Breaking Latin America’s Cycle of Low Growth and Violence

IMF Blog, December 5, 2024

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Violent crime and insecurity have a disproportionate impact on Latin America and the Caribbean, with the region representing just 8% of the world’s population but accounting for nearly one-third of global homicides.
Crime directly costs the region more than 3 percent of GDP and lowers growth.
Crime and insecurity, and low growth reinforce each other in a vicious cycle that stifles investment, reduces tourism, and accelerates emigration.
Easily available firearms and organized crime amplify effects, undermining institutions and the rule of law.
Authors and date: Ilan Goldfajn, Rodrigo Valdés; December 5, 2024.

Recent IDB paper estimates crime and violence cost the region 3.4 percent of GDP annually.
Direct cost components:
- Productivity losses from lives lost, injuries, and imprisonment.
- Private-sector expenditures on security.
- Public spending on police, justice, and prisons.
Equivalent budget comparisons:
- 3.4 percent of GDP equals 80 percent of the region’s public education budgets.
- 3.4 percent of GDP equals double its social assistance spending.
Broader economic impacts:
- Crime discourages investment, reduces tourism, and drives emigration, weakening economic resilience.
- IMF research: crime hampers innovation and reduces firm productivity.
- Geo-localized nightlights analysis: halving homicide rates in violent municipalities could increase their economic output by up to 30 percent.
- Regional effect: reducing homicide rates to the global average could boost Latin America and the Caribbean’s annual GDP growth by 0.5 percentage points.

A recession in LAC is associated with a 6 percent increase in homicides the following year.
Inflation spikes above 10 percent are linked to a 10 percent rise in homicides the year after.
Growing inequality exacerbates the link between economic stagnation and crime.

Strengthen evidence and data:
- Rigorous research and better data are essential for designing effective public policies to reduce crime.
- Institutions like the IDB and IMF can generate evidence, monitor crime dynamics, advise member countries, and facilitate discussions.
Preventive economic policy:
- Maintain stability and low inflation.
- Protect robust social safety nets.
- Expand access to education and employment to reduce inequality.
Financial-sector actions:
- Financial authorities can weaken criminal networks by addressing illicit markets, curtailing financial flows, and tackling money laundering.
Broadened role for economic policymakers:
- Target high-risk groups.
- Improve crime monitoring.
- Enhance interagency coordination.
Prioritize efficient resource use:
- Public spending on security is around 1.9 percent of GDP, or 7.4 percent of total public expenditure.
- Finance ministers and fiscal authorities need full understanding of costs across police, courts, prisons, and related institutions to allocate funds efficiently and monitor impact.

Jamaica (with IMF support):
- Reforms protected public investment and social spending while halving debt between 2012 and 2022.
IDB-supported community-based interventions:
- Reduced gang violence in 68% of affected neighborhoods.
Rosario province, Argentina:
- Comprehensive strategy included territorial control of high-risk neighborhoods by the Federal Police, stricter prison systems for high-profile offenders, and collective prosecution of criminal groups under new legislation like the anti-mafia law.
- Progress on a juvenile penal code to deter drug traffickers from recruiting minors.
- Resulted in 65% reduction in homicides in 11 months.
Honduras:
- Strategic security reforms contributed to a 14% decline in the homicide rate and an 8% increase in public confidence in law enforcement.

Criminal groups operate across borders, so national-only responses are insufficient.
Regional collaboration is crucial to disrupt sophisticated, interconnected networks of organized crime that undermine the rule of law and economic stability.
IDB’s Alliance for Security, Justice, and Development aims to unite governments, civil society, and private-sector actors to strengthen institutions, enhance cooperation, support public policies, and mobilize resources for evidence-based solutions.
The IMF and IDB, together with governments and civil society, have a critical role in fostering unified efforts.

Breaking the cycle of low growth and violence requires:
- Sound economic policy, targeted social programs, financial-sector actions against illicit flows, and improved crime monitoring and interagency coordination.
- Efficient public spending decisions and stronger regional cooperation.
The ultimate measure of success is tangible improvements on the ground: safer streets, restored community confidence, and expanded economic opportunities for people to thrive free from violence.

Source: Ilan Goldfajn, Rodrigo Valdés; December 5, 2024.