Overview

  • After six years of growth deceleration, the Latin America and the Caribbean (LAC) region had resumed in 2017 what seemed to be a path of modest but increasing growth. Unfortunately, this much-anticipated path was not to be, as the region hit several bumps in the road, which reduced 2018 growth from the 1.8 projection to an estimated 0.7 percent.

    In particular, the macroeconomic crisis that hit Argentina in April 2018; the tepid recovery in Brazil after the major recession of 2015 and 2016; the anemic growth in Mexico in the midst of political uncertainty, and the continuing implosion of Venezuela’s economy all turned into a perfect storm that brought growth down in 2018 to a very modest rate of 0.7 percent.  (Excluding Venezuela, growth in the region also fell from 1.9 percent in 2017 to 1.4 in 2018.)  Among the large economies of the region, Colombia was the silver lining with a healthy growth rate of 2.7 percent.

    Unfortunately, growth prospects for 2019 (0.9 percent) show no real improvement over 2018, as a result of weak or negative growth in the three largest economies in the region – Brazil, Mexico, and Argentina – and a total collapse in Venezuela (with GDP projected to fall by almost 25 percent).

    Overall, South America – which represents more than 70 percent of LAC’s output – is expected to grow by only 0.4 percent in 2019.  In contrast, Central America and the Caribbean are expected to grow strongly at 3.4 and 3.2 percent, respectively. Mexico is expected to grow by 1.7 percent (down from 2.0 in 2018), reflecting mainly markets’ concerns about mixed signals regarding the course of future economic policy.

    The region’s main challenges include a mixed growth picture accompanied by a complex macro and external environment in several countries, an unparalleled wave of political change in 2018, and unprecedented flows of intra-regional migration. We are seeing large flows of intra-regional migration from both Venezuela and Central America. With growth slowing, many of those who escaped poverty are at risk of slipping back.

    External factors also pose a challenge for the region: Commodity prices – especially oil and copper – fell sharply at the end of 2018. Growth in China, the main commercial partner for several countries including Brazil and Peru, has slowed. Higher international interest rates, mainly due to ongoing monetary policy normalization in the United States, caused the dollar to appreciate and put pressure on emerging markets’ currencies.

    Growth alone won’t be enough to continue recent social gains and the reduction of LAC’s persistent inequality. To do so, the region 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.

    Latin America and the Caribbean is extremely exposed and vulnerable to many natural disasters, such as earthquakes, floods that can ravage entire regions, and hurricanes that devastate Caribbean states.  The region is among the most vulnerable due to high population density in the areas where these disasters strike and the need for better risk management practices. Fortunately, we are getting better at understanding and managing these risks. Examples supported by the Bank include the Pacific Alliance catastrophe bonds for earthquakes. In addition, risk sharing across countries through mechanisms such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) can provide readily-available funds for the recovery after a member country suffers a hurricane.

     

    Last Updated: Apr 05, 2019

  • Our work is grounded in a three-pillar strategy: promoting inclusive growth, investing in human capital, and building resilience. This includes encouraging better governance and economic integration and leveraging the private finance necessary to address the region’s pressing development needs. The World Bank is also focusing on improving the lives of the most vulnerable, including historically excluded groups such as women, Afro-descendants, and Indigenous Peoples. Partnering with the many different voices of society is key to these efforts.

    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). The institution also serves 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.  Poverty at the International Poverty Line of $1.90 a day fell from 4.6% in 2013 to 4.1% in 2015. However, inequality still abounds, and many remain at risk. Despite the gains, 82 million people still live in extreme poverty.  The middle class, which 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. Improving the quality of health services and modernizing social protection systems are at the top of the Bank’s regional agenda. The key health-related challenges for LAC going forward are how to provide effective care over the lifecycle as populations age, and how to ensure the financial sustainability of the health systems. The region has been at the forefront of innovation in social protection, but regressive subsidies, inequality of opportunities, and exclusion of disadvantaged groups (Indigenous People, Afro-Descendants, people with disabilities, and others), still persist.

    Inclusive growth: The World Bank is working closely with countries to address fiscal and external imbalances, strengthen infrastructure services, and foster private sector development, innovation and jobs. From a macroeconomic point of view, the need to reduce fiscal deficits and rebuild buffers are the main challenges faced by the region. LAC’s infrastructure needs are enormous: the region has an estimated US$180 billion per year investment gap.

    Improving governance: 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.

    Managing risks: 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. The World Bank Group has been a pioneer in supporting innovative market-based solutions for de-risking in LAC, such as the recent Cat-Bond for the Pacific Alliance.

     

    Last Updated: Apr 05, 2019

  • The World Bank approved $4.3 billion in lending to the region in fiscal year 2018, including $3.9 billion in IBRD loans and $428 million in IDA commitments. The Bank also issued the first ever multi-country catastrophe bond between Chile, Colombia, Mexico, and Peru, valued at more than $1.3 billion.

    The priorities in the region centered on supporting inclusive growth through higher productivity and competitiveness, with an emphasis on investing in education, health, and other aspects of human capital. It also invested in infrastructure and worked to improve countries’ abilities to manage and withstand shocks—such as natural disasters, economic upheaval, and crime and violence— while promoting greater transparency and accountability. In addition, the World Bank prioritized the inclusion of groups that have traditionally faced exclusion, including Indigenous Peoples and rural communities. As countries’ needs often exceed public resources, the Bank supported activities and interventions that attracted private investment whenever possible.

