Reforms to stimulate investment and productivity seem essential to continue growing. Human capital shall be the key to development.

The Center for Latin American Studies (CESLA) emphasizes an interesting situation: the International Monetary Fund (IMF) has changed its way of interacting with Latin America; partly because it currently does it through Alejandro Werner, a Mexican born from Argentine immigrants who clearly remembers the times when the region used to depend on the Fund’s financing, consequently strictly following its orders. Nowadays, IFM has a dialogue relationship with the region, restricting only to providing “experience y making suggestions”, according to the Western Hemisphere expert.

Nevertheless, when providing advice from the Ramon Areces Foundation, Werner is forceful: “External factors, such as primary products boom, is over; the time has come to make important reforms in education, infrastructure and energy”.

The international organization foresees a 2,5% growth during 2014, the smallest advance in the last 12 years, with the exception of a very difficult year as it was 2009. The primary products boom has gotten colder. Economies closely related to the United States still do not feel the recovery effects from that country. Mexico experienced low growth during 2013 as well as during the first three months of this year. Werner also stated we cannot expect much from Brazil: 1,8% for this year. Argentina and Chile will experience deceleration and Venezuela will even experience contraction. In smaller countries, the situation will be no different: Paraguay achieved a 14% growth due to its agriculture and livestock boom; however this year it is expected to grow 5%. Even Panama, the country which keep its growth for the longer time, shall decelerate.

Nonetheless, Latin America may still have several years of access to cheap financing ahead. The reason is that Fed policies regarding retreating quantities stimulus is changing. However the return of interest rates to normal levels will not start until next year and, besides, it will be slow. Of course, market volatility may occur occasionally; but the region is in conditions to deal with that situation: foreign currency reserves are at historical levels; banking is well equipped and central banks have resources at their disposal.

Evidently, according to Werner analyses, there are deeper factors strongly playing in the region; it is not a casualty that most of their economies are in nearly full employment situations. They have exhausted their potential. Overcoming this problem will be very complicated if reforms that aim to stimulate both inversion and productivity are applied.

A reform that should be common within the entire region is an educational reform. None of its countries, not even Chile, come out well at international qualifications. During the next decade growth will depend on the improvement of human capital and infrastructure, without damaging other areas were work is also needed, such as energy, where inefficient production remains being aided, or middle-classes access to credits.

There are signs of great alert in several countries.

According to Werner, Argentina is moving towards the right path: it has managed to contain international reserves and will eliminate water and gas financial aids. These, among other measures, may affect its growth in the short term, but will provide greater benefits in the future.

On the other hand, Venezuela is something to be worried about. Its instabilities are very large: the greatest inflation rate in the world, a recessive economy (GDP will also fall this year), continuous loss of foreign currency reserves. In addition, it has an oil export regime towards small countries in the region that makes it very dependent of the financing conditions established by Caracas. Shall such conditions change, greater problems will arise.

How is it that Latin America is not a real economic block?

We have heterogenic economies. Besides, historically, there has not been a force towards integration, such as the European which besides aiming for economic integration, it is moving towards geopolitical union. There are financial and business networks in Latin America. However, the same has not happened in the political area.

Sources: El Economista (Mx) y CESLA