Latin America has come through the recent global recession in better shape than many expected. But that is no reason to hold back on important reforms, writes Brian Caplen.

With economic recovery under way in most of Latin America, the mood at the annual meeting of the Inter-American Development Bank (IDB) in Mendoza, Argentina, has been one of cautious optimism.

The main worries are of a global trade war developing and the rise of populist politics, with key elections looming in Brazil, Mexico and Colombia. But the general view is that Latin America is in good enough shape to absorb any shocks and stay on track.

Such optimism must not lead to complacency, however. There is a long list of reforms and investments that need to happen and that cannot be put off if recovery is to continue into the medium term. 

These include everything from overdue pension reform in Brazil and building continental highways to cutting down on bureaucracy and improving tax collection and governance. 

With several governments now committed to what Colombia's finance minister Mauricio Cardenas calls "intelligent austerity" – that is adjusting budgets without cutting essential social programmes – there is a huge role for public-private partnerships (PPPs) to play in delivering this infrastructure.

Governments must be able to demonstrate tangible benefits from reforms if populism, with its mostly hollow promises, is not to win out at the ballot box. Used effectively, PPPs deliver quick gains without breaking the budget. 

Some depressing figures from Brazil show how fleeting progress can be if it is not anchored in long-term macroeconomic stability. Between 2006 and 2012, 3.3 million Brazilian households moved up in social class and out of poverty, according to local research house Tendencias. This was due to economic growth and social programmes under the left-of-centre Workers Party of former president Luiz Inácio Lula da Silva. But then in the recession years of 2015 to 2017, 4.6 million households slipped down social classes, thus undoing all of the preceding gains. There can be a debate about the causes of this but the final outcome is far from desired.

Between now and when the IDB holds its next annual meeting in Chengdu, China, in 2019, Latin American policy-makers need to tick as many boxes as possible on their reform list – that is, if the region is to keep in its sights the achievements of key emerging markets in Asia. 

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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