Overview

  • The Latin America and Caribbean region (LAC) seems to have turned the corner: after six years of slowdown, including two of recession, it is growing again. However, the years of economic stagnation have halted social progress, and the region needs to spur the economic recovery and find new engines of growth to reduce poverty and boost prosperity further.

    The hardest-hit developing region during the global deceleration, LAC is estimated to have grown by 1.1% in 2017 and is expected to grow by 1.8% in 2018 and 2.3% in 2019. The growth recovery has been mainly linked to the resumption in growth in the two largest South American economies, Brazil and Argentina.  After a two-year contraction, Brazil is estimated to have grown by 1% in 2017. In turn, after contracting by 1.8 percent, Argentina’s economy is estimated to have grown by 2.9 percent in 2017 and is expected to keep growing at roughly the same pace in 2018 and 2019.  

    Mexico is estimated to have grown by 2%, while Central America is estimated to have continued to grow at a healthy pace of 3.9% in 2017.  In contrast, growth in the Caribbean is estimated to have fallen to 2.5% in 2017, down from 3.1% in 2016, reflecting in great part the devastating effects of hurricanes María and Irma.

    The region’s to-do list includes boosting investment, savings and exports and fostering private sector development. Countries need to address external and fiscal imbalances, strengthen regional economic integration to become more competitive globally, and avoid unduly sacrificing investment in the adjustment process. Current gaps in logistics and infrastructure are important obstacles for intra-regional trade; the average logistics costs are 3 to 4 times higher than OECD countries.

    Multiple shocks, including natural disasters, crime, violence, viruses and other infectious diseases, pose great challenges for the most vulnerable residents of LAC, particularly in the current context of low economic growth and rising deficits. Countries should prepare to collect more and better risk information, strengthen risk and disaster management policies, and develop credit and insurance markets that contribute to a faster recovery. Shifting from a procyclical to countercyclical policy framework is necessary to ensure sustainable and equitable long-term growth, and many countries in LAC already made the shift in the last decade.

    However, growth alone won’t be enough to continue recent social gains and the reduction of LAC’s persistent inequality. To do so, LAC needs to invest in people, particularly the poor. LAC continues to underperform in education: around one out of every three youth doesn’t finish high school.  Investment in education quality will play an important role in allowing the poor to contribute to and benefit from future economic growth.

    Last Updated: May 02, 2018

  • Latin America faces a host of challenges that require a steady commitment to protect the most vulnerable and safeguard the gains made by those who escaped poverty to enter the middle class. The World Bank is striving to help countries preserve those hard won gains, and move forward with a competitiveness agenda that will allow growth to be sustained. Our focus is on investing in human capital, strengthening the economic recovery, improving infrastructure, and protecting the poor.

    The World Bank offers a package of financial services that go beyond traditional loans (risk management, risk insurance, swaps, climate insurance, climate adaptation financing, commodity swaps). We also serve as a powerhouse of global ideas and experience and a meeting ground for key players to facilitate development solutions tailored to each country’s needs.

    Investing in Human Capital: Improving the quality of education is fundamental to developing the skills demanded by the global marketplace. LAC has experienced a historic expansion in access to higher education, but much remains to be done in terms of quality and efficiency. Only half of those who enter these programs end up graduating on time. Inequality persists in both access and opportunities. The Bank supports a host of initiatives designed to improve education services and nurture the human capital needed for future development.

    Protecting the vulnerable : Latin America underwent a profound transformation over the past 15 years. Between 2000 and 2014 extreme poverty (US$2.50 a day) was cut by more than half from 25.5 to 10.8 percent, and overall poverty (less than US$4 a day) decreased dramatically from 42.8 to 23.4 percent. However, inequality still abounds and many remain at risk. Despite the gains, 82 million people still live in extreme poverty.  The middle class, who lives on US$10-US$50 per day, makes up 35 percent of the region’s total population. However, nearly 39% of Latin Americans live on US$4-US$10 per day and remain vulnerable to falling back into poverty. Helping countries get back on track for growth and modernizing their social protection systems is at the top of the Bank’s regional agenda.

    Increased productivity: The region’s productivity suffers from high logistical costs, aging and inadequate infrastructure, and the need for more investment in human capital. Logistics in Latin America and the Caribbean cost 2 to 4 times more than in OECD countries and the Asian Tigers. The Bank is working closely with countries to increase efficiency, spur innovation, develop urban and rural infrastructure, and develop a better skilled and more flexible labor force.

