LatAm: Political complacency could cost a decade

Latin America will not fulfil its growth potential in the coming decade because of continued complacency about the need for economic reforms, according to some senior Latin American finance professionals. “A good result for Latin America is that it grows at 4% [per annum] for the next decade. And that is pretty low,” says Miguel Savastano, deputy director of the western hemisphere department at the IMF. “If you think Latin America could grow at 7% a year, you are dreaming, but if you were in Asia you wouldn’t be dreaming. And why is it only 4% in Latin America? Because we have been lacking all the reforms.”

Carlos Steneri, a leading figure in Uruguay’s negotiation team when the sovereign defaulted in 2002 and now a partner at the Southern Cone Investment Group, agrees that the region’s recent solid performance is allowing governments to be self-satisfied: “We have had the best economic environment for the past 50 years and yet complacency means that we are not doing the necessary structural reforms like in education and infrastructure.”

One exception is Colombia. The sovereign has recently joined the region’s investment-grade club; it is pushing ahead with a stream of politically difficult structural reforms and is investing its current windfall from oil and coal exports in reducing the government’s fiscal burden. Juan Carlos Echeverry, Colombia’s minister of finance and public credit, says the government aims to eliminate the fiscal deficit by the end of its term in 2014. It is ahead of its own targets, following higher than expected tax receipts in 2011.

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