Yale Journal | A Time of Hope and of Challenges for Latin America

Published on the Yale Journal

By Caterina Valero, PADF Senior Program Director

Now is a time of hope in Latin America. Despite the global economic recession, Latin America has sustained an average economic growth rate of more than three percent since 2004. While the global average in 2012 floated around one percent, half of all Latin American economies grew by more than four percent and a third grew by more than five percent. Projections for the region’s economic growth in 2013 continue to point out a healthy rate of more than three percent of gross domestic product.

As a result of this positive trend, poverty rates in the region dropped from 40 percent in 2000 to approximately 30 percent in 2010. It is estimated that 40 million Latin Americans climbed out of poverty over the last decade, providing hope that more may soon follow.

Equally notable has been the increase in income mobility for the region; from the mid-1990s through the late 2000s, an impressive 43 percent of Latin Americans jumped to a new social class. Today, 30 percent of Latin America’s population constitutes the middle class—those earning between $10 and $50 per day—having grown from 100 million to approximately 150 million people in the past decade.

Pending assignments

Despite all of the laudable advancements in Latin America’s economic growth, much remains to be done to overcome the pervasive gap between wealth and poverty. Although inequality has narrowed in general terms, income distribution remains deeply unequal in Latin America compared to other regions: the lowest-income group—40 percent of the population—earns only 15 percent of the region’s total income while the top 10 percent of earners receive one-third. The wealthiest 20 percent earn 18.3 times as much as the poorest 20 percent. According to the World Bank, in Latin America and the Caribbean the richest one-tenth of the population earns 48 percent of total income while the poorest tenth earn only 1.6 percent.

Upward income mobility has indeed established itself as a positive trend, but the large scale gains remain modest. The largest social class in the region is not the middle class as in most developed countries. Instead the vulnerable class, those rely on $4 to $10 per day, accounts for 38 percent of the population and live with practically zero economic security.

Even with all of its economic progress, around 30 percent of Latin Americans—approximately 170 million people—remain in poverty. Furthermore, 12 percent of people—around 65 million—still live in extreme poverty or indigence, lacking access to the most basic human necessities such as food, clothing and shelter.

As a result, violence continues to cover the Latin American landscape. According to the United Nations Office on Drugs and Crime (UNODC) the Americas have the second highest violence rate in the world: 31 percent of all homicides in 2010 occurred in the region. In addition to hindering quality of life, widespread violence handicaps economic growth and threatens the region’s development as a whole.

Latin America has made great strides in gross domestic product, but future economic stability is not a foregone conclusion. Global economists take pride in pointing to the recent successes in Latin America, but regional productivity has not reached its potential. The region does not possess the economic standing in the global market that it should command based on its market size and labor force. Latin American economies produce just eight percent of goods and services in the global economy, and their share of the global trade market remains low at approximately six percent.

Providing a streamlined path to development

The future of economic stability in Latin America and the Caribbean will depend on development across various sectors of society. To increase its productivity and competitiveness in global markets, the region requires more investments in education, research, technology, and innovation. International organizations such as the World Bank and the International Monetary Fund play a key role in supporting developing countries to build competitive economies by promoting a sound and fair institutional environment, identifying opportunities for industry diversification or expansion, engaging the private sector to generate employment and cultivating transparent partnerships between governments and the private sector.

On the other hand, Latin America must also commit to protect its infrastructure and population from the growing threat of climate change. Natural disasters threaten not only human and capital losses, but also sidetrack critical development resources to reconstruction efforts. Measures must be adopted to increase awareness about the risks of natural disasters and improve populations’ resilience following an unexpected event. The Pan American Development Foundation and other international organizations assist communities by providing effective disaster prevention, preparedness, relief and recovery through technical assistance to respond to and prepare for natural disasters and reduce the risk and exposure of future disasters.

Continued international cooperation will also play a key role in fostering social and economic progress and promoting sustainable development in Latin America through the mobilization of technical, financial and human resources. Organizations such as the United Nations agencies and the Pan American Development Foundation support countries implementing community-driven programs that generate employment and income for self-reliance; develop micro, small, medium and community enterprises; and support agriculture and rural development. These initiatives help generate thousands of jobs that alleviate poverty and improve family stability and quality of life.

International cooperation has approached innovative models to support development that include leveraging private contributions to match public funds and engaging civil society and communities to implement mutually defined development initiatives. Simply put, partnerships between public, private sector and civil society bring about positive change. In the new era for Latin America, these initiatives are not only welcomed but necessary.