In This Review

Latin America and the Caribbean’s Long-Term Growth: Made in China?
Latin America and the Caribbean’s Long-Term Growth: Made in China?
By The Office of the Chief Economist for Latin America and the
World Bank, 2011, 68 pp
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Financial Development in Latin America and the Caribbean: The Road Ahead
Financial Development in Latin America and the Caribbean: The Road Ahead
By Augusto de la Torre, Alain Ize, and Sergio L. Schmukler
World Bank, 2011, 274 pp
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Most Latin American economies have done quite well during the last ten years or so, enjoying relatively high growth rates, low inflation, and measurable poverty reduction. But is this success sustainable in a volatile global economy? And can Latin American countries accelerate their growth to East Asian levels? Those are the key questions tackled in these two complimentary, timely World Bank publications. Latin America and the Caribbean’s Long-Term Growth is unequivocal in its judgment: surging trade and investment flows from China will not be enough to lift Latin America onto a sustainable high-growth path. The World Bank economists who authored the report find little evidence that the China connection is fostering significantly higher productivity -- the key to higher output and, hence, to better living standards. China can deliver a positive external shock, but only if Latin America progresses more rapidly with fundamental internal reforms: increased domestic savings, better education, more robust infrastructure, lower costs of doing business, and enhanced innovation capacity. The report does uncover some heartening news: growing evidence of technological modernization in agriculture in some countries and profitable improvements in the processes used to transform raw materials into metals.

Financial instability has long been the Achilles’ heel of Latin American economies. But as Financial Development in Latin America and the Caribbean documents, regulatory regimes have been strengthened, local stock and bond markets have expanded (with some seeking greater safety through regional market integration), and institutions that lend to small businesses and micro-enterprises have also blossomed, creating more equitable capital markets. In contrast to the frightening chaos of the financial markets in developed economies, Latin American financial systems have so far remained strong and stable. But the authors caution that the region still has a long way to go in building financial systems that can protect consumer rights and provide adequate long-term credit to worthy enterprises. Stronger systemic supervision will require much better coordination among regulatory agencies and a significant improvement in the quality of supervisory personnel.