomic and financial development topics. He is a member of the Carnegie Network of Economic Reformers. He earned his M.A. and Ph.D. degrees in Economics at the University of Notre Dame and holds a Bachelors degree in Philosophy from the Catholic University of Ecuador.

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Publication Search Results

Now showing 1 - 10 of 19

Coping with Risk through Mismatches : Domestic and International Financial Contracts for Emerging Economies

(World Bank, Washington, D.C., 2004-02) de la Torre, Augusto ; Schmukler, Sergio L.

The authors argue that short termism, dollarization, and the use of foreign jurisdictions are endogenous ways of coping with systemic risks prevalent in emerging markets. They represent a symptom at least as much as a problem. These coping mechanisms are jointly determined and the choice of one of them involves risk tradeoffs. Various conclusions can be derived from the analysis. First, because of the dominance of dollar contracts over short-duration contracts, dedollarization might be much more difficult to achieve than often believed. Second, one-dimensional policies aimed at reducing currency and duration mismatches might just displace risk and not diminish it. Third, as systemic risks rise, the market equilibrium settles in favor of investor protection against price risk (through dollar and short-duration contracts) at the expense of exposure to credit risk. Finally, the option value to litigate in the event of default might explain this equilibrium outcome.
The Conceptual Foundations of Macroprudential Policy : A Roadmap

(World Bank, Washington, DC, 2013-08) de la Torre, Augusto ; Ize, Alain

This paper explores post-Lehman macroprudential regulation by interacting two types of market failures (principal-agent and collective action) with two cognition modes (unconstrained and constrained) in the context of aggregate risk. Four paradigms with orthogonal policy justifications are identified. In the first time consistency paradigm, regulation offsets the moral hazard implications of efficient but time inconsistent post-crisis bailouts. In the second dynamic alignment paradigm, it protects unsophisticated market participants by maintaining principal-agent incentives continuously aligned in the face of aggregate shocks. In the third collective action paradigm, regulation arises in response to the socially inefficient yet rational financial instability resulting from uninternalized externalities. The fourth collective cognition paradigm is grounded on the need to temper the mood swings that arise from bounded rationality or severe cognitive frictions in a rapidly changing, complex and uncertain world. These four rationales give rise to important tensions and trade-offs in the design of macroprudential policy.
Can Latin America Tap the Globalization Upside?

(World Bank, Washington, DC, 2014-04) de la Torre, Augusto ; Didier, Tatiana ; Pinat, Magali

This paper discusses the theoretical arguments in favor of and against economic globalization and, with a view to ascertaining whether Latin America may be able to capture the globalization upside, examines the trends and salient features of Latin America's globalization as compared with that of Southeast Asia. The paper focuses on trade and financial integration as well as the aggregate demand structures (domestic demand-driven versus external demand-driven) that underpin the globalization process. It finds that Latin America is mitigating some bad side effects of financial globalization by moving toward a safer form of international financial integration and improving its macro-financial policy frameworks. Nonetheless, Latin America's progress in raising the quality of its international trade integration has been scant. The region's commodity-heavy trade structures and relatively poor quality of trade connectivity can hinder growth potential to the extent that they are less conducive to technology and learning spillovers. Moreover, Latin America's domestic demand-driven growth pattern (a reflection of relatively low domestic savings) may become an additional drag to growth by accentuating the risk of a low savings-low external competitiveness trap.
Living and Dying with Hard Pegs : The Rise and Fall of Argentina's Currency Board

(World Bank, Washington, DC, 2003-03) De la Torre, Augusto ; Levy Yeyati, Eduardo ; Schmukler, Sergio L.

The rise and fall of Argentina's currency board shows the extent to which the advantages of hard pegs have been overstated. The currency board did provide nominal stability and boosted financial intermediation, at the cost of endogenous financial dollarization, but did not foster monetary or fiscal discipline. The failure to adequately address the currency-growth-debt trap into which Argentina fell at the end of the 1990s precipitated a run on the currency and the banks, followed by the abandonment of the currency board and a sovereign debt default. The crisis can be best interpreted as a bad outcome of a high-stakes strategy to overcome a weak currency problem. To increase the credibility of the hard peg, the government raised its exit costs, which deepened the crisis once exit could no longer be avoided. But some alternative exit strategies would have been less destructive than the one adopted.
Innovative Experiences in Access to Finance : Market Friendly Roles for the Visible Hand?

(World Bank, Washington, DC, 2007-08) de la Torre, Augusto ; Gozzi, Juan Carlos ; Schmukler, Sergio L.

