F&D Magazine Examines Latin America Beset by Slowing Growth

SUMMARY

Latin American nations, along with emerging market economies around the world, enjoyed stellar growth between 2004 and 2013, stumbling only briefly during the 2008-09 financial crisis that engulfed the United States and Europe.

 
FREE EXCERPT

  • Latin America faces uncertainty after a decade of strong economic growth
  • Despite substantial improvement, inequality in the region is still stark
  • Corruption and other governance issues can hold back progress
  • But that rosy performance ended two years ago, “and much of the region is again viewed with a sense of forgone promise,” according to Columbia University Professor José Antonio Ocampo in the September 2015 issue of the IMF’s Finance & Development (F&D) magazine. The sudden deterioration in Latin America’s prospects reflects changing international conditions—primarily a decline in commodity prices and a moderation in the growth of international trade

    To regain its footing, Ocampo writes in an issue that explores the situation in Latin America, the region “must undertake reforms to diversify economies and to upgrade technologically its production structure to make it less dependent on the behavior of commodities.”

    The sudden erosion in Latin America’s economic situation not only makes for an uncertain economic future, but could also threaten a decade of social progress in the region.

    Evening out

    Income inequality, for example, has declined in nearly all Latin American countries since the start of the millennium—a contrast to the rest of the world—Tulane University Professor Nora Lustig writes in the latest issue of the quarterly economic journal. Coupled with the surge in economic growth, the reduction in inequality led to a reduction in poverty, especially extreme poverty, in Latin America. Lustig says the change in inequality is mainly the result of more equal distribution of earnings and government transfers.

    Despite the improvement in the last decade and a half, inequality remains worse in Latin America than in much of the rest of the world. And the prospect for continued improvement depends on how long the growth slowdown lasts and whether it puts more pressure on low-income or high-income wages, she writes.

    Regional challenges

    Daniel Kaufmann, president of the Natural Resource Governance Institute, says that ineffective governance remains a major impediment to sustained economic and social improvement in Latin America. He notes that a substantial increase in transparency in economic policymaking has not been accompanied by longer-term governance reforms, especially political and institutional. In the past 15 years, on average, government effectiveness, control of corruption, and voice and...

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