Time to Act: Latin America and the Caribbean Facing Strong Challenges

The global recovery has again disappointed, commodity prices have fallen and are likely to stay close to current levels, and the United States’ monetary normalization has commenced. Many of the risks analyzed in previous Latin American and Caribbean Macroeconomic Reports have materialized. The region’s growth is expected to be negative this year and then to recover relatively slowly. Not until the year 2020 are growth rates expected to approach the average levels that prevailed from 1980.

Time to Act

It is Time to Act. Given the sense of urgency, this year’s Latin American and Caribbean Macroeconomic Report does not bear a title reminiscent of the great authors of Latin American literature (e.g., Jorge Luis Borges, Octavio Paz, or Gabriel García Márquez). While we hope to return to that tradition of honoring our literary masters, this year we have chosen to emphasize the importance of implementing measures to defend the many gains that the region has made.

Of course, the region does not only face risks and vulnerabilities. There are several positive developments and new macroeconomic, institutional, and social strengths that have evolved over recent decades. Moreover, stronger growth in the United States and lower oil prices have helped countries, particularly in Central America and the Caribbean, that import energy and have strong trade ties with the United States. For commodity exporters, though, the loss of revenues has put both fiscal and external balances under pressure.

Report

Our report argues that urgent action is needed. Despite negative output gaps there is little room for countercyclical monetary and fiscal policy, and the focus is instead on how to adjust while minimizing the consequences for output and living conditions, especially for the poor and more vulnerable. It is thus suggested that countries may wish to conduct a more fundamental review of both spending and taxation. Ensuring a smooth transition,especially for commodity exporters with lower net external income, may require legal and in some cases even constitutional changes to ensure longer-term fiscal sustainability and to enhance efficiency to minimize impacts on current growth.

Source: IDB
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Posted on 19 April 2016 in Multi Collection Solution, Multi Tax Solution, Publications

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