Monday, January 13, 2014

How worried should be about Latin America's future?

Check the interesting article on Latin America's future at Vox written by World Bank experts. It offers a nice contrast with the Wall Street Journal article I mentioned last week, and reminds us that all is not bad in Latin America. Many of the countries in the region increased investment during the 2000s and were careful in the management of inflation, their budget and their foreign reserves. The data is fascinating and all the arguments interesting even if controversial: 1. As the article recognizes, the region has failed to undertake important reforms. By this we should read market-friendly reforms, but policy changes that could contribute to improve productivity and reduce structural heterogeneity. Education systems are still problematic and unequal, industrial policy insufficient and support to small, informal firms quite absent and disorganized. More importantly, these problems are as significant in Mexico or Peru as they are in Brazil or Argentina--there are no two Latin Americas there. 2. Notice the significant differences between Central and South America in the numbers. Central America still invests little and grows through remittance-fueled consumption and growing imports. The key division in Latin America takes place between countries North and South of Panama and not between "good" and "bad" countries. 3. With some exceptions (sadly, Venezuela comes to mind), a sudden financial crisis is unlikely to happen in the region. Yet what we still can have is a long period of low growth and stagnant income distribution--sometimes these lack of advance is politically more worrying than sudden crises.

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