Policymakers must address structural issues such as the low level of productivity and the relatively low level of savings that are restricting the region’s growth potential, leading research organizations warned yesterday.
While global economic risks cast a shadow on the regional growth outlook, Latin America would fare much better if it managed to address issues that policy-makers had so far failed to address in a decisive way according to a report of the Institut des Amériques, which was released for L’Agence Française de Développement (AFD), the French development agency.
Low level of productivity and savings impose limits on the capacity of Latin America to enhance competitiveness. The lack of investment in research and innovation continues to be an area of concern.
The UN’s economic commission for Latin America and the Caribbean (ECLAC). found that while South Korea had had steady progress in productivity, Latin America had gone through ups and downs and had lower productivity, even though both started at the same level in the 1960s.
“There is a lot of homework still to be done in terms of productivity,” Alicia Bárcena, its executive secretary, told Emerging Markets. “Public and private investments have gone up by 3% in the region over a year and a half or so.
“This is mainly related to infrastructure. Savings remains at around 20% per capita. This is an area where we have to make much more effort. But the region is definitely a bit better than before.”
ECLAC is also encouraging policy-makers to implement industrial policies to boost productivity. In Brazil, the former central bank president Henrique Meirelles said the growth potential of the largest economy in Latin America had increased. “But we still face productivity issues and fiscal constraints... we have to improve productivity,” he said.
AFD also gave a more downbeat outlook for the region’s economy than the IDB, which said growth could vary from a moderate 3.6% economic growth to a “mild recession”.
“If Europe’s troubles deepen and Chinese growth slows more rapidly than expected, the US may be dragged into a new recession and the region will be affected,” AFD said yesterday.
Meanwhile, an AFD official hailed the return of stronger public policies in several Latin American countries. “There has been a renewal in public policies across the region,” said Philippe Orliange, director of the Latin American department at AFD.
“There was a time where the role of the state was heavily criticized, and there was a trend toward the dismantling of the state, but now the situation is much more balanced and it is possible to pursue an agenda of green growth and social inclusion [in the region].”
The AFD Group, which granted E1.1 billion in loans to the region last year, said the reinvigoration of public policies in the region was a very important element to build long term programmes. “You need quality public guidance,” Orliange said.