As a result of sluggish economic recovery and market volatility, Latin America & the Caribbean are expected to grow an average of 2.5% in 2013, half a percentage point down from last year’s 3% growth. Expectations of an end to the US Fed’s quantitative ease prompted a reversal of capital inflows into the region which, in turn, hit emerging markets hard. Read More »
As a result of sluggish economic recovery and market volatility, Latin America & the Caribbean are expected to grow an average of 2.5% in 2013, half a percentage point down from last year’s 3% growth.
Expectations of an end to the US Fed’s quantitative ease prompted a reversal of capital inflows into the region which, in turn, hit emerging markets hard. Currently, markets have recovered a third of their losses with Brazil’s currency rebounding faster after the government’s massive infusion of capital of roughly US$60 billion.
Most economies will grow less than the previously projected average of 3.8%, with notable exceptions in Central and South America.
Latin America’s economic powerhouses, Brazil and Mexico, are projected to grow 2.4% and 1.6% respectively. In this scenario, Brazil would gain in respect to last year’s 1.1% growth. Mexico, on the other hand, would be worse off than last year’s 3.9%.
Top growth performers include, in decreasing order, Paraguay (11%), Panama (8%), and Peru (5.5%).Elsewhere in the region, rates are expected to remain robust, albeit slightly lower than in 2012. The Caribbean and Central America, minus El Salvador, are expected to growabove 3% in 2013.
Lower growth estimates take into account strong pressure on the value of local currencies as well as a stubbornly slow rebound in the US and increasing deceleration in China, the engine behind the region’s commodity-fueled bonanza.
Diminished growth expectations occur despite the region’s continuing sound macroeconomic fundamentals, which contributed to Latin America’s recent dramatic social and economic advances.
Steady growth and sound economic policies improved the lives of millions in the region over the past decade, with more than 70 million people lifted out of poverty and 50 million joining the ranks of the middle class between 2003 and 2011. For the first time ever, the number of people belonging to the middle class surpassed the number of poor, a sign that Latin America and the Caribbean is progressing toward a middle-class region.
In line with the World Bank’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 the impressive gains of the past decade – 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 32% of the region’s total, 40% of Latin Americans remain vulnerable to falling back into poverty. 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 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. Quality of education is also critical. While the share of Latin Americans with higher education rose from 9.5% to 14.2% in 1990-2009, Tiger economies went from 10% to 20% over the same period.
Efficient State: Access to quality public services remains a challenge. Citizens have little confidence in the State’s capacity to provide efficient services, with many opting out if they can afford it. About 7% of the population does not have access to safe water and 20% 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 has served as a global laboratory 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 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, but a greater shift towards prevention is needed. The Bank provides tools and mechanisms to boost resilience, including cutting edge instruments such as catastrophic risk insurance.
The Bank 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 2012 flagship report Economic Mobility and the Rise of the Middle Class, the Bank helped address pressing needs.
Overall the World Bank Group committed $11.8 billion in fiscal year 2013 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 $5.2 billion in new loans in FY13, nearly $4.8 billion from IBRD and $435 million from IDA, the Bank’s fund for the poorest countries. 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.
Brazil ($3.1 billion), Colombia ($600 million) and Uruguay ($408 million) were the largest borrowers in the region. Haiti received $235 million in IDA grants. Water and sanitation, disaster risk management, and economic policy received the most funding. Latin America and the Caribbean got the largest share of IBRD’s total global new lending at 32%, and 16.5% of total IBRD/IDA lending.
Some notable results include:
In Haiti, over 1.5 million people received targeted cholera and health/sanitation, education and prevention training. Additionally, the Bank provided water treatment products and/or soap to nearly 600,000; and trained over 4,000 health and hygiene agents and medical personnel.
Mexico is increasingly becoming “greener” following an ambitious agenda to mitigate and adapt to climate change, a goal the WB has supported for over a decade. Currently, with Bank support areas under environmental management have increased by 20%.
Support to greater transparency in local government is benefitting more than one million people in Brazil’s Rio Grande do Norte state. US$ 360 million in financing will boost the state’s poverty reduction and shared prosperity agendas.
Also in Brazil more than 600,000 daily passengers benefit from a greener São Paulo metro line.
To help address inequality in Colombia the Bank provided a $600 million development policy loan that will improve collection and management of government revenue – ultimately allowing for better distribution of public resources.
El Salvador saw tax collections increase by 2% of GDP, allowing additional public expenditures towards reducing poverty. In Nicaragua, learning conditions improved across primary schools after 1 million new textbooks were distributed.
About 235,000 people in metropolitan Montevideo, Uruguay, have gained access to safe water. And over 355,000 people from 23 Argentine provinces benefited from investments in infrastructure.
Regionally, a study released in December 2012 found that Latin America’s middle class grew by 50% over the past decade adding about 50 million people to its ranks. For the first time ever, the number of people belonging to the middle class surpassed the number of poor. However, more than one third of Latin Americans still belong to a “vulnerable class”.
In Central America, a region-wide hackathon in February 2013 produced several mobile apps to combat gender violence, a scourge that affects 1 in 3 women globally and about half of the female population in parts of Central America.