Latin American economies are well set to withstand global economic volatility as long as they continue to make reforms, officials and policymakers in the region said.
“Latin American economies on average are in much better shape and the new narrative is such that the debate is no longer ‘will there be a crisis’, but rather ‘what we need to do to continue and sustain improvements’,” Hasan Tuluy, World Bank vice president for Latin America, told Emerging Markets.
Fernando Lorenzo, Uruguay’s finance ministry, said the region needs to concentrate on reforms that extend services, which he said is an enormous task, while making sure the macroeconomic fundamentals remain solid. In the case of Uruguay, he said the government is concerned that inflation will be slightly above the upper end of the target. “Our fiscal and monetary policies are aligned to bring inflation into the target, to manage and lower inflation, between 3% and 7%,” he said.
A key component for many governments is investing in infrastructure, implementing policies that will bring the private sector through public/private partnerships and concessions. Infrastructure is needed not only in transportation, but also in energy, telecommunications, education and health.
In Peru, where private sector groups say the infrastructure investment deficit is close to $90 billion, the primary gaps are in energy, $33 billion, transportation, $21 billion and telecom, $19.2 billion. Peruvian Economy and Finance Minister Luis Miguel Castilla said that it was important for the country to continue improving infrastructure to take advantage of economic openness. He said that it was also necessary to focus on sectors such as water and sanitation and human capital, “but this cannot be done only by the public sector. We can benefit from efficient private participation.”
The country saw some positive numbers on 10 October, with export earnings increasing in August for the first time this year. A $92 million trade surplus was recorded. The tax agency reported that collection was up 1.9% in the first nine months of the year compared to the same period last month. The central bank announced the same day that it would keep the primary interest rate at 4.25% for the 29th straight month.
Increasing the region’s tax haul, which remains extremely low, remains a challenge.
“Latin America tends to have low taxation economies, but we have to make sure that the tax burden is efficient and not regressive. We want to make sure that whatever we do, the equity part of tax reform is considered equally important,” said Tuluy. He added governments need to avoid regressive taxes, such as VAT, that hit lower income sectors harder than others.
Carmen Reinhart, an economics professor at Harvard’s Kennedy School, said the region could face a “hard landing”, but that this should not be equated with a crisis. She added it was crucial to avoid “extreme events that can set back years of steps forward”.