3 ways this year’s extraordinary electoral cycle could reshape Latin America

This is a pivotal year for Latin America: Chile is inaugurating a new president; there are elections in Mexico, Colombia, Paraguay, Costa Rica, Venezuela and Brazil; and Argentina chairs the G20.

After a period of low growth in the past few years, stronger commodity prices and consumption have helped boost activity in the region, and global growth is forecast to strengthen. With two major economies in the region coming out of recession, the IMF has upgraded its outlook in the region to 1.9% in 2018 and 2.6% in 2019.

The brighter economic outlook and broad electoral calendar could present a critical opportunity for regional leaders to tackle some of the long-term challenges, from corruption and income inequality to low productivity growth, that have held back progress. Finance ministers, global and regional CEOs, and civil society representatives are meeting next week in São Paulo for the World Economic Forum on Latin America 2018 to address what steps each community can take to lay the foundations of long-term change for the region.

Here are three essential themes to watch out for at #la18:

1. Good governance

As corruption scandals have undermined the governments of some of the largest economies in the region, there’s a strong desire for change and reform. While the electorate of many of these countries is looking for stability and more inclusive growth, there is still significant mistrust in institutions and leaders. Technology is emerging as an ally of trust and transparency as an effective tool in countering corruption. In Mexico, for example, the government is using an open data portal for contracts to build the capital’s new airport. The airport is the largest infrastructure project to be undertaken in Mexico in decades and the government’s work with the OECD led to 200 contracts being uploaded to datos.gob.mx using open contracting data standards. Any citizen can go online and review how the money is being spent.

More efficient government spending and how the private sector contributes will also be crucial to answering some of the challenges of globalization. The lacklustre growth of recent years has denied a large portion of the population the social mobility to which they’d grown accustomed. With the leadership of many countries turning over, affected communities are likely to make their demands heard about the need for more targeted social spending on local priorities, whether in health, infrastructure or education.

For more on this topic, follow these sessions: A New Deal on Globalization,Breaking the Cycle of Corruption.

2. Reversing income inequality

As a region, Latin America has some of the highest rates of income inequality in the world in spite of strong progress since the early 2000s.

Brazil has had success in reducing poverty rates partly through the much-studied targeted spending programme, Bolsa Familia. The programme of cash transfers for families that keep their children in school and bring them for medical check-ups has been studied and adapted in nearly 20 countries including Mexico and Chile. The World Bank estimates that between 2004 and 2014, the programme contributed to halving extreme poverty rates from 9.7% to 4.3% and reached some 50 million Brazilians. Now, 15 years after it was first announced, some economists question if the programme diverted funding from necessary public services or was used for political ends. As inequality remains a stubborn problem throughout the region, what additional levers can be pulled and what is the role of the private sector in building the long-term drivers of productivity that fuel inclusive growth?

For more, follow the session Global Economic Outlook.

3. Investment in people

Inevitably, reversing income inequality and bringing more people out of the informal economy will be a vital component to the future prosperity of the region. The Fourth Industrial Revolution creates opportunities for small entrepreneurs to reach global consumers through e-commerce and creates the need for new skill sets. It is also changing traditional development models as companies no longer have the strong incentives to outsource production to low-wage countries. Artificial intelligence and automation are reducing the need for low-skilled, low-wage workers. Philips famously re-shored production of electric shavers back to the Netherlands from China to bring the final product closer to consumers. To manage these challenges, countries will need to invest in digital infrastructure and the soft infrastructure of the Latin American workforce.

The capacity for innovation and ingenuity in the region is underutilized with approximately half of the region’s workforce stuck in informal employment, depriving productive firms of the human resources they need to grow. Without the people and financial resources needed, it’s tough for companies to upscale and recruit. The World Economic Forum and the International Financial Corporation are bringing 50 Latin American start-ups to the summit to help them make the connections they need to grow.

Of course, the push for regional integration and a benign interest rate environment remain helpful factors in the region’s success. While the outlook for global growth remains bright and the electoral calendar presents opportunities for progress, 2018 may be the year steps are taken to raise Latin America’s prospects for prosperity.

Fuente: WEF

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