After a period of slow and negative growth, the Latin American and Caribbean economies are starting to show a strong recovery, the World Bank said in a report released Wednesday.
But the losses from a string of recent natural disasters including last month’s earthquake in Mexico and hurricanes Irma and Maria in the Caribbean could create economic pressures domestically. How much is still unknown.
“In general, the effects of the hurricane on certain islands is obviously going to be big even though we don’t have definite figures,” said Carlos Végh, the World Bank’s chief economist for Latin America and the Caribbean. “The bank, with the U.N., and many other organizations are still starting to get a sense of the magnitude of the damage. I am sure in a month or so, we will have a better understanding of it but [right now] it’s almost impossible to speculate.”
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The recovery of the region is being led by strengthening commodity prices and economic stability in the U.S. and China. That has translated into positive growth for South America, led by Argentina and Brazil. Still, the region’s economies are not living up to their potential and need to do more to insulate themselves from external pressures.
Végh said there are several key messages from the bank — which, along with the International Monetary Fund, is holding its annual meeting in Washington this week — in the study.
The region’s economies are strengthening, led by the recovery in South America. But even with countries like Argentina and Brazil showing strong growth, the region is not yet back to the 4 percent growth levels it enjoyed before the global economic financial crisis that started to hit in 2008.
“We find ourselves in a situation in which you can think of the external factors as being more or less stable in the sense that they are not going to hurt you, but they are not going to help you either,” he said.
To reach that level of growth and be less dependent on external factors, Végh said Latin America and Caribbean economies are going to have to find their own drivers so they can grow beyond 1 percent every year. This means making structural reforms at home in areas such as education, labor markets and pensions. Countries also need to do more trade and make investments in infrastructure.
“Latin America is still a very closed region. There is still a lot of trade we can do even at the level of our own region, let alone with Asia or the European Union,” he said.
He added that the “infrastructure is literally falling apart. It costs three times as much to take your produce to the port in Latin America than in Asia. This is a huge disadvantage.”
And if economies are to truly benefit from their growth, Végh said the majority of them will need to get a handle on their debts. When most of the money you’re reaping has to go toward debt, there’s less for investments in social programs and other quality-of-life issues.