Interest in access to finance has increased significantly in recent years, as growing evidence suggests that lack of access to credit prevents lower-income households and small firms from financing high return investment projects, having an adverse effect on growth and poverty alleviation. This study describes some recent innovative experiences to broaden access to credit. These experiences are consistent with an emerging new view that recognizes a limited role for the public sector in financial markets, but contends that there might be room for well-designed, restricted interventions in collaboration with the private sector to foster financial development and broaden access. The authors illustrate this view with several recent experiences in Latin America and then discuss some open policy questions about the role of the public and private sectors in driving these financial innovations.
Bank Involvement with SMEs : Beyond Relationship Lending

(World Bank, Washington, DC, 2008-06) de la Torre, Augusto ; Martínez Pería, María Soledad ; Schmukler, Sergio L.

The "conventional wisdom" in academic and policy circles argues that, while large and foreign banks are generally not interested in serving SMEs, small and niche banks have an advantage in doing so because they can overcome SME opaqueness through relationship lending. This paper shows that there is a gap between this view and what banks actually do. Banks perceive SMEs as a core and strategic business and seem well positioned to expand their links with SMEs. The recent intensification of bank involvement with SMEs in various emerging markets documented in this paper is neither led by small or niche banks nor highly dependent on relationship lending. Rather, all types of banks are catering to SMEs and larger, multiple-service banks have in fact a comparative advantage in offering a wide range of products and services on a large scale, through the use of new technologies, business models, and risk management systems.
Financial Development in Latin America : Big Emerging Issues, Limited Policy Answers

(World Bank, Washington, DC, 2006-07) de la Torre, Augusto ; Gozzi, Juan Carlos ; Schmukler, Sergio L.

This paper argues that the dominant policy paradigm on financial development is increasingly insufficient to address big emerging issues that are particularly relevant for financial systems in Latin America. This paradigm was shaped over the past decades by a fundamental shift in thinking toward market-based financial development and a complex process of financial crises interpretation. The result has been a richly textured policy paradigm focused on promoting financial stability and the convergence to international standards. It argues, however, that there is a growing dissonance between the current paradigm and the emerging issues, which is illustrated by discussing challenges in three areas: stock markets, small and medium enterprise loans, and defined-contribution pension funds. The paper concludes that the dominant policy paradigm is ill-suited to provide significant guidance in relation to the big emerging issues. It emphasizes the need to take a fresh look at the evidence, improve the diagnoses, revisit expectations, and revise the paradigm.
Whither Latin American Capital Markets?

(World Bank, Washington, DC, 2005-04) de la Torre, Augusto ; Schmukler, Sergio L.

"Whither Latin American Capital Markets?" a study published by the Latin America and Caribbean Region of the World Bank in June 2004, analyzes the status and prospects for capital market development in Latin America. It reviews the evolution of securities markets in the region and related reforms and the factors driving their development. Importantly, the study analyzes not just domestic market activity, but also global capital markets trends, the participation of developing countries in those markets, and interactions and feedback loops between local and international markets.
Containing Systemic Risk : Are Regulatory Reform Proposals on the Right Track?

(World Bank, Washington, DC, 2009-10) de la Torre, Augusto ; Ize, Alain

This note questions two emerging views on ways to tackle systemic risk. As evidenced by the explosive growth of investment banks, which were regulated more lightly because they were assumed to be systemically less important, regulatory unevenness can trigger acutely destabilizing regulatory arbitrage. Hence, unless systemic footprints can be accurately measured and updated, something we think is unlikely, regulating differentially those institutions that are deemed to be the most systemically relevant looks like a perilous return to the past. Similarly, internalizing systemic liquidity risk by taxing maturity mismatches looks like a remnant of idiosyncratic thinking. Matching short liabilities with short assets can protect an individual intermediary's liquidity but at the expense of exacerbating systemic vulnerability.
Should Latin America Save More to Grow Faster?

(World Bank, Washington, DC, 2015-08) de la Torre, Augusto ; Ize, Alain

Latin America’s historically low saving rates and sub-par growth performance raise the question of whether the region should save more to grow faster. Economists generally resist acknowledging a policy-exploitable causal connection going from saving to growth because domestic saving is perceived to be fully endogenous, optimally determined, or fully substitutable by foreign saving. However, to the extent that these three assumptions do not hold, three channels can be established through which higher domestic saving—by curbing persistent current account deficits—can promote medium-term growth. The channels are first, a real interest rate channel, whereby higher saving reduces the cost of capital and enhances macro sustainability; second, a real exchange rate channel, through which higher saving leads to a more competitive real exchange rate; and third, an endogenous saving channel, whereby saving follows growth and, hence, subsequently compounds the effect of the first two channels. Econometric evidence supports all three channels and suggests that the lower-saving countries in Latin America and the Caribbean, especially those with recurrently weak balance of payments and persistent domestic demand pressures on the non-tradable sector, would benefit the most from boosting their saving rates.