## Building on Latin America's Success

_IMF Blog, December 6, 2012_

## Source details

**Canonical URL:** [Building on Latin America's Success](https://www.imf.org/en/blogs/articles/2012/12/06/building-on-latin-americas-success)

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## Bibliographic details
- Authors: Christine Lagarde
- Published: December 6, 2012

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### Visit and outlook
- Author: Christine Lagarde; date: December 6, 2012.
- Context: Second visit to the region since November 2011; upcoming meetings in Colombia and Chile and participation in the meeting of the Community of Latin American and Caribbean States in Viña del Mar.
- Purpose: Discuss challenges of sustaining the region’s transformation with policymakers, business leaders, students, and civil society; engage with women leaders in Colombia and students in Chile.

### Recent performance and near-term projections
- Regional growth slowed from 4½ percent in 2011 to an estimated 3¼ percent this year.
- The region is projected to expand by about 4 percent in 2013, broadly in line with its potential.
- Commodity exporters supported by the double tailwinds of high commodity prices and favorable external financing conditions.
- Global factors posing downside risks:
  - Policy slippages in advanced economies could weigh on Latin America.
  - A fiscal cliff-spurred recession in the United States would affect Mexico, Central America, and the Caribbean due to strong trade, tourism, and remittances ties.
  - A deepening of the crisis in Europe could heighten risk aversion and lead to a sudden drop in external financing flows.
  - Continued robust growth in Asia in the medium term is critical to support the region’s strong commodity exports.

### Policies to strengthen resilience
- Fiscal policy:
  - Many countries have higher debt levels and generally weaker fiscal balances than before 2008; priority remains strengthening fiscal positions.
  - Policymakers should avoid the temptation to use fiscal policy to support demand where private domestic demand remains very strong.
  - Not an unconditional call for consolidation: if global risks materialize and private demand slows sharply, fiscal stimulus could be considered in countries not facing financing constraints.
- Monetary policy:
  - Monetary policy should continue to act as the first line of defense in case of slowing demand.
- Capital flows and financial stability:
  - Large and potentially volatile capital flows continue to present a challenge.
  - The Fund’s thinking has evolved: a variety of tools could be useful in dealing with capital flows.
  - Managing inflow surges or disruptive outflows requires:
    - Sound macroeconomic policies.
    - Strong financial supervision and regulation.
    - In some cases, capital flow management measures.
  - With credit growing briskly in many countries, policymakers need to balance vigilance to financial sector excesses while harnessing benefits of capital flows.

### Making growth more inclusive and productive
- Structural challenges:
  - Boosting productivity and competitiveness is critical and a longstanding weakness in the region.
  - Required policy actions include increased investment in high-quality infrastructure and education, improved tax and regulatory structure, and export diversification.
- Equity and social outcomes:
  - Growth must be more broadly shared; more equal growth is also more lasting growth.
  - Latin America has made significant progress in improving social outcomes, but more needs to be done.
  - Better access to quality education is necessary to reduce inequality and equip young people with skills for an integrated and rapidly changing world.
- Timing:
  - Reforms take time; countries should act now while conditions are generally favorable.

### Engagement and expectations
- The author is eager to discuss these issues with regional policymakers and stakeholders in Chile and Colombia.
- Hope: Latin America will continue to rise to the challenge of ensuring lasting prosperity and stability for all.

*Source: Building on Latin America's Success, Christine Lagarde, December 6, 2012.*

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## References

- [Colombia](http://www.imf.org/external/country/COL/index.htm)
- [Chile](http://www.imf.org/external/country/CHL/index.htm)
- [capital flows](http://www.imf.org/external/pubs/ft/survey/so/2012/POL120312A.htm)

_Source: https://www.imf.org/en/blogs/articles/2012/12/06/building-on-latin-americas-success_