Latin American Economic Outlook 2012

Transforming the State for Development

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Even in the midst of a global financial crisis, Latin American and Caribbean economies find themselves in better condition than in years past. Latin America must seize this opportunity to design and implement good public policies. The greatest of the long-term objectives of Latin American states remains development: economic growth and structural change that is rapid, sustainable and inclusive. In particular, governments must reduce inequalities in income, public-service delivery and opportunities, as well as promote the diversification of economies, often concentrated on a few primary-product exports.

Improved efficiency of public administration is crucial to address both the short-term and long-term dimensions of these challenges. The real change, however, will come if Latin American and Caribbean states carry out meaningful fiscal reforms, making them not only more efficient but also more effective. The increased effectiveness of fiscal policy holds the promise to provide resources needed to address the key challenges of economic development. Three key priority areas for investing additional resources have been highlighted by many governments in the region for their potential to raise competitiveness and social inclusion: education, infrastructure and innovation. In each of these areas, more efficient administration and more effective strategic action is needed from states.

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Macroeconomic overview

OECD Development Centre

Latin American economies weathered the 2008-09 financial crisis better than those in other regions of the world —including in OECD outside Latin America— and their recovery has also been faster. The main challenge for the region is to manage this favourable environment with prudence in order to rebuild fiscal space to face potential risks, such as disruptions in capital markets due to problems in the euro zone.

Greater ties with China —which were important for the recovery— mean the region’s economies are now more sensitive to a potential slowdown in Chinese growth, in particular because of its potential impact on the prices of raw materials and consequently, the fiscal accounts of many of the region’s economies. The present chapter argues that it is essential to rebuild the defences of macroeconomic policy and increase predictability in public finances in order to implement policies that enable more and better growth.

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