Latin America and the IMF
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- Authors: PABLO GARCIA-SILVA
- Published: June 3, 2024
Historical role and legacy
- At the Bretton Woods Conference, "19 out of 44" delegations came from Latin America and the Caribbean.
- By the time the IMF started operations in 1947, an overwhelming majority of Latin American countries—representing "more than 40 percent of the Fund’s initial membership"—had signed its Articles of Agreement.
- The region’s early commitment underscored a role in shaping a post–World War II system "geared toward growth and stability."
Progress and persistent challenges
- Achievements:
- "Inflation and fiscal profligacy—for decades the scourge of the region—have been dramatically tamed in all but a handful of cases."
- "Vibrant civil societies and innovative entrepreneurial spirit thrive in many corners of the region."
- Ongoing problems:
- "There is still great inequality of income and opportunity," producing significant "security, crime, and social challenges."
- Historical political scars from Cold War-era interventions continue to hamper "national consensus on how to achieve inclusive growth."
- "Inflation must be defeated completely and permanently across the region."
Effectiveness of IMF-supported programs
- Since the 1980s, IMF-supported programs with "strong domestic ownership" proved effective in many countries, including Chile, Mexico, Brazil, and Jamaica.
- Successful programs reduce the likelihood of repeated Fund resource use and the associated stigma.
- Lesson: "The lessons from past successes and failures should inform present and future programs so as to avoid the at times tumultuous relationship between the IMF and some countries in the region."
Multilateralism’s importance and the IMF’s mandate
- Latin America’s future depends on multilateralism and achievement of the IMF’s core mandates "as set out in Article I."
- The IMF must "double down on these objectives—not lose sight of them."
- The world economy has changed since 1944, posing "quite different risks and opportunities for the next 80 years." The IMF must continue to adapt to meet Latin America’s needs.
- Late-20th/early-21st century dynamics:
- At the turn of this century, rising Asian economies and a dollar-based international monetary system benefited Latin American economies that had established credible monetary and fiscal frameworks.
- Despite "disappointing growth in the past decade," achievements in "price and financial stability" remain intact; several central banks are "well along the path of easing monetary policy after having withstood major global shocks."
Geoeconomic fragmentation and climate risks
- Geoeconomic fragmentation:
- Fragmentation threatens to "unravel the hard-earned gains stemming from an integrated world."
- Latin American economies are especially at risk due to "relatively small size and heavy specialization in natural resources."
- Regional integration could provide diversification in theory, but "internal and regional infrastructure gaps remain major obstacles."
- New cold war scenario:
- "A major geopolitical break that disrupts trade and finance between the main economic zones in the world would be catastrophic for the overwhelming majority of Latin American economies."
- Even without the worst outcome, "global political tensions from a second cold war could again spill over and wreak disruption on Latin American domestic politics and societies."
- The extent of current economic integration makes the costs of autarky evident; the international financial architecture exists "to prevent the dislocations that made autarky and aggressive war feasible political goals in the 1920s and 1930s."
- The IMF must continue "speaking truth to power, particularly regarding the risks for small and medium economies from disruptive deglobalization."
- Climate change:
- "The dramatic implications of climate change" are a major global risk with complex, varied effects across Latin America.
- Countries dependent on fossil-fuel fiscal revenues will face "exceedingly painful" transitions to clean energy.
- Countries with natural resources such as "lithium and copper" and comparative advantages in renewables can expect "positive tailwinds for years to come."
- Sound institutions are crucial to ensure opportunities are not squandered and to manage "climate finance properly" and address "water scarcity, climate migration, and energy security."
- The IMF will be called on to support national efforts through "technical assistance and financing with other partner institutions."
Implications for major external actors
- The United States:
- As "the main architect of the post–World War II era," the US has an "outsize responsibility for a well-functioning international financial architecture and for peaceful prosperity in the Western Hemisphere."
- A US withdrawal from internationalism would "knock out an essential cog in the machinery of globalization" and could fuel anti-US sentiment in the region.
- China:
- China’s "enormous economic achievements" have made it a major player in trade and affairs affecting Latin America.
- Policy implication: "A constructive approach by both the US and China toward peaceful multilateralism in the next decades is a necessary ingredient as the IMF continues to support the future of Latin America."
Recommendations and guiding principles
- The IMF should:
- Continue to adapt governance to "the new global circumstances" so it "will remain the prime forum for international economic cooperation."
- Maintain focus on core mandates in Article I to support "sustained growth and economic stability" in Latin America.
- Emphasize programs with "strong domestic ownership" and apply lessons from past successes and failures.
- Advocate against deglobalization and "speak truth to power" about risks facing small and medium economies.
- Support climate transition and resilience through "technical assistance and financing with other partner institutions" and promote sound institutions to manage resources and climate finance.
F&D Magazine — Latin America and the IMF; PABLO GARCIA-SILVA; June 2024.
Content in this bundle
- Regional Perspectives: Latin America and the Imf