Would this be a Latin American decade?

Mauricio Cárdenas of Brookings ponders on this dangerous and dreaded question. Each time the question is asked and someone is optimistic the belief falls flat in a few years.

Cardenas is surely aware of this and makes some cautious points. He says this decade could be of Latin American (well just a while ago people said it could be Asian decade). There are three areas he looks at:

  • Demographics – this is in favor of Latin America
  • China’s economic growth — too dependent on China which imports their commodities. India might take over from China but as India is service-driven complete replacement unlikely. Hence need to transform commodities into neurons
  • Global savings and liquidity — It still relies on foreign savings which have been plenty because of low interest rates in advanced economies. It needs to work on improving domestic savings.

Hence despite advantages, work needs to be done:

Whether Latin America can seize the moment and take advantage of this extraordinary chance to speed-up prosperity is still an open question. What is certain though is that there is no time for complacency or self-gratification.

Rather than enjoying the good times with additional consumption, Latin American countries should be thinking about increasing savings and investment. Favorable external conditions provide some freedom and opportunities to make tough decisions and thus tackle broader structural problems. Among those decisions, top priorities should include investing heavily on education and innovation. These policies are essential to diversify production and expand the domestic market.

All in all, building state capacity should be at the center of the agenda. This means that states must be able to deliver public goods effectively and efficiently, and guarantee security and opportunities for all citizens in an increasingly open and competitive world. Revenue from the current boom must be invested in modernizing and upgrading the Latin American state. A good and natural starting point is to develop better tax administrations, judicial systems and police forces, as these are all prerequisites for development.

Buildng state capacity has always been the challenge. It is one of the major reasons for both low and middle income trap..

Lets see whose decadde it turns out to be..

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