CGD senior fellow Liliana Rojas-Suarez, principal author and editor of Growing Pains in Latin America, discusses the book with CGD publications coordinator John Osterman. The book comprises chapters by prominent experts on Latin America and lays out a framework for sustainable, equitable growth in the region. A Spanish version will be published by El Trimestre Económico de México later this year.
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Q: Tell us about the history of this book. Where did the idea for it come from? What problems were you hoping to solve?
A: This book was inspired by a troublesome observation in Latin America: in spite of a significant number of reforms and policies undertaken during the 1990s and early 2000s, the region’s economic growth was disappointing in the years before the current international crisis. It wasn’t that the region was not growing, but that the growth was insufficient to reduce Latin America’s income-per-capita gap relative to other regions. And a lot of people were deeply discontented with the results of market-based policies and were, therefore, unwilling to support additional reforms.
So the book addresses urgent questions: What can Latin American countries do to accelerate growth on a sustainable basis? How can countries break the state of inaction, paralysis, and impasse that prevents the implementation of further pro-growth policies and reforms?
To answer them, Simon Johnson and I led a task force that developed a simple analytical framework specifically designed for Latin America. Growing Pains describes the framework and applies it to Brazil, Colombia, Costa Rica, Mexico, and Peru.
Q: There have been other frameworks for growth before. What makes this one different?
A: This framework takes into account the unique features of Latin America: it is the most financially open (the one with the least controls to the movement of international capital flows), the most democratic and the world region with the greatest economic and social inequality.
That does not mean that the framework does not build on previous analysis. Our framework, like many others, seeks to identify the main foundations that encourage the accumulation of physical and human capital as well as improvements in technology—the three factors that lead to economic growth. The framework identified five “growth foundations” for Latin America: (1) secure property rights; (2) sufficiently equal opportunities for large segments of the society; (3) sufficient economic and political competition; (4) macroeconomic stability; and (5) broad sharing among the population of the benefits from growth. These five foundations must all be firm to ensure the sustainability of a market-based model in Latin America.
Q: Why Brazil, Colombia, Costa Rica, Mexico, and Peru for the case studies? Are these exceptional cases, or can conclusions be applied to all of Latin America?
A: Every country in the region has particular features in its reform-growth history that I would have loved to explore. But since we had to make choices, we went for an in-depth analysis of a few cases rather than for wider but shallower coverage of the region. In selecting the case studies we had two considerations in mind: representation and diversity. Representation in the sense that we wanted to include big (Brazil and Mexico) and small (Costa Rica) countries as well as countries from the different sub-regions: Andean (Colombia and Peru), Southern-cone (Brazil), and Central America (Costa Rica). Diversity in the sense that we wanted to include big reformers (such as Peru), slow reformers (Brazil) and countries that had more difficulties implementing some type of reforms, especially institutional reforms (such as Mexico and Costa Rica). This strategy ensures that lessons from case studies can be applied to many other countries in the region.
Q: Your recommendations are pretty optimistic. What are your reasons for optimism? Has the financial crisis changed things?
A: They’re optimistic because we focused from the beginning on making doable recommendations. An important commonality in the process of implementing reforms that emerges from all the country studies is the emphasis on incremental reforms. Even in the cases where a major revamping is recommended, the proposals are not for “big bang” reforms but for pilot projects designed to build constituencies that will support and endorse further change and reform. Also, the proposed reforms would be implemented through agreement and negotiation rather than by decree, an approach that is fully consistent with the reality of Latin America today as the most financially open, most democratic, but also most unequal region in the developing world.
And, yes, the financial crisis has changed my perception—it has actually increased my optimism about the region. Previous reforms, especially those in the macro and financial regulation areas, have actually helped Latin America weather the crisis quite well, especially given the incredibly adverse circumstances coming from industrial countries. For the first time in decades, Latin America has not succumbed to a path of deep financial crises and prolonged recessions following an adverse external financial shock. While some countries are suffering the impact much more than others (Mexico in particular), it is quite amazing that a country like Brazil has recently even been upgraded to the category of “investment grade,” an achievement rarely seen in periods of deep trouble like the one we are experiencing these days.
Q: What do you hope the impact of this book will be?
A: I truly hope that the impact of this book will be multidimensional. Some of the book’s authors have been given key roles over the last year. One of the authors has become deputy minister of finance in Peru, and the authors of the Costa Rica chapter are now preparing the economic program of the lead presidential candidate, Laura Chinchilla. And several countries in the region have already begun initiating reforms recommended in the book. I think we’re on the way toward making the proposals reality. I hope that Growing Pains in Latin America will continue to inform the debate among policymakers, the public sector, and civil society on the need to continue the reform process in the countries studied and in the rest of the region.