IMF Warns LATAM of Need to Reform Education, Infrastructure

The road ahead for Latin American economies looks increasingly bumpy as many countries in the region have yet to reform key sectors such as education and infrastructure, IMF Chairman Christine Lagarde has warned.

Lagarde, who is currently touring the region, said the time has come for Latin America to diversify away from energy resources and focus on balanced, inclusive and sustainable growth.

With commodity prices falling dramatically, many economies across the region are staring into a grim future. “The era of easy dollar financing will end before long,” she warned, referring to the region’s heavy reliance on mineral exports.

Thanks to high commodity prices, many countries in the region achieved low inflation, fiscal discipline, and financial stability. They even weathered the 2008 global financial crisis and made huge progress in reducing poverty and inequality. “Average real incomes have risen by more than 25 percent since 2000 and extreme poverty has been cut in half,” Lagarde said.

But Latin America is not equipped to deal with new challenges thrown up by the decreasing demand for oil and other energy resources in the global market. Some countries are facing underlying vulnerabilities while a few others are pushing up against capacity constraints.

“This underscores the need for structural reforms in areas such as education, social safety nets, financial inclusion, and infrastructure. These reforms would raise productivity and allow the region to diversify away from primary sectors that have lower value added,” Lagarde noted.

The IMF has urged governments in the region to keep working hard to improve public services — in particular by increasing the quality and reach of public education, broadening the system of social protection and expanding the public revenue base.

“All this—and more—is needed to create a more inclusive and stronger society,” Lagarde pointed out.

Deepening integration and leveraging collective strength can help the region deal with the current challenges,Lagarde said. In other words, greater regional collaboration in energy, transportation, logistics and information technology would help raise potential growth.