Building a Better Digital Economy
IMF News, June 24, 2021
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Bibliographic details
- Published: June 24, 2021
Overview
- Speaker: Geoffrey Okamoto, First Deputy Managing Director, IMF.
- Remarks delivered to: IDB Miami-LAC Conference.
- Venue and date: The Light Box at Wynwood — Miami, Florida; June 24, 2021.
- Central message: Latin America and the Caribbean must accelerate digital adoption and reform policy frameworks so the region can harness a technological super cycle to raise living standards, reduce economic and social divides, and unlock new sources of growth.
Key findings and observations
- The COVID-19 pandemic reinforced the importance of technology: consumers were able to order meals, sign mortgage loan agreements, and hold virtual quinceaneras due to technological innovation and societal adoption.
- IMF research indicates Latin America and the Caribbean have lagged other regions in ensuring inclusive access to the benefits of the digital transition.
- The region faces a digital divide rooted in:
- Lack of access to digital technology.
- Lack of skills to use technology productively.
- The digital divide is translating into an economic divide and risks becoming a social divide if unaddressed.
- Examples of where government and private collaboration has worked: tech hubs and Silicon Valley–style ecosystems that attract disrupters and investors, injecting dynamism and growth.
Policy recommendations (roles for government and private sector)
- Invest in basic digital infrastructure:
- Governments and private firms both should invest.
- Governments should prioritize investments that are inaccessible or unprofitable for private providers.
- Infrastructure includes physical connectivity, digital identity infrastructure, and critical data on SMEs.
- Regional coordination across countries can amplify benefits.
- Reconsider regulatory frameworks:
- Ensure regulations are conducive to private-sector investment and innovation.
- Avoid overly tight regulation that favors large incumbents able to absorb compliance costs.
- Right-size regulation to facilitate entry of smaller firms, attract investment, and create better-paying jobs.
- Use mechanisms like guidance units within regulators and regulatory “sandboxes” (e.g., in FinTech) as interim measures to encourage innovation while undertaking more thorough reviews.
- Develop human capital:
- Governments should invest in education, particularly in STEM fields.
- Private sector should invest in training to provide “last-mile” technical skills specific to business needs.
- Capitalize and regulate the financial sector to support new entrants:
- Maintain financial stability while channeling capital to startups and dynamic firms.
- Aim for a mix of banks, capital markets, and FinTechs allocating capital at different scales, on different terms, and assuming different risks.
- Preserve capital account openness to attract foreign investment seeking opportunities amid low yields in many Advanced Economies.
- Strengthen legal and judicial frameworks:
- Ensure clear, enforceable property rights, including intellectual property rights, to attract startup investing which is high-risk by nature.
Emerging challenges and considerations
- Cybersecurity:
- Safe, trusted, and reliable digital ecosystems are central to adoption and usage.
- Cyber threats increase as consumers connect via mobile devices and public Wi‑Fi.
- Design the digital ecosystem with cybersecurity in mind.
- Standards and technological change:
- Development of global standards must keep pace with technological advances, including movement toward a quantum processing world with super computers.
- Algorithmic bias:
- Advanced analytics and computing power require vigilance about biases embedded in algorithms that could exacerbate the digital divide.
- Digital money and payments architecture:
- Crypto currencies, stable coins, and central bank digital currencies have sweeping implications for monetary policy, capital flows, and the role of the financial sector.
IMF support, initiatives, and role
- Deploy analytical expertise to help countries assess growth forgone without timely action on digital reforms.
- Bali FinTech Agenda:
- IMF, along with the World Bank, proposed the Bali FinTech Agenda to reinforce competition and commitment to open, free, and contestable markets.
- Preparing to deepen work on digital money and implications for the international monetary system for which the IMF has longstanding responsibility.
Closing points
- Building a better digital economy is a collective effort among governments, the private sector, development partners (e.g., IDB), and multilateral institutions.
- Urgency: act now to ensure the digital revolution benefits the many and not just the few.
- Speaker optimism and commitment: Geoffrey Okamoto expresses optimism about the region’s prospects and commits IMF support alongside the IDB.
Geoffrey Okamoto, First Deputy Managing Director, IMF — Remarks to IDB Miami-LAC Conference; The Light Box at Wynwood — Miami, Florida; June 24, 2021.