Slower growth in Latin America could actually have a silver lining, getting countries to move on the reforms they delayed during the commodity boom at the start of the decade, according the World Bank’s vice president for Latin America.
“The good thing about not-so-good times is that it is easier to reform,” Jorge Familiar told Emerging Markets.
He said that the region has two primary ways to deal with the economic slowdown, adjusting and borrowing, because the “conditions we are seeing today are not temporary or short term. This is going to be with us for a while, and therefore there is a need to adapt and adjust.”
Nearly all of the countries in the region are forecast to grow in 2017, after two years of recession. The only country that will not grow is Venezuela, which is expected to see a GDP decline of 2.6% in 2017. While bad, it is better than the 10% expected for this year.
Familiar said that unlike the past, countries have room to work through reform. “The other thing that has changed is that unlike the past this is not a situation to call in the firemen,” he said.
LINKING UP REFORMS
He said a critical change in the region was linking up reforms in three major areas, including attracting private investment through public-private partnerships, investment to close the huge infrastructure gap and working on regional integration.
Spain’s BBVA estimated in late 2015 that Latin America’s infrastructure gap was just shy of $300bn. The World Bank and other multilaterals are working on new facilities to provide resources, with the focus on the private sector.
The big push is for public-private partnerships (PPPs). Peru is currently reforming its PPP process and Chile is a world leader in crafting mechanisms for working with unsolicited project proposals. Other countries are reducing the need for state-owned firms to have a share in projects, with the Brazil Congress taking the first step on October 6 to eliminate a requirement that its state-owned oil company, Petrobras, have a 30% share in oil/gas blocks.
Familiar said Latin American countries were also looking at infrastructure as it relates to building regional trade integration. “We do not see a region or a world going in the right direction without trade, the conditions that create more opportunities, more jobs and poverty reduction,” he said.
The Inter-American Development stresses the same approach, with its president, Luis Alberto Moreno, highlighting the construction of transport infrastructure connecting Argentina’s San Juan province with northern Chile, proving Argentina with another Pacific coast access.
“This physical integration is fundamental. We need to focus on the possibilities of trade that we have not taken advantage of in Latin America,” said Moreno.
View exclusive video interview with Jorge Familiar.