    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.

    One of the reports from the last fiscal year was “Afro-descendants in Latin America: Toward a Framework of Inclusion.” About one in four Latin Americans self-identify as Afro-descendants today. They comprise a highly heterogeneous population and are unevenly distributed across the region but share a common history of displacement and exclusion. Despite significant gains over the past decade, Afro-descendants still are overrepresented among the poor and are underrepresented in decision-making positions, both in the private and the public sector. The report proposes a framework to organize and think of the myriad options available to address their situations, based on the experience accumulated by the region and the data available.

    A second report was “The Jobs of Tomorrow: Technology, Productivity, and Prosperity in Latin America and the Caribbean.” This report discusses technology adoption and its impact on inclusive growth through productivity, jobs, types of skills, and wages in Latin America. The report focuses particularly on two dimensions of inclusive economic growth: overall job growth, and how less-skilled, less well-off workers can also benefit from technology adoption.

    Some program highlights include:

    Caribbean: The WBG’s ongoing support for Caribbean Community (CARICOM) countries has reached nearly US$2 billion, with a focus on strengthening resilience and financial protection against disasters. These sectors have received more than US$1 billion in concessional financing from the World Bank’s International Development Association (IDA).

    Brazil: A joint World Bank and Eletrobras project benefited more than 4 million consumers in six states. They now receive improved electricity services, which means fewer and shorter outages, better voltage control (meaning fewer equipment burnouts), and new (legalized and safer) connections. The project represented the World Bank’s first large tendering and implementation of smart grid technology: US$95 million for advanced metering infrastructure (AMI). New smart meters were delivered to 84% percent of targeted customers, reducing fraudulent activity and theft. Additionally, the six electricity distribution companies the initiative worked with adopted environmental and social management best practices, such as material recycling.

    Costa Rica:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Through the project "Strengthening of the Universal Health Insurance", the availability and quality of the universal health insurance system was improved, and the strengthening of the institutional efficiency of the Costa Rican Social Security Fund (CCSS). Under the Program for Results mode, objectives such as the reduction of waiting lists and the care of chronic diseases have been met. For example, the goal of 41 percent of patients with type II diabetes identified and with optimal clinical control was exceeded. The improvement in colon cancer screening also exceeded the goal by reaching 15 percent of the target population. In addition, expectations were exceeded in the percentage of surgeries performed on an outpatient basis where the goal of 43 percent was exceeded. One of the greatest achievements is in the expected percentage of the total number of health areas equipped with the Single Digital Health File (80 over 60 percent expected).

    El Salvador: The Project to Strengthen Local Governments (known locally as PFGL) benefited around 3.4 million people across 262 municipalities in El Salvador through the development of 507 local infrastructure projects, such as electrification, clean water and sanitation, waste management, construction and improvement of roads, and bridges, as well as renovation of sports and recreation spaces to support violence prevention programs. In addition, these local infrastructure projects generated around 12,987 temporary jobs.

    Honduras: The Rural Competitiveness Project (Comrural) seeks to increase the productivity and competitiveness of around 7,200 small rural producers in Honduras and link them to domestic and international markets. Comrural promotes productive partnerships between rural producers and trade partners and supports the development of business plans, and, to date, has created more than 9,000 jobs and has helped to increase productivity in sectors such as specialty coffee, horticulture, fruits, dairy, beekeeping, rural tourism and aquaculture. Producers supported by Comrural produce around 30 percent of all the specialty coffee exported by Honduras to the United States, Europe and Asia.

    Guatemala: The Maternal-Infant Health and Nutrition project helped to provide access to basic health and nutrition services for over one million people in Guatemala through the building or renovation of 35 health centers for maternal and child care, training of more than 5,000 health workers and support to preventive nutrition programs in 142 jurisdictions, among other activities. The maternal mortality rate declined by more than 50 percent between 2006 and 2012 in the intervention areas, while the percentage of pregnant women who received prenatal care increased from 54 percent in 2006 to 89 percent in 2012. Currently, the Pilot to Improve the Development and Nutrition of Young Children in Guatemala (Nuestros Niños Sanos y Listos) is helping to strengthen the capacity of parents and communities to improve child development outcomes for up to 5,500 children under two in poor rural areas in Guatemala’s highlands.

    Mexico: The Expanding Rural Finance Project promotes the strengthening of financial institutions in the country known as financial intermediaries to facilitate loans in remote or difficult to access areas where traditional banking has weak or no presence. Through them, credits are given to producers and entrepreneurs who live in rural areas of under 50,000 inhabitants to support activities that promote inclusion, job creation, and poverty reduction mainly in the agriculture, livestock, forestry, and fishery sectors. More than 150,000 loans have been delivered, 70% in rural areas in the poorer states of the South, 85% to women, and 10% in communities classified as marginalized or highly marginalized.

    Colombia: The Support to the Bogota Metro Line One Section One Project seeks to improve public transportation in the city, and thus improve access to jobs and other types of opportunities for commuters using this new quality transport. The metro will be integrated with Bogotá’s mass transit system and will substantially reduce commuting times and costs for users, will improve road safety along its alignment, will generate urban renewal in its vicinity and will substantially reduce air pollution and GHG emissions in the city.

     

    Last Updated: Apr 05, 2019

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Silvestre Ríos Centeno
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