Overview

  • Growth prospects for 2018 are falling short of initial expectations due to challenges faced by some of the countries in the region, particularly in South America. The LAC region is now expected to grow 0.6% in 2018 and 1.6% in 2019 (Excluding Venezuela, that would be 1.6% in 2018 and 2.1% in 2019). The main reasons for the weaker growth in South America are the market turbulence that started in Argentina in April, the growth slowdown in Brazil, the continued deterioration of the situation in Venezuela, and a turn for the worse in the external environment.

    The World Bank is supporting faster and more equitable growth in the region to buttress the profound social transformation seen during the first decade of the 21st century, when the commodity boom fueled an expansion that helped cut poverty rates by half. Between 2003 and 2016, the share of the population living in extreme poverty in the region fell from 24.5 percent to 9.9 percent. Since then, however, the pace of poverty reduction and growth of the middle class has stalled.

    The region’s main challenges include boosting investment, promote better 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.

    However, 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: Oct 08, 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.  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: Oct 08, 2018

  • 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: Natural disasters are a constant threat in the region, which can have detrimental impacts on economic growth. Following the devastating 2017 hurricane season, the Bank and its partners helped Caribbean countries conduct damage assessments and prepare emergency response projects. In Dominica, for example, the Bank pledged $115 million to support efforts to build climate resilience. The Bank also leveraged innovative solutions to transfer risks to capital markets and offer financial protection to participating governments. In Haiti, the Bank conducted an Urbanization Review to help lay the roadmap for the sustainable development of Haitian cities. The Bank is also supporting the

    Organization of Eastern Caribbean States to implement the Eastern Caribbean Oceanscape Policy endorsed by 11 Caribbean heads of state. This involves advising governments on concrete actions to generate sustainable blue growth that balances economic activity with the preservation of healthy coastal and marine ecosystems.

    The Pacific Alliance: This year, the Bank issued more than $1.3 billion in catastrophe bonds as insurance against earthquakes in the Pacific Alliance—an economic and development initiative between Chile, Colombia, Mexico, and Peru. The “Cat Bond” issuance was the largest of its kind ever placed and the first involving multiple countries. These bonds pay investors a premium for a set number of years, with governments receiving a payout if a covered disaster happens and bondholders getting the principal back if not. This transfers part of the risk of disasters from governments to markets, ensuring the quick mobilization of funds and fiscal resilience in the face of disaster. To date, the Bank has facilitated nearly $4 billion in risk transactions worldwide. The Cat Bonds highlight the fact that building resilience involves more than just reducing exposure to threats. It is also crucial to design and implement policies

    that will ensure the well-being of all and allow economic growth to continue after a disaster. The Cat Bonds are also a huge step forward for regional integration and put Latin America at the vanguard of risk management.

    Argentina: The World Bank and the IFC coordinated a joint approach bringing together expertise to help design and structure renewable energy bidding rounds, leverage global private sector investors and de-risk investments through an IBRD guarantee in support of the government Renewable Energy Fund in the amount of US$480 million (RenovAR). In two renewable-energy auctions in 2016 which aimed to attract 1,000 megawatts worth of new renewable energy projects, they ended up with bids for more than six times that amount - a signal of confidence from local and international investors.

    Panama: The Panama Accord – between the World Bank Group, the Organization of American States, and the Government of Panama – aims to enhance transparency and accountability in Latin America and the Caribbean countries, fight corruption and mobilize greater private financing for development. The Accord includes a series of measures destined to improve the quality and transparency of fiscal and financial reporting, strengthen accountability in the public sector and enhance cooperation among the various players involved in development, namely governments, the private sector and civil society.

     

    Last Updated: Oct 08, 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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