Overview

A continuing decline in growth and fewer prospects for a strong rebound are challenging the Latin American & Caribbean region (LAC) with a ‘new normal’ of stagnant growth rates and narrowing options for maneuvering its way out. 

In recent years regional economies have been experiencing low growth averages, of about 2%-2.5% of GDP, – far from the robust expansion of 2003-2012 which clocked rates of over 5%, well above other emerging markets and the G7 countries.

An uptick is expected in 2015, but not enough to restore previous regional rates of growth.        

The deceleration is linked to decreasing commodity prices, a slower Chinese economy, and shrinking investments. 

The region’s growth average is weighed down by the slowdown in important economies such as Argentina and Brazil. Bright spots include Panama, the Dominican Republic, Nicaragua, Bolivia, Paraguay and Peru (with an expected average of 4%-6% for 2015).  Mexico, Chile, Costa Rica and Uruguay are projected to stay within the 3%-4% band. 

Experts and policy makers worry that the constricted prospects may jeopardize the social gains of the past decade and push Latin American economies into the so-called middle-income trap –a status where countries see their development prospects constrained.

In the past decade, Latin America managed   to lift more than 70 million people out of poverty while expanding the middle class by more than 50%.  Better-quality education, infrastructure, security and healthcare services have become part of the core demands of LAC’s rising middle class.   While addressing these newfound expectations, the region is also facing the challenge of a large part of the population, which remains “chronically poor” -130 million people, according to a recent study.   

Experts warn that LAC’s policy space for rekindling growth is narrowing, and that will require the right combination of monetary and fiscal tools. Refocusing public spending and taking advantage of exchange rates to stimulate the economy, without igniting inflation, will be among the region’s options in the years to come.

In line with the World Bank Group’s overall strategy centered on ending extreme poverty by 2030 and boosting shared prosperity, our work in the region addresses the following core areas:

Shared prosperity: Despite impressive recent gains– a growing middle class and fewer poor – Latin America and the Caribbean remains a very unequal region, with some 82 million people living on less than $2.50 per day. Additionally, while the middle class (US$10-US$50 per day) accounts for 34 percent of the region’s total population, another 38 percent of Latin Americans who just left poverty remain vulnerable (US$4-US$10 per day) to falling back should countries face economic shocks or protracted low growth.  Additionally, 1 in 5 Latin Americans never benefited from the recent bonanza, and have remained stuck in poverty –the so-called “chronic poor.” Helping countries continue to address the inequality gap by creating opportunities for all, is at the top of the Bank’s regional agenda.

Increased productivity: The region’s extraordinary recent growth and ability to weather the 2008/09 global slowdown contrast with its lagging productivity, with the exception of commodity sectors.  Bottlenecks include high cost logistics, inadequate infrastructure, and low quality education. Logistics in Latin America and the Caribbean cost 2 to 4 times more than in OECD countries and the Asian Tigers.

Better education: is essential to boosting productivity and aligning education outcomes to the skills demanded by the global marketplace. Even though Latin America has almost reached universality in access to education, quality still remains an issue.  A recent World Bank study shows that poor average teacher quality and management make Latin American students lose the equivalent of one full day of class every week.

Efficient State: Access to quality public services remains a challenge. There is a burgeoning dissatisfaction within the new middle class with the quality and level of services provided by the state –including education and security, among others.  Citizen security has become a development challenge for many countries in the region. Through financing and high-level knowledge exchanges, the Bank has been supporting an integrated response to growing crime and violence.

Inclusive and green growth: LAC is a global showcase for some of the most innovative environmentally-friendly practices. Accounting for 6 percent of global greenhouse emissions from energy –13 percent if deforestation and agriculture are taken into account –, the region has the least carbon-intensive energy matrix of any region in the world. It has also adopted payment schemes for preserving the environment. But the economic bonanza of recent years has led to new pressures: over 80 percent of the region’s population now live in cities. The Bank’s green growth agenda recognizes the importance of sustainability to the region’s development, and for preserving natural resources for future generations.

