## Latin America: Structural Reforms Can Catalyze Growth

_IMF News, August 4, 2016_

## Source details

**Canonical URL:** [Latin America: Structural Reforms Can Catalyze Growth](https://www.imf.org/en/news/articles/2016/08/04/18/30/na080416-latin-america-structural-reforms-can-catalyze-growth)

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- [Structured JSON version](/en/news/articles/2016/08/04/18/30/na080416-latin-america-structural-reforms-can-catalyze-growth/index.json)
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## Bibliographic details
- Published: August 4, 2016

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### Key findings and context
- Region needs reforms to preserve the social gains of the past 15 years.
- Latin America would benefit from more regional integration.
- Credibility and confidence are key to reforms’ success.
- Thanks to sustained growth during the last commodity boom, Latin American countries have achieved a significant reduction in poverty and income inequality over the past decade.
- As the external environment has turned less supportive and policy options are becoming more limited, economic reforms are needed to preserve and deepen these social gains.
- “Today is a good time to talk about structural reforms” — Alejandro Werner, Director of the IMF’s Western Hemisphere Department.

### Conference participants and scope
- Conference jointly organized by the IMF and the government of Uruguay in late July.
- Attendees included policymakers from Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru and Uruguay, as well as academics and officials from the IMF and other international financial institutions.

### Regional integration: rationale and benefits
- Latin American countries remain relatively closed compared with advanced and emerging countries in other regions.
- Intraregional trade represents only about a fifth of total trade in Latin America, versus more than a half in Asia.
- Benefits of deeper regional integration highlighted:
  - Increase effective market size.
  - Stimulate competition.
  - Support development of regional value chains of intermediary goods.
  - Improve risk-sharing, lower transaction costs, and ease investment financing through more financial integration.
  - Support economic diversification and complexity via cross-country technology transfers and regional reorganization of production.
  - Diversification can increase productivity and growth and reduce dependence on exporting commodities.

### Policy recommendations to deepen integration and diversification
- Harmonize rules of origin.
- Remove remaining barriers to the free movement of goods and services within Mercosur.
- Create preconditions for successful financial integration, such as implementing consolidated banking supervision.
- Consider industrial policies:
  - Some participants advocated activist, targeted industrial policies aimed at specific sectors with higher returns or larger market failures.
  - Others cautioned that weak institutions in some countries may make targeted policies ineffective and preferred “horizontal” policies benefiting a broad range of sectors.
  - Andres Velasco (Columbia University) suggested creating independent institutions to select projects or sectors for public support, entirely separate from the political cycle.
- Infrastructure improvements to support diversification and upgrade existing production clusters (including services such as tourism) rather than creating entirely new clusters.

### Infrastructure and financing
- Infrastructure investment can increase the capital involved in the production process and foster upgrading and widening of production clusters.
- “Investments in infrastructures are like a perfect trinity,” said Mauricio Cardenas, Colombian Minister of Finance: they improve productivity, stimulate aggregate demand, and when financed through public-private partnerships, they do not entail upfront costs for the public sector.

### Political economy and the need for confidence
- Public opinion’s support is crucial for effective implementation of reforms.
- Such support requires:
  - Continuity in economic policy-making.
  - Greater transparency.
  - More efficiency in public spending.
  - Awareness of workers’ demand for economic security; policies must have “the capacity to deal with social expectations” — Enrique Iglesias, Uruguayan economist and former President of the Inter-American Development Bank.
- Recent IMF work has shown the importance of macroeconomic conditions and timing for the effects of product and labor market reforms.

*IMF News — August 4, 2016*

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## Content in this bundle

- [Chap5 (PDF)](/external/pubs/ft/reo/2015/whd/eng/pdf/chap5.pdf){rel="external" type="application/pdf"}
- [C3 (PDF)](/external/pubs/ft/weo/2016/01/pdf/c3.pdf){rel="external" type="application/pdf"}
- [030416 (PDF)](/external/np/pp/eng/2016/030416.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Latest regional outlook](https://blog-imfdirect.imf.org/2016/07/20/in-transition-the-outlook-for-latin-america-and-the-caribbean/)
- [Lipton on structural reforms](https://blog-imfdirect.imf.org/2016/07/25/getting-into-higher-gear-why-structural-reforms-are-critical-for-revving-up-global-growth/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2016/08/04/18/30/na080416-latin-america-structural-reforms-can-catalyze-growth_