Latin America likely to embark on needed reforms: IADB

Reuters

By Alonso Soto

COSTA DO SAUIPE, Brazil (Reuters) - The volatility in global markets buffeting emerging economies could push Latin American nations to move ahead with deep reforms needed to restore their dynamism, the head of Inter-American Development Bank, Luis Alberto Moreno, said on Friday.

Moreno said most countries understand that reforms to improve productivity are crucial for the region to return to the annual growth rates of 5 percent over the last decade.

"Historically Latin America has been better at dealing with crises than managing the good times," Moreno told Reuters on the sidelines of the IADB's annual meeting in Costa do Saiupe.

"Everybody understands that you need to evolve. Precisely because of the volatility, which will likely drag on for the next 18 months, reforms become even more important."

Latin America's economy is expected to grow only 3 percent this year after expanding a staggering 6 percent four years ago, according to data from the International Monetary Fund.

The withdrawal of monetary stimulus in the United States and a slowdown of the Chinese economy has sparked an exodus of foreign investors from the region, which a few years ago was struggling to contain an avalanche of capital flows.

However, the slowdown in commodity-hungry China could also be an opportunity for Latin America to strengthen regional trade, which remains very low compared with Europe and Asia, Moreno said.

REFORM AGENDA

Trade partners Chile, Peru, Colombia and Mexico are leading the region with a series of energy, tax and labor reforms that economists believe will help them grow more after the market turbulence subsides.

On the other hand, regional heavyweights like Argentina, Venezuela and Brazil are struggling to carry out reforms to make their commodity-driven economies more competitive.

Standard and Poor's cited the lack of reforms in Brazil to bolster economic growth as one of the reasons why it cut the country's debt rating on Monday.

Brazil has repeatedly failed to approve reforms that simplify its tax system, one of the most complex and burdensome in the world. An average company in Brazil spends 2,600 hours per year calculating what it owes to the government, according to the World Bank's Doing Business ranking.

Pessimistic views on Latin America will dissolve as countries pass laws to lower output costs and increase investment levels, Moreno said.

"Despite what some are saying right now, when you look forward these are the economies that will attract most investment because they will grow at a faster pace than developed nations," Moreno said.

(Reporting by Alonso Soto; editing by Andrew Hay)

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