For many countries in Latin America, the search continues for sustainable reform agendas that can deliver poverty reduction. In some countries, disillusionment with the results of recent efforts has prompted policy reversals and renewed debate over the policies needed to achieve not only sustained growth but also substantial improvements in the living standards of the poor. On April 27, a group of 17 professors of economics from 10 Latin American countries—Bolivia, Brazil, Chile, Ecuador, Honduras, Mexico, Paraguay, Peru, Uruguay, and Venezuela—participated in a one-day seminar with IMF officials in Washington to explore the region’s economic challenges.
Structural measures are typically essential in bringing the benefits of growth to the poor. And “there are plenty of reforms still to be done in Latin America,” IMF Managing Director Rodrigo de Rato said in remarks to the academics. He highlighted policy actions in the financial sector as one way that countries could develop a stronger private sector.
But most participants agreed that reforms are rarely simple. In Latin America, as several participants noted, a lack of political consensus and policy continuity is limiting the effectiveness of these steps. In some cases, time is also a constraint. “Policymakers are now given shorter and shorter periods. Results won’t be there in six months,” de Rato cautioned. IMF First Deputy Managing Director Anne Krueger noted that reforms are essential to realize growth potential and raise long-term growth rates. She cited the views of Roger Douglas, the architect of major changes in New Zealand in the 1980s. He argued that the aim should be to do as much as possible, as rapidly as possible.
The academics broadly agreed with these views but expressed doubt that structural measures alone could bring faster growth to the region. Some observed that reforms never seem to end—with one always seeming to follow another—and that they are sometimes so poorly designed that they may need to be completely reversed shortly after implementation. According to recent research on the effects of policy volatility in Latin America—presented by Ratna Sahay of the IMF’s Western Hemisphere Department—repeated reform reversals, as well as macroeconomic policy volatility, have a negative effect on growth and poverty reduction.
What steps would now benefit Latin America the most? Anoop Singh, Director of the IMF’s Western Hemisphere Department, stressed that the kinds of fiscal measures being recommended are designed to make tax and spending systems more progressive and supportive of the poor.
Beyond agendas that strengthen social safety nets and reduce poverty, there is also, Singh said, a need to focus on long-term macroeconomic stability. Latin America has a long record of macroeconomic crises, which must be avoided if reforms are to take hold. “If a region has to go through a crisis every 5 or 10 years,” he noted, “all sorts of reforms can be done, and they will not work. Latin America needs to be able to tell the world that crises will not happen again.”
Singh noted growing agreement among Latin American policymakers as to the benefits of macroeconomic stability and low inflation. The academic community has contributed to this positive consensus, Singh told the professors. What is needed now, he said, is agreement on how to translate this consensus into growth. That is where academics have an important role to play.
The IMF, in turn, could contribute to the needed consensus, some professors said, by enhancing its dialogue with the academic community and with society in general. The Fund could do a better job explaining its views, particularly on social spending. As one participant noted, “It’s not that the IMF’s message has not been understood; it’s that it hasn’t been heard.”
The IMF concurred, pointing out that it is continuing its efforts to improve communication. A more fluid but independent relationship with academics in member countries is what the IMF is working for, de Rato told participants. To help build consensus, “we need to explain why we say what we say.”
Public Affairs Division
IMF External Relations Department