Latin American countries should adopt structural reform to retain growth rates as the global economy appears to be slowing down, says the Inter-American Development Bank in its annual macroeconomic report released this week.
“We are expecting moderate growth in the region for several years and even if there is room for counter-cyclical fiscal policy, countries should refrain as fiscal space has also diminished,” said Santiago Levy, Vice President for Sectors and Knowledge for the IDB. “It’s crucial for countries to consider more structural measures to boost growth.”
The report notes that the region is likely to grow just 3.9 percent annually over the next five years, nearly one percentage point lower than the 4.8 percent registered before the 2008 recession.
The bank has warned that slower growth in world trade and a decline in commodity prices would dampen consumption and investment in LATAM region.
“It is not a question of using fiscal and monetary policies today to counter a negative shock and bring growth in the region up to its potential,” said José Juan Ruiz, the IDB’s Chief Economist. “We need to find measures to increase our potential rate of growth.”
The report points out that currencies in the region have appreciated, potentially affecting exports and growth. Appreciations, according to the bank, might have been fueled by a combination of factors, including high commodity prices and strong capital inflows.
The report argues that the time has come to reignite the region’s reform agenda. “Latin America and the Caribbean have the economic resources to grow much faster, but there is a need to allocate those resources more effectively,” says Andrew Powell, the Principal Advisor in the IDB’s Research Department and coordinator of the report.
If the region could increase the efficiency of how it deploys its resources to the efficiency of the U.S. over 10 years, then productivity would be 20 percent higher and growth would be increased by at least a full 1 percent per year over that decade for the typical country, the bank said.