Latin America Economic Outlook: Uncertainty And Risks, But With Opportunities

Posted on 2017-05-16

While the economic performance of Latin America is expected to be better this year and next compared to 2016, uncertainties and risks could get in the way of the opportunities, leaders from government, finance and international organizations concluded in a session on the economic outlook for the region at the 2017 World Economic Forum on Latin America.

“The region is pulling out of recession,” said David A. Lipton, First Deputy Managing Director of the International Monetary Fund (IMF) in Washington DC. “The region has the chance to make important strides.” He pointed out that the global context is favourable, with growth momentum picking up on the back of a rise in industrial production around the world. “It’s time for the region to make the most of an opportunity.” Growth in the region could run to 2.5-2.7% in the short term, he added.

“The region is going to grow after two years of contraction,” Alicia Bárcena Ibarra, Executive Secretary, United Nations Economic Commission for Latin America and the Caribbean (ECLAC), agreed. “We have curbed inflation.” But, she cautioned, “the region faces a very uncertain context. What the region hasn’t been able to underpin enough is its investments.” Latin America is difficult to analyse as a whole because of the different situations in each country, but “structural gaps persist that are very complex”. Countries should assess their fiscal space carefully, she advised, noting that more than 14 countries in the region have already undergone tax reforms that have offset in part the drop in non-tax revenue.

“We see upside and downside risks,” Lipton remarked. The uncertainties around the new US administration and its policy decisions, especially in trade, are a concern. Latin American countries would do well to build greater links among themselves, increase intra-regional trade and boost links with other regions and emerging markets, he said.

The word that best describes the outlook for Mexico is “uncertainty”, Guillermo Ortiz, Chairman, BTG Pactual Latin America at Banco BTG Pactual SA, concurred. The rhetoric during the US election was “highly disruptive” for Mexico, he observed. But “I believe we are in a much better situation – those in the US who are in charge of the bilateral agenda are experienced people who know the country very well.”

“The main risk for Panama and the region is the lack of certainties,” Dulcidio De La Guardia, Minister of Economy and Finance of Panama, said. He too argued that the rhetoric of the US presidential campaign does not reflect what is really happening. “We have seen far more reasonable steps taken than what we heard.”

In Brazil, Ortiz reckoned, “something very significant is happening”. The country is exiting its worst recession and the new leadership is poised to deliver a stabilized economy. “The most important issue is to ensure the stability of public finances. There is now a cap in total spending and they are focusing on social security. Inflation is dropping significantly. Brazil will have lower inflation than Mexico. I can’t remember when that last happened. Brazil will show modest growth this year but next year might surprise us with far higher growth.”

Argentina is another turnaround tale in Latin America. “We inherited enormous problems,” Nicolas Dujovne, Minister of the Treasury of Argentina, acknowledged. But since he came into office in 2015, President Mauricio Macri has implemented reform policies that have yielded significant results. Its fiscal consolidation plans have been deliberate. “Fiscal gradualism is not a slogan to procrastinate in fiscal terms,” Dujovne explained. “It is a strategy.” The administration will be focusing on tax reform after upcoming mid-term elections. “This government was confronted with a very difficult situation and has taken the right approach,” Lipton observed. “It is off to a good start and headed in the right direction.”

Asked about corruption across the region, Ortiz predicted that the problem would be “the defining issue” of the presidential elections in Mexico next year. “Corruption is clearly a tax paid by the poor but you have to be certain that, when cleaning your house, you are not knocking it down,” De La Guardia warned. “The fight against corruption hasn’t gone too far,” Dujovne asserted. “Any level of corruption affects investment and the credibility of a country.” “We live in a culture of privileges. But we need to install a culture of shared prosperity – or else we won’t be able to move ahead,” Bárcena concluded.

More than 1,000 business, government and civil society leaders are taking part in the 12th World Economic Forum on Latin America in Buenos Aires, Argentina from 5 to 7 April 2017. The theme of the meeting is “Fostering Development and Entrepreneurship in the Fourth Industrial Revolution”.

 

Source: ANPanama 

 

 

 

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