This Latin American Economic Outlook 2019 (LEO 2019) presents a new approach to continue supporting Latin America and the Caribbean’s (LAC) transition to more inclusive and sustainable development. At the core of this approach is the understanding that development challenges and opportunities in LAC have significantly evolved with the region’s progress. Consequently, the international co-operation system for development should continue innovating to support countries in pursuing their development objectives and, in particular, the 2030 Agenda and Sustainable Development Goals (SDGs).
We believe various reasons explain the need for this new approach.
First, we are living in times of extraordinary economic, social and political change. Rapid technological progress and digitalisation, ageing, increased migration, better human capital, the greater incidence of climate change, the heterogeneous impact of globalisation across different socio-economic groups and rising social discontent are some of the notable megatrends that have grown stronger in recent years, posing both challenges and opportunities for the region. These tectonic shifts test our shared views and call for innovative solutions to reduce inequalities, improve people’s well-being and rebuild trust in institutions, both domestically and at the multilateral level.
Second, after a period of notable socio-economic progress, LAC countries have increased their domestic capacities and also their willingness to contribute to the global development agenda. Yet, they are confronting persistent and new domestic and global vulnerabilities that call for critical transformations to maximise opportunities for development. Potential gross domestic product (GDP) growth has declined to around 3%, and labour productivity, at about 40% the level of the European Union, has been stagnant or even declining in some countries. Access to digital technologies also remains a challenge with only 57% of Latin Americans connected to the Internet. In addition, around 40% of Latin Americans are at risk of falling back into poverty, holding informal jobs and poor social protection. At the same time, around 64% of the population have no confidence in their national governments. All these trends occur in a region that bears a disproportionate environmental burden. LEO 2019 provides new insights into these longstanding symptoms and new challenges by focusing on four structural traps that hinder a successful structural transformation. These are the productivity, social vulnerability, institutional and environmental traps, which interact with each other in self-reinforcing dynamics to limit the region’s inclusive and sustainable development opportunities.
Third, greater national income is not automatically leading to higher levels of well-being for all. Income and well-being outcomes gradually delink as countries become richer in terms of GDP per capita. Indeed, income levels in LAC do not necessarily reflect development outcomes across and within countries. For instance, the homicide rate of Bolivia (6 deaths per 100 000 inhabitants), a low middle-income country, is below four of the five LAC high-income countries. Also, income inequality, as measured by the Gini index, in El Salvador (40), a low middle-income country, is lower than in Argentina (42), Chile (47) and Panama (50), all high-income countries. Moreover, cross-country disparities in well-being at a given level of income per capita are significant in LAC.
A new approach for transitioning to more inclusive and sustainable development recognises that no single path to development exists and embraces wide-ranging efforts to upgrade policy responses to this evolving context. Ever more complex issues require development strategies with more sophisticated policy mixes and further co-ordination and coherence. Ambitious efforts must be put in place to overcome the traps and turn vicious circles into virtuous ones. International co-operation can play a facilitating role in supporting countries in the region in their transition path for inclusive and sustainable development.