    Improving governance: The larger middle class expects more from its governments. At the same time, access to quality public services remains a challenge and there is growing dissatisfaction with the quality and level of services provided by the state – including education and security, among others.  Through finance and high-level knowledge exchanges, the Bank is working to foster more effective and transparent governance to improve services and support an integrated response to social challenges like growing crime and violence. 

    Manage risk better: Despite the big social gains of recent years, nearly 4 out of 10 households in the region are just one disaster away from falling back into poverty. It is often the poorest that suffer the most from these shocks which are frequently followed by lower employment and consumption.

    The region needs to do better at protecting itself against natural disasters, and economic and social shocks (such as crime and violence).  This can be done by strengthening disaster and risk management policies, and developing markets for credit and insurance to contribute to a faster recovery. Preparation is costly and rewards may seem far off, but the cost of inaction is far higher.

    Last Updated: May 02, 2018

  • In fiscal year 2017, the World Bank approved US$5.9 billion in loans to LAC for 56 projects, including US$5.4 billion in loans from IBRD and US$503 in IDA commitments. The Bank also signed 13 Reimbursable Advisory Services agreements with eight LAC countries for a total of US$5.2 million. The focus was on supporting economic recovery, building sustainable infrastructure, investing in the poor and vulnerable, building resilience and the ability to respond to shocks. 

    The World Bank tailors its extensive financial, knowledge and convening services to the region’s diverse needs. Countries increasingly turn to the World Bank for more than direct lending, taking advantage of services including risk insurance, commodity swaps, climate adaptation finance, technical assistance, convening assistance and development research. 

    The Caribbean Catastrophe Risk Insurance Facility helps more than 20 Caribbean and Central American countries pool risk, access low cost disaster insurance, and better manage catastrophic risk.

    In Lima, Peru, and Quito, Ecuador, the Bank is working to develop metro systems that will reduce carbon emissions and unlock congestion. In the Caribbean, it is modernizing grid systems and helping businesses to retrofit their buildings so they can save energy and draw on renewable sources of power.

    Some program highlights in specific countries include:

    Argentina: In order to get 20 percent of Argentina's energy from clean sources by 2025, a US$480 million guarantee was put in place to support the Fund for the Development of Renewable Energies (FODER). The development of renewable energy in Argentina is key to diversify the energy matrix and contribute to climate change mitigation.

    Brazil: In recent years, Brazil has improved its environmental legislation and several initiatives were put in place to combat climate change, which has led to significant emission reductions. The Amazon Region Protected Areas Program  (ARPA) encompasses 60 million hectares of protected areas and the estimated impact of ARPA alone will prevent the emission of 430 million tons of carbon by 2030. Another example is the Marine Protected Areas Program – a pioneer initiative that is expected to triple marine protected areas along Brazil's coast.

    Caribbean: Nine countries in Central America and the Caribbean experienced natural disasters with economic impact that exceeded 50 percent of annual GDP in the past three decades. To address the problem, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) was created. It is the world’s first pooling mechanism to help countries access affordable insurance coverage against hurricanes, earthquakes, and excessive rainfall to reduce their financial vulnerability. Following recent hurricanes Irma and Maria, ten Caribbean countries received payouts totaling over US$62 million, less than 15 days after the devastating events. This regional insurance mechanism allows more than 20 Caribbean countries to access low cost, high quality sovereign catastrophe risk insurance. 

    Ecuador: 50 kilometers of roads were improved, enabling access to health and education services and transport of agricultural production. This resulted in a 50% reduction in transport time and a 55% savings in the maintenance of vehicles traveling those roads.

    Honduras: The Safety Net Project focuses on increasing school attendance and use of preventive health services by vulnerable families through conditional cash transfers known as Bonos Vida Mejor. The project has benefitted more than 1.5 million Hondurans (about 300,000 families) living in extreme poverty.

    Peru: The Public Expenditure and Fiscal Risk Management with a Deferred Drawdown Option project, for US$1.25 billion, supports government efforts to improve public expenditure management in sub-national governments in order to promote fiscal responsibility and improve their administration, efficiency and transparency. The project also supports improvements in the planning and evaluation processes of public-private partnerships.

    Regional: For the first time ever, the World Bank provided a multi country insurance mechanism in the form of catastrophe bonds. The Bank issued a cat bond for the Pacific Alliance Countries – Chile, Colombia, Mexico and Peru – for US$1.36 billion. This transferred part of the risk of earthquakes to capital markets, thus offering financial protection to the governments of the four countries. 

    Last Updated: May 02, 2018

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Washington, DC
Silvestre Ríos Centeno
1818 H Street NW, Washington, DC 20433
+1 202 458-9476
scenteno@worldbank.org
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