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Latin America and Caribbean Overview

As economic conditions in advanced economies improve in 2014 and beyond, the economic outlook is fairly upbeat for Latin America & the Caribbean (LAC). With growth strengthening steadily from 2.9 percent in 2014, to 3.2 in 2015 and 3.7 in 2016, the region’s expected average growth is up from last year’s modest 2.5 percent.

On the other hand, the continued decline in commodity prices threatens to reduce export revenues in 2014. Food and industrial metal prices have declined by 14 and 47.5 percent, respectively, since their 2011 peaks.  What’s more, capital flows to the region are projected to decline by 3.7 percent in 2014 as a result of the U.S. Federal Reserve tapering its quantitative easing program since January 2014. This is likely to impact domestic demand and ease GDP growth. 

Latin America’s economic powerhouses, Brazil and Mexico, are projected to grow 2.4 and 3.4 percent respectively. Mexico’s reform agenda has fueled investor optimism, leading to a gain of 1.8 percent on last year’s growth, whereas Brazil would be in the same position as last year.

The forecasted top growth performers for 2014 include Panama (7.3%) and Peru (5.5%). Elsewhere in the region, rates are expected to remain robust with many countries in Central America likely to grow between 3-5% in 2014.

Furthermore, regional exports are poised to grow from 4.0 percent  in 2014 to 5.4 percent in 2016. For the first time, several countries are using exchange rates as shock absorbers and economic boosters. Depreciated currencies make the export and local industries more competitive and boost job creation.

Steady growth and sound economic policies improved the lives of millions in the region over the past decade. The poverty rate dropped from 42 percent in 2000 to 25 percent in 2012, while the ranks of the middle class increased from 22 to 34 percent in those same years.   For the first time ever, the number of people belonging to the middle class now surpass the number of poor, a sign that Latin America and the Caribbean is progressing toward a middle-class region.

Despite progress in the past decade, inequality in the region remains high, and may be stagnating.

In line with the World Bank Group’s overall strategy centered on eliminating 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 accounts for 34 percent of the region’s total population, 38 percent of Latin Americans remain vulnerable to falling back into poverty. Perhaps more worrisome is the fact that inequality reduction may be stagnating – the Gini coefficient, a standard measure of income inequality, remained at 0.52 in 2011 and 2012.  Addressing the inequality gap and 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 recession contrast sharply with its lagging productivity. Logistics costs are high, infrastructure is decaying, and education lacks quality. Logistics in LAC cost 2 to 4 times more than in OECD countries and Asian Tigers. While the share of Latin Americans with higher education rose from 9.5 to 14.2 percent in 1990-2009, Tiger economies went from 10 to 20 percent over the same period.

Efficient State: Access to quality public services remains a challenge. Citizens have a diminished confidence in the State’s capacity to provide efficient services, with many opting out if they can afford it. About 7 percent of the population does not have access to safe water and 20 percent of Latin Americans still lack access to sanitation. Citizen security is a development challenge for many countries, especially small ones. Governments are eager to develop an integrated response to growing crime and violence. The Bank has been supporting these efforts through financing as well as high-level knowledge exchanges.

Inclusive and green growth: Latin America and the Caribbean have served as a global showcase for some of the most innovative environmentally friendly practices. Accounting for only 6% of global greenhouse emissions, the region has the lowest carbon intensive energy matrix of the developing world. It has also adopted payment schemes for preserving the environment. But the economic bonanza of recent years has led to exploding urbanization: over 80% of the region’s population now lives in cities. The Bank’s green growth agenda recognizes the paramount importance of the issue to the region’s development, and for preserving natural resources for future generations.

Disaster resilience: Naturally prone to hazards, LAC is home to nine of the top 20 countries exposed to disasters, which cost governments about $2 billion annually. Countries have become more disaster-savvy, and are increasing the focus on prevention. The Bank provides tools and mechanisms to boost resilience, including cutting edge instruments such as catastrophic risk insurance. 

The World Bank has supported Latin America’s development agenda by tailoring its diverse financial, knowledge, and convening services to the region’s diverse needs. Through project financing; innovative mechanisms, such as the Climate Investment Funds; and in-depth development research, such as the 2013 flagship report Latin American Entrepreneurs: Many Firms but Little Innovation, the Bank helped address pressing needs.

Overall the World Bank Group committed an estimate of nearly US$11 billion in fiscal year 2014 to Latin America and the Caribbean. This includes resources from the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).

The World Bank (IBRD and IDA) maintained its strong support for the region approving US$5.2 billion in new loans in FY14, nearly US$4.9 billion from IBRD and US$322 million from IDA, the Bank’s fund for the poorest countries. In addition, the IFC provided an estimate of US$5.5 billion. Support was aimed at generating 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 notable results include:

  • A project to make the banking sector in Honduras more secure, led to bank deposits more than doubling from US$3.2billion to US$8.7 billion from 2004-2012, with performance also improving significantly over the same period.
  • In Uruguay, fewer students are repeating 1st and 2nd grades after improvements were made to teacher training systems. The availability of Full-Time Schools was also expanded, with nearly twice the number of students attending school full time compared to 1999.
  • Brazil, too, saw school enrollments increase in the state of Pernambuco. From 2011-2013 over 24,000 students enrolled in integral and semi-integral secondary schools, with a further 13,687 enrolling in professional education schools between 2010-2013.  Of the latter, nearly 40 percent live outside of the Metropolitan Area of Recife.
  • In Nicaragua, over 44,000 rural Nicaraguans were legal owners of their land by July 2012, through a project to regularize and demarcate land titles. Likewise, 12,480 urban households, 51 percent of whom headed by women, also received new land titles.
  • Regionally, a study released in December 2013 found that while Latin America is a region of entrepreneurs, a chronic lack of innovation is stifling growth and competitiveness. As the economic tailwinds die down, innovation and dynamism will be key to maintaining economic growth and prevent the region’s ‘vulnerable class’ from slipping back into poverty.
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