Better policy could unlock growth in Latam – G30 think tank

NEW YORK (Reuters) – Latin American is at the crossroads of climate finance and supply chain rebuilding, and it could benefit from putting the correct policies in place, according to a G30 report on the drivers of underdevelopment published on Wednesday.

The report’s recommendations include getting the region’s macroeconomic framework in shape, investing better in infrastructure, and strengthening political parties. But they vary depending on the specific country.

The Group of 30’s think tank working group on Latin America said the region suffers a “governance deficit” that will require “deep and ambitious” political reforms, including at the center of government and legislative power.

“Latin America may be trapped in an unhealthy equilibrium, where lack of trust hinders the performance of government institutions, and poor performance in turn explains low trust,” said the working group’s report.

Frustrated and apathetic voters are the “predictable consequences” of the reality across Latam in which governments often lack the legislative strength to deliver on promised reforms.

The way out is through strengthening of political parties, and “skilful political entrepreneurs” who could gather enough support to update electoral rules “to ensure governments will be able to secure the majorities needed to govern.”

SIMILAR PROBLEMS, DIFFERENT ROOTS

In all, the report identifies four types of barriers to growth across the region’s largest economies:

Argentina, Ecuador, and Venezuela have macroeconomic instability and have suffered through hyperinflation and debt sustainability problems.

“Little or no sustained growth can be expected until fiscal, debt, and -in some cases- inflation problems are addressed” by the three, the report concludes.

Even with a backdrop of macro stability, Chile, Colombia, Peru and Uruguay have seen a decline in growth, and the report recommends further diversifying those economies “and developing new sectors with high growth potential.”

Mexico and Brazil are treated individually, with the former locked in a “growth paradox” where decades of macroeconomic stability and a sophisticated manufacturing sector have not yielded economic growth.

In Brazil, “political challenges, including inequality, populism, and polarization, hinder the necessary fiscal adjustments.”

The working group agreed there is no one action that could unlock output across the region, as even the countries that have a strong macro setup are suffering stagnant growth.

Andres Velasco, project director of the G30 Working Group on Latin America, said “the opportunities are obvious” for the region as Latam can provide the world with water, food and clean energy.

“The West needs countries with which they can build supply chains that are not politically contentious and Latin America -or much of the region at least- has a historic closeness with the West,” he said.

“The opportunities are there. The question is, are we going to seize them? The evidence so far is that we’re not doing everything we need to seize them.”

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