Opening Address to the Conference on “Challenges for Securing Growth and Shared Prosperity in Latin America” by Christine Lagarde, Managing Director, International Monetary Fund
IMF News, December 5, 2014
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- Opening Address to the Conference on “Challenges for Securing Growth and Shared Prosperity in Latin America” by Christine Lagarde, Managing Director, International Monetary Fund
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- Published: December 5, 2014
1. Changes in global and regional economic conditions — achievements and risks
- Achievements over the past two decades:
- Most countries achieved a “policy hat-trick” (low inflation, fiscal discipline, and financial stability).
- Average real incomes have risen by more than 25 percent since 2000.
- Extreme poverty has been cut in half.
- Twelve years ago the population below the poverty line was two-and-a-half times larger than the middle class; now the two groups are roughly the same size.
- The region weathered the 2008 global financial crisis with relative resilience.
- Near-term macroeconomic outlook and risks:
- Regional economic growth expected to remain modest: 1.3 percent this year and 2.2 percent in 2015.
- Global headwinds: U.S. recovery, uncertain Euro Area prospects, cooled outlook for China, falling commodity prices, and the end of “easy dollar financing”.
- Global economy risk: being stuck in a “new mediocre” of poor growth and weak job creation.
- G-20 agreed to implement growth strategies to lift their collective GDP by at least 2.1 percent by 2018.
- Policy implications and priorities:
- Need for new policy momentum to address shifting external conditions.
- Some countries face underlying vulnerabilities and fiscal pressures; tax reform is needed in several cases.
- Capacity constraints on physical and human capital imply persistent inflation and domestic demand pressures.
- Structural reforms needed in education, social safety nets, financial inclusion, and infrastructure to raise productivity and diversify away from primary sectors.
2. Social progress and implications for economic policy — the growing middle class
- Key social progress indicators:
- Latin America’s middle class expanded by about 50 percent since 2003.
- Reduction in labor income inequality has contributed, including through rising minimum wages.
- Enhanced healthcare and education in Argentina, Bolivia, Brazil, Mexico and Uruguay reduced inequality by 10 to 20 percent between 2000 and 2007.
- In 2010, Latin American countries had an average Gini coefficient of 51, compared with a range of 33 to 41 in other middle-income regions.
- Tensions and political economy:
- Rising middle-class expectations are clashing with shortcomings in public services (examples: protests in Brazil over transportation costs; protests by farmers and other groups in Colombia).
- Surveys show widespread discontent over corruption and poor government accountability (2013 Latinobarometro Survey).
- Policy responses:
- Governments are launching initiatives to increase the quality and reach of public education, broaden social protection, and expand the public revenue base.
- Continued focus on improving public services is necessary to maintain social cohesion and support inclusive growth.
3. Region-wide problems and solutions — why cooperation matters
- Major regional challenges:
- Violent crime: UNDP reports more than 1 million people died as a result of criminal violence over the past decade; murder rate increased by more than 11 percent during that period.
- Infrastructure deficits: extremely high logistics and freight costs hinder integration into global value chains.
- Fragmented trade arrangements: proliferation of trade groupings (MERCOSUR, ALBA, UNASUR, SICA) created a “spaghetti bowl” of regimes and preferences with unclear aggregate benefits.
- Recommended regional actions:
- Strengthen cross-border cooperation on labor, security, energy, the environment, and competition.
- Reassess trade approaches to better integrate the region into global value chains.
- Increase regional collaboration and investment in energy, transportation, and IT to reduce logistics and freight costs.
- Share holistic approaches and lessons across countries to address crime and governance; examples cited where countries bucked trends by learning from each other.
- Expected benefits of deeper regional integration:
- Increased provision of regional public goods and services.
- Stronger negotiating position in global discussions.
- Lifting potential growth across the region through coordinated reforms and investments.
4. The IMF’s evolving role in Latin America
- Shift in IMF engagement:
- From “crisis responder” to “insurance provider” for the region.
- Emphasis on crisis prevention, tailored policy advice, and technical assistance.
- Examples of IMF instruments and support:
- Mexico and Colombia have benefited from the IMF’s new crisis-prevention tool, the Flexible Credit Line.
- IMF provides capacity building and supports member countries to build resilience.
- Purpose of engagement:
- To engage in dialogue, learn from member countries, and increase understanding of regional economies and citizens’ aspirations.
- The IMF positions itself as an institution at the service of its members in Latin America.
5. Conclusions and exhortation
- Overall assessment:
- Latin America has made a “big leap forward” economically and socially but faces significant near-term risks and structural challenges.
- Policymakers must combine renewed macroeconomic vigilance with structural reforms and improved public services to meet rising expectations.
- Final appeal:
- Policymakers should draw inspiration from the region’s cultural and poetic traditions to find a compelling voice for reform and inclusion.
- “La primavera está en el aire” — spring is in the air.
Source: Opening Address to the Conference on “Challenges for Securing Growth and Shared Prosperity in Latin America” by Christine Lagarde, Managing Director, International Monetary Fund, Santiago, Chile, December 5, 2014. As prepared for delivery.