 

The World Bank has supported Latin America’s development agenda by tailoring its wide-ranging financial, knowledge, and convening services to the region’s diverse needs. Through financing; including innovative mechanisms, such as the Climate Investment Funds; in-depth development research, such as a recent study on improving teacher quality, technical assistance and convening services, the Bank helps the region address its pressing development challenges.

In fiscal year 2014, the World Bank Group committed approximately US$10.2 billion to the region - US$4.6 billion from IBRD (International Bank for Reconstruction and Development, the part of the World bank which serves middle income countries) and US$455 million from IDA (International Development Association, which serves the poorer nations) for 43 new projects.  In addition, the IFC (International Finance Corporation, which works with the private sector) provided about US$5.1 billion for 148 projects.  Support was aimed at creating opportunities for all through public and private sector projects that expand public services, improve regional productivity, competitiveness and integration, create quality jobs and assist those most in need.

Some noteworthy examples include:

Education

In Mexico more than 4 million students will be able to prepare for college following a loan to improve upper secondary education (EMS, in Spanish), which covers studies prior to joining a university.

In Colombia, over 200,000 low-income students will be able to afford higher education, as a result of a US$200 million project to support the Colombian Institute for Educational Credit and Technical Studies Abroad (ICETEX, in Spanish).  Similarly, the World Bank has funded scholarship programs, full-time school models, and labor intermediation programs in Honduras and El Salvador, where youth unemployment rates reach double digits.

Climate Change and the Environment

To shield its vital power sector from climatic changes and oil price volatility, Uruguay recently acquired innovative insurance coverage. The US$450 million policy protects Uruguay’s electric power company, Administración Nacional de Usinas y Transmisiones Eléctricas (UTE) against exposure to droughts and high oil prices. More than 80 percent of the country’s electrictricity is produced via drought-sensitive hydropower.

A sustainable cattle ranching project has benefitted 2,241 farms in 12 departments in Colombia. Farmers received technical assistance on setting up and sustaining environment-friendly cattle systems.

In Peru, over 400,000 residents in the former Inca capital Cusco, will benefit from improvements to major roads with a US$120 million investment. In neighboring Bolivia, 27,000 rural households, schools and health centers will be powered by solar energy, helping reduce the health and environmental impacts of the traditional cooking stoves.

Meanwhile, Brazil will place more than 17.5 million hectares of ocean, an area larger than Greece, under environmental protection. The creation of conservation areas is fundamental to protecting the ocean’s biodiversity and maintaining fishery activities, which currently generate some 800,000 jobs.

Health

Several initiatives have contributed to saving the lives of thousands of mothers and children in the region. In Argentina, Plan Nacer provided health care to almost 2 million women and children who were previously uninsured. In the rural north, the share of expectant mothers receiving early pre-natal consultations rose from 3 percent to 67 percent in 2012.

In Nicaragua, a community health project has helped to increase the number of pregnant women receiving post-natal care, from a third of the total in 2010 to almost half today. The project is being expanded with additional financing to cover 34 additional municipalities, taking the total number to 100 municipalities.

Knowledge

From the regional development knowledge perspective, a study launched in March 2015 found that one out of five Latin Americans are “chronic poor”.  Born into poverty and unable to escape their status, they benefitted little from the growth of the 2000's and some have even fallen through the cracks of the social assistance system, according to the report. It recommends a wide range of policy measures to tackle this issue including, for the first time, addressing the poor “state of mind,” which can lead to low aspirations and perpetuates their status.  

A study released in July 2014 found that public school students in Latin America and the Caribbean lose the equivalent of one full day of class every week due to poor teacher quality.

Based on unprecedented research, involving the observation of over 15,000 classrooms in 3,000 primary and secondary schools in seven Latin American countries, the report, Great Teachers: How to Raise Student Learning in Latin America and the Caribbean, suggests options to increase teacher and education quality.


Content highlight

The Middle Class in Latin America

After a decade of growth and job creation more than 50 million people joined the ranks of the middle class in Latin America, representing an increase of over 50%




PHOTO GALLERY
More Photos »
Exception::javax.jcr.PathNotFoundException: omniture