Why Are Latin Countries Booming? The Role of Good Policies

by Dave

São Sebastião do Rio de JaneiroImage via Wikipedia

There have been many fundamentals improvements in Latin America: current account surpluses; better balance sheets; smaller short term foreign currency debt; greater FDI flows; lower fiscal deficits and larger primary surpluses; high forex reserves; a reduction in liability dollarization; low inflation; reform and clean-up of banks and financial system; phase-out of IMF programs.

In turn, there are some remaining internal risks that may require more reforms: most [LatAm] countries still have large fiscal deficits and high debt ratios; risk of perverse public debt dynamics if shocks to real interest rates; slow pace of structural reforms, policy uncertainty; ‘reform fatigue’ and rejection of the Washington consensus in some Latin American countries.

There are also some structural impediments to growth that limit the potential long-run growth rate of some countries or regions (Latin America); these include: low investment ratios; low competitiveness; underdeveloped financial system; slow pace of structural reforms (labor, competitition/regulation, social security, taxation systems); weak institutions. So, long-run re-rating and achievement of investment grade depends on policy changes that increase long-run growth.