Latin America is coping with the crisis derived from the war in Ukraine but it is of little use if it does not participate more in the global economy, attract more investment and take advantage of productive relocation and green industry, the World Bank highlighted on Tuesday.
The economies of Latin America and the Caribbean "have been relatively resilient"affirms the organization in its report "The elusive promise of integration – opportunities in a changing world economy".
The bank estimates that regional GDP will grow 1.4% in 2023 and 2.4% in 2024, too little "to achieve significant progress in poverty reduction".
"The region has largely recovered from the pandemic crisis, but has unfortunately returned to the low levels of growth of the previous decade."said Carlos Felipe Jaramillo, vice president of the World Bank for Latin America and the Caribbean, quoted in a statement.
In 2023, the World Bank expects Mexico to grow 1.5%, Brazil 0.8%, Colombia 1.1%, Costa Rica 2.7%, Ecuador 3%, El Salvador 2.3%, Bolivia 2.7%, Guatemala 3.2%, Honduras 3.5%, Nicaragua 3%, Panama 5.7%, Paraguay 4.8%, Peru 2.4%, Dominican Republic 4.4% and Uruguay 1.8%. On the contrary, Argentina will not grow (0%) and two economies will contract: Chile by 0.7% and Haiti by 1.1% drop.
The agency expects average inflation, excluding Argentina, which recently exceeded 100% in 12 months, to fall to 5% in 2023, after reaching 7.9% in 2022. The level of indebtedness should be around 64.7% of GDP, compared to 66.3% in 2022.
But there are still headwinds such as falling commodity prices, rising interest rates, and the uncertain recovery of China, the region’s inescapable trading partner, which "could darken the prospects again"warns the bank.
In addition, the repercussions of the recent bank failures in the United States and Europe "are yet to be seen".
"Paradox"
According to the World Bank, the region faces "the paradox of lack of integration"that is to say "it has reached a level of macroeconomic stability, if you will, of normality, and that should attract more investment and generate growth, but generally the opposite is true"explained William Maloney, chief economist for Latin America and the Caribbean at the World Bank, at a press conference on Tuesday.
Just take a look at foreign direct investment (FDI), that which comes to the country to stay in the long term, in infrastructure for example.
"Global flows to developing countries have increased steadily since 1990, but have basically stagnated in Latin America since about 2011 and declined" even added the manager.
It’s a problem with "two dimensions"Maloney explained to AFP: "International trade understood as exports plus imports over GDP is stagnating or reducing"with the exception of Mexico, and foreign direct investment falls, "much of it from Spain" and from other European countries.
According to the report, this type of investment "decreased 35% in the last ten years" in Latin America.
Since 2020, the total volume of trade has increased by approximately 10%, but the region continues to "10% below where it was a decade ago"according to the WB.
For what is this?
Some Latin American countries have lower wages than Asia, but taxes and the cost of capital to produce are higher; confidence in political and institutional stability has fallen; the cost of crossing borders, in terms of time, is high despite the reduction in tariffs.
In addition, it is reversed "little and bad" in commercial infrastructure, digital access has been neglected, cities are "relatively congested" and the training of human capital is insufficient, lists Maloney.
All of this in a context of a change in the center of gravity: the United States continues to be the main destination for exports but, if Mexico, closely linked to the northern giant, is excluded, the dominant partner is China.
Relocation
The WB considers that the question should not be whether the region should return "to a more isolationist stance, which led to low growth and macroeconomic instability"but "why the supposedly liberal reforms of the last 40 years did not produce better results and what should be done".
It is an essential question to take advantage of opportunities such as ‘nearshoring’.
"The relocation of production, to places closer than Asia, already benefits Mexico" and "could partly reverse the deindustrialization process"estimates the BM.
Countries must find ways to become attractive, Maloney estimates, and take advantage of the production of green energy, especially wind and solar, as well as the abundance of lithium or copper, the report said.
