There are two Latin Americas. The first is a region of widespread poverty, crime, and corruption, where drug gangs wreak havoc and left-wing populists rail against Uncle Sam. This is the Latin America that generates sensational and provocative headlines — the Latin America of Joaquín “El Chapo” Guzmán, the most-wanted drug baron in Mexico (who checks in at #701 on the latest Forbes list of the world’s richest people), and Hugo Chávez, the thuggish Venezuelan president who has formed an alliance with Iran and aided Colombian narcoterrorists. It is a Latin America that seems overrun with violence and paralyzed by its own history.

But there is another Latin America: a region where national governments have significantly improved their fiscal and monetary policies. Where they have slashed their public debt, boosted their stock of foreign reserves, and tamed inflation. Where both small and large nations have aggressively pursued trade liberalization. And where, with the crucial support of market-friendly social democrats, a broad macroeconomic consensus is emerging.

In its latest “Regional Economic Outlook” for the Western Hemisphere, the International Monetary Fund (IMF) affirms that many Latin American countries “have made strides in strengthening fiscal positions and public debt structures, solidifying financial systems and their regulation, anchoring inflation expectations, and building more credible policy frameworks.” To be sure, not all the countries in Latin America have made progress — some have regressed — and the entire region is now coping with severe external shocks stemming from the global financial crisis. But Latin America as a whole is far better equipped to withstand such shocks today than it was in years past. The difference is “night and day,” says Alberto Ramos, senior economist for Latin America at Goldman Sachs.

The IMF points to five countries — Brazil, Chile, Colombia, Mexico, and Peru — which together represent two-thirds of the GDP of Latin America and the Caribbean (LAC). These countries have all become less sensitive to outside shocks, whether those shocks affect global demand, external financial conditions, or commodity prices. This reduced sensitivity is largely a function of policy improvements.

At a recent Brookings Institution event, former Chilean finance minister Nicolás Eyzaguirre, now head of the IMF’s Western Hemisphere Department, said that Latin America’s progress was an “earned outcome” and not simply the result of good luck. Since the global financial meltdown began, he noted, not a single Latin American country has suffered a domestic banking crisis. The region has achieved a newfound exchange-rate stability, which, as economist Liliana Rojas-Suarez pointed out, has enabled Latin officials to keep interest rates low and conduct countercyclical monetary policy, rather than (as they often did during previous recessions) hike interest rates to defend overvalued exchange rates. Rojas-Suarez, a senior fellow at the Center for Global Development, agreed that Latin America’s demonstrated resilience “is related to policy choices made before the crisis.” As the IMF observes, the region’s financial systems “are much better prepared and more resilient than in the past because earlier weaknesses, such as exposure to currency depreciation or reliance on external financing, have been greatly reduced, and important capital buffers have been built.”

None of this is meant to diminish the challenges Latin America is facing. The IMF reckons that economic output in the LAC region will decline by 1.5 percent in 2009, after expanding by 4.2 percent in 2008 and by 5.7 percent in both 2007 and 2006. The downturn will be especially harsh in poor countries that rely heavily on remittances (Central America) and tourism (the Caribbean). Mexico is among the wealthiest Latin countries, but its economy is deeply entwined with the U.S. economy, and has therefore plunged into a particularly nasty recession. The Mexican economy depends considerably on remittances and tourism, but also on oil prices, U.S. demand, U.S. manufacturing activity, and direct investment from U.S. corporations. The IMF projects that it will shrink by 3.7 percent this year.

As The Economist notes, Mexican authorities are not to blame for their current economic predicament (which has been exacerbated by the drug war and the swine-flu panic). “They did not provoke the crisis,” says Goldman Sachs’s Ramos, but “they could have been better prepared.” Indeed, for all its progress, Mexico still needs major reforms in its oil sector, tax system, and labor markets. Absent these reforms, says Ramos, its eventual recovery may produce subpar real GDP growth. The Calderón administration has proposed ambitious energy and tax plans, only to be stymied by Mexico’s legislators. Similar reforms are needed in other Latin American countries if the region is to bolster its long-term economic performance. In October 2007, before the global financial crisis and recession, the IMF stated that Latin America “continues to be at the bottom of the world growth league.” As Harvard economist Andrei Shleifer has written, “The Latin American experience has laid bare the fact that private ownership and fiscal prudence yield only limited benefits in a regime of overbearing taxation and regulation.”

In 2008, the region’s fastest-growing economies were Peru (9.8 percent), Panama (9.2 percent), and Uruguay (8.9 percent). Peru and Uruguay are both commodity-rich countries that have benefited from first-rate economic stewardship. (Indeed, Peruvian president Alan García and Uruguayan president Tabaré Vázquez have been exemplary leaders.) By contrast, the commodity-rich countries with populist-left governments — such as Venezuela, Argentina, and Ecuador — are now bearing the brunt of misguided policy decisions. Ramos says that another serious economic misstep by the Kirchner regime could trigger disastrous capital flight from Argentina.

Latin America’s pre-crisis growth spurt was driven partly by high commodity prices, booming trade, and abundant global liquidity. But it also reflected a stronger policy mix, which has helped mitigate the impact of recent external jolts. “While in previous global recessions the decline in LAC growth was generally more abrupt than in the rest of the world, this time around LAC growth is expected to decline at the same pace as global growth,” the IMF reports. “This speaks to the improvements in policy frameworks and the buildup of resilience in recent years,” without which “the decline in growth would have been even more significant.”

Amid all the discouraging news from Latin America, this positive story should not be overlooked.

– Duncan Currie is deputy managing editor of National Review Online.