In a report issued at the World Bank’s annual meetings in Washington DC lasting from 7 to 9 October 2016, Augusto de la Torre, chief economist for Latin America and the Caribbean, said countries in the region must increase exports in order to grow, rather than focus on domestic markets.
The paper, entitled The Big Switch: Restoring Growth through Trade, focuses on commodity prices and the recent plateau in global trade.
De la Torre said the region is expected to grow by around 1.8 percent in 2017, marking a recovery from a contraction of 1.1 percent forecasted for the regional economy in 2016.
The report examines sub-regional differences, each of which de la Torre said requires a series of policy and fiscal adjustments to boost growth. While Mexico and the Central America and Caribbean sub-region are experiencing growth in part because of the close link to the US economy, long-term growth remains overshadowed by a recession in larger South American countries.
Mexico, the largest country in the sub-region, has experienced recent strong growth, though the rate of growth is still low compared to other countries in the region, de la Torre explained. The “big switch” needed to occur throughout Latin America is moving from “non-tradable goods to tradable goods”, as well as a change of focus away from growing domestic demand.
The report states that “in the current global environment of sluggish demand, slowing international trade (particularly in East Asia) and protectionist threats (particularly in the US), there is a general concern as to whether trade can pull that trick”. De la Torre said exporters will really need to push increased participation in world markets if growth is to occur through trade.
Commenting on Brazil, de la Torre told Development Finance: “An important sector for Brazil is financial sector reform–what to do with the public banks, how to move financial contracting to longer maturities, and those types of reforms should complement the fiscal to help bring down the interest rates.”
Due to its political climate and rampant inflation, Venezuela is an outlier in the Latin American region, due to the limited power of its trade to fuel effective growth. Countries such as Argentina, Ecuador, and Bolivia meanwhile will need to do more to entice foreign private investment in order to ensure future sustainable development, de la Torre said.