The writer has served as president of the Inter-American Development Bank since 2005. He retires this month
Ten years ago, I proposed that the 2010s could be the decade of Latin America and the Caribbean. I was not alone in this conviction. Thanks to earlier reforms, the region weathered the 2008 financial crisis well. Economies were growing far faster than those of the US or the eurozone. Fiscal deficits and public debt were lower than in the industrialised world. Millions of people were climbing out of poverty, helped by strong commodity prices and relative political stability.
But I also warned that to graduate from emerging market status, the region would have to tackle chronic problems in education, infrastructure, security, governance and inequality. No one expected that to be easy. Still, in retrospect, it is clear that the region squandered a rare opportunity.
While Latin America has expanded education access, the quality of learning has stagnated. Most of the region is on track to meet the UN’s Sustainable Development Goals for access to water, electricity, housing and transport. But the violent protests that erupted in late 2019 were often triggered by public anger over the dismal quality and high price of those services. The region has also invested a paltry 2.8 per cent of gross domestic product a year in infrastructure, about half that of emerging Asian nations, largely because governments failed to make such investments attractive to investors.
As for crime, countries such as Ecuador and El Salvador cut homicide rates by professionalising police forces and prioritising crime prevention. Public prosecutors in Brazil also successfully indicted both private and public officials for bribery and money laundering. But, on the whole, insecurity and impunity continue to corrode trust in institutions, particularly the courts.
Even before Covid-19, these failures had fuelled widespread anger at the inequality and lack of opportunity that holds back millions. Now, as the region suffers its most severe recession in a century, it has to chart a path to recovery amid deep scepticism about both government and the private sector.
Unlike in the 2008 crisis, there is little today to cushion the blow. Pre-pandemic, public spending had already pushed up public debt to an average of 56 per cent of GDP; this will soar well past 70 per cent over the next two years. Domestic demand has evaporated during lockdown. Remittances are down, foreign capital is fleeing, tourism will take years to recover and the collapse in commodity prices makes an export-driven recovery unlikely anytime soon.
There is no room for half-measures. Without decisive action, Latin America risks sinking into a prolonged stagnation that could erase two decades of gains. Tens of millions of people may slide back into poverty. Voters who had begun to enjoy some financial security will be enraged, and may rally behind undemocratic leaders.
I believe the only alternative is to turn the disruptive force of the pandemic into an impetus for reform. History abounds with examples of catastrophe that opened the way to periods of previously unimagined compromise, creativity and enterprise.
It is time, finally, to overhaul the regressive tax systems that let Latin America’s wealthiest citizens pay less tax than their counterparts in the industrialised world. It is the moment to embrace serious regional integration, forging a hemispheric trading bloc with nearly 1bn consumers. This would make the region attractive to multinationals seeking to “nearshore” their supply chains closer to the US, bringing foreign capital and new jobs.
Governments in Colombia and Costa Rica have used digital cash transfers to distribute emergency relief during the pandemic. But they and others should follow Uruguay’s example and effectively digitise public services. This would benefit those still excluded from the banking system, facilitate their access to credit and encourage more formalisation of small businesses. The shift to virtual learning under lockdown excludes students without internet access, and should prompt governments to leapfrog failed systems to ensure all children have access to high-quality instruction.
Latin America and the Caribbean are not condemned to repeat past mistakes. Countless conversations in virtually all these countries convince me that people are hungry for honest, pragmatic, science-based governance. They want political parties to abandon the sterile ideological battles of the last century, and wealthy elites to pay their share and invest in recovery. If leaders listen to these demands and forge a broad consensus around serious reforms, the trauma of Covid-19 may yet help this vibrant region achieve its full potential.