The International Monetary Fund believes that Latin America’s overall economic performance in 2015 will be better than 2014, but warns that “here is a lot of downside risk to current predictions.
By Joseph A. Mann, Jr.
The International Monetary Fund believes that Latin America’s overall economic performance in 2015 “will be better than 2014,” a top IMF economist said in Miami, but went on to warn that “there is a lot of downside risk” to current predictions.
Latin America’s biggest challenge is that most regional nations have “good macro,” meaning macroeconomic policies, but “bad micro” policies in critical areas, includingweak infrastructure, poor education, serious energy bottlenecks, red tape and bad tax systems, said André Meier, Deputy Division Chief of the Regional Studies Division at the IMF’s Western Hemisphere Department.
In its April 2014, regional economic outlook, the IMF predicted that Latin America and the Caribbean would grow by 3% in 2015, up from 2.5% in 2014.
But Meier made a humorous reference to economic projections at the beginning of his presentation to a conference held by the University of Miami’s Center for Hemispheric Policy: “I trust you know why economists keep making predictions. It’s to make the weathermen look good.”
The outlook for Latin America, he said, is “Cloudy with a chance of rain. But we all know about the record of weather forecasters – not to mention economists.”
Meier noted that ‘The regional growth outlook remains subdued as investment continues to slow. Productivity growth in the region has been weak for some time, and Latin America needs a new burst of microeconomic reform.”
A big political problem all over the region is that the emerging middle class has much higher expectations for quality in government performance, better public transportation and improvements in the entire range of public services, Meier noted.
But during learner times, fiscal income will not be sufficient to cover these demands and governments must make real reforms. Moreover, real wages and credit are likely to grow less now than in good times.
Referring to Mexico, Meier said that the government was “doing the right things but didn’t grow very much.” Mexico’s slow growth last year was due to a continued anemic recovery in the U.S. economy, weaker than expected Mexican government spending and the decision by many companies to cut back on capital investment.
But Mexico is now benefitting from the reduction in its wage gap with China and the fact that it is next door to the U.S. market. The country should also benefit from reforms affecting the oil and gas sectors, as well as telecoms. “The only problem is that we have been saying this for some time, and Mexico still has not taken off,” Meier said.
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