Good governance, sustainability shift urged for Latin America

In the mid-1990s, Eastern Europe (as it emerged from being part of the Soviet bloc) and Latin America had an almost identical GDP per capita of about 27 percent that of the United States.

In the subsequent decade and a half, per capita GDP in Latin America and the Caribbean has stagnated and stayed in that same range, while in Eastern Europe it has climbed to closer to 40 percent.

A report released in mid-August co-authored by four members of the International Monetary Fund (IMF) Western Hemisphere Department studies the discrepancy, and finds “strong governance and good business climate matter for productivity growth.”

Those conditions have been more prevalent in Poland than in Mexico in the past 25 years, say the authors. Thus, despite similar levels of foreign direct investment (FDI) in both nations, Poland’s economy (and its workers) have benefited more.

Write the authors, “Latin America fell behind [Eastern Europe] mostly for two reasons. First, it did not have the same combination of high human capital and low income of former communist countries. In fact, in the mid-1990s, GDP per capita was somewhat above what could be expected for the level of human capital. Second, the strong institutional improvement seen in Europe also didn’t happen in Latin America. Governance indicators actually deteriorated in many countries.”

In Latin America, “there are exceptions,” say the authors, who cite Chile’s governance as ranking “well against some advanced economies,” adding that it “is better than most of emerging Asia.”

They conclude, however, “that countries [in Latin America] won’t grow faster and close the income gap with richer parts of the world without improving human capital, governance, and business environment.”

Another new study, focusing on governance in Brazil, urges that nation’s leaders to emphasize sustainability as a way to revive and restructure its economy in the post-COVID-19 era.

The study was led by WRI Brasil and the Washington-based New Climate Economy (NCE), and includes comments from Joaquim Levy, a former finance minister of Brazil and former managing director of the World Bank, and Caio Koch-Weser, another former World Bank managing director and a former secretary in Germany’s Ministry of Finance.

The study’s executive summary does not mention recycling specifically, but it does urge a shift in resource management away from forestry, mining and fossil fuels.

“Instead of returning to the status quo, Brazil’s government can deliver stronger economic and jobs growth by pursuing a green recovery,” states Koch-Weser. “That includes halting deforestation. A green recovery is best for Brazil and Brazilians, and can also make the country much more attractive to the foreign investment the country really needs.”

The study concludes that “a green economic recovery will allow Brazil’s economy to grow more over the next decade than ‘business-as-usual,’ starting in the first year.” It portrays benefits that include “a net increase of more than 2 million jobs by 2030 – four times more jobs than those already existing in Brazil’s oil and gas industry,” and “a total GDP gain of $535 billion by 2030, equivalent to the annual GDP of Belgium.”

A summary of the IMF study on the Latin American business climate can be found on this web page, while the summary of the Brazil sustainability study can be found on this web page.