Can Latin America complete reforms?

WASHINGTON – Latin America’s economies need to be made more “crisis resistant” if the region is to sustain the economic growth it has achieved since 2002, says the International Monetary Fund (IMF).
What’s needed. In a report released Feb. 8, the IMF said priorities for the region on the economic front include strengthening fiscal management, lowering public debt, sustaining low inflation and pursuing trade liberalization.
The IMF added that maintaining the strong growth the region enjoyed in 2004 involves giving “renewed emphasis to broader structural reforms.”
Improvements in the business environment and labor market reforms “are also needed to raise investment and structural flexibility,” said the IMF in its report.
Lack of confidence. The IMF said that, in the late 1990s, persistent macroeconomic vulnerabilities, slowing growth, and limited popular support for corrective measures undermined investor confidence.
That lack of confidence precipitated economic crises in a wide range of countries in Latin America.
Only Chile and Mexico, which had gone furthest in addressing “underlying vulnerabilities” in their economies, “were able to successfully resist the difficult economic conditions,” said the IMF report.
Free trade a plus. The IMF said pursuit of free-trade policies by Chile and Mexico helped both countries’ economies.
Chile, the IMF said, was helped immeasurably by opening its economy “aggressively,” while Mexico benefited by its membership with the United States and Canada in the North American Free Trade Agreement.
Region recovering. But the entire region is now recovering from the economic downturn, said the IMF.
The reason for that, according to the report, is “strengthening political resolve in many countries to address the immediate macroeconomic vulnerabilities – combined with an ongoing global economic recovery, strong commodity prices, and favorable emerging market conditions.”
Looks ‘promising.’ In the forward to its new report, the IMF says Latin America’s short-term economic prospects “look more promising than they have for some time.”
As the global economy strengthens, “a pickup in activity is well under way in most countries in the region, after two years of weakness.”
Identifying where reforms fell short, or where they were not followed through, the IMF asserts, should help policymakers to avoid the shortcomings of the 1990s and set Latin America on a “path of sustainable, more rapid growth.”