This post is a summary of an article published at http://www.worldbank.org/ on May,11,2012 and was written by Hasan Tuluy, Vice-President for Latin America. The title is above.
There is a growing pragmatism in the region, anchored in the fact that sound economic policies, coupled with socially inclusive investments, have demonstrated that they work and that together generate a virtuous cycle. Macroeconomic and financial stability, built on fiscal discipline, and strong financial institutions, proved their strenght during the global crisis. Inflation rates have been maintained in single digits.
Latin America is also less poor with an expanding middle class, today almost one in three citizens are middle class. L. A. has also experienced gains in gender equality. In L.A. today, there are more girls than boys in secondary and tertiary education. And it is also a growing region, in the past decade the average growth rate was close to 4% with on average GDP per capita increased by almost 25% in the past decade, with the top six countries with greater GDP growth: Panama, Dominican Republic, Peru, Uruguay, Argentina and Chile, seeing an increase of more than 40%.
Despite these impressive outcomes, important challenges remain. In a nutshell, the challenge is to preserve stability, consolidate social gains, continue to reduce inequality and increase productivity and competitiveness to make growth sustainable.
Crime and violence poses a critical development challenge with potential destabilization effects in these countries. A real challenge to citizen security and a development problem. Homicide rates in Central America are among the highest in the world. The aggregate cost of crime in this region is estimated as 8% of GDP.
L.A. countries, except Brazil, have light tax burdens, less than 4% of state revenue comes from personal income taxes, as compared to 27% in industrialized nations. The key challenge will be to tackle its low levels of productivity and competitiveness. Dependence on natural resouces, the region advantage, is still significant. The issue is how to build on this wealth, and break the reliance on "high volume, low value-added" production and move to higher value-added chains.
Low productivity is the root cause of L.A. chronic low growth, not just in manufacturing but also in construction, information tech, and logistics. But this can be changed. Addressing the logistics and infrastructure gaps, today the cost of logistics in L.A. are 2 to 4 times higher the average in OECD countries. L.A. installed electricity capacity was about 17% below that of the Asian tigers in the 1980s. Now it is almost 50%. Yet demand is projected to grow at nearly twice the GDP growth.
Low productivity reflects under-investment in innovation, Brazilian firms, for example, spend around 4% in R&D compared to 13% in the UK, USA and Japan. Growing spend in R&D will make L.A. more productive and competitive. Human capital is another important constraint to the region. The percentage of population with tertiary education rose from 9% in 1990 to 14.2% in 2009 in L.A. While in the Asian tigers grew from 10% to 20% in the same period. And the quality of education needs to be dramatically improved.
There is need to mobilize additional investment. Average investment during the past decade was 20% of GDP, compared to 29% in East Asia. We can not count on public investment alone, domestic and foreign investment plays an important role to also attract know-how and spur innovation. In an environment of expanding inclusivity and democracy, future progress toward productivity and competitiveness is bound to stick and be more sustainable in the long run.
Nutshell - in fewest possible words.
Burden - a heavy load.
Tackle - an effort to deal with a difficult task.
Spur - an encouragement.
Bound - leaping movement towards over something.
Constraint - limitation or restriction.
