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On 11 March, the International Monetary Fund (IMF) confirmed that it had approved a US$4.2bn credit package for Ecuador. As well as provide much-needed access to external financing, the agreement will also help support the government’s economic reform efforts. 

Relations between the Lenin Moreno-led administration and the IMF have been gradually warming over the course of the past year. Initially, President Moreno stated that he would not rule out seeking an IMF loan deal; as the months passed, this was replaced by a firmer indication that Ecuador would pursue a credit agreement. A series of meetings in late 2018 meant that it was little secret that the government was engaged in high-level discussions with Fund officials, who gave growing indications that they would respond positively to a formal request for a loan.

Three-year EFF will help close financing gap

In this context, the IMF’s final announcement comes as little surprise. The Fund has authorised a three-year Extended Fund Facility (EFF), which is one of the multilateral’s main tools for providing medium-term financial support to low-income countries facing protracted balance-of-payments problems. A total of US$4.2bn is available, with the Fund announcing the immediate disbursement of US$652m. This is likely to reflect the fact that President Moreno has already begun to implement reforms designed to reverse some of the anti-business measures that had been put in place by his predecessor, Rafael Correa, during his ten-year tenure (from 2007-2017). 

The IMF has voiced support for the Ecuadorian government’s reform agenda, which is likely to provide the bedrock for the credit agreement. The Fund voiced support for the government’s focus, which aims to create a “more dynamic, sustainable and inclusive economy”. It drew attention to four key pillars: boosting competitiveness and job creation; strengthening fiscal sustainability and the institutional foundations of Ecuador’s dollarisation; protecting the poor and most vulnerable; and improving transparency and bolstering the fight against corruption. 

A likely focus on cutting the twin deficits

The release of additional disbursements of IMF credit will be conditional on Ecuador meeting a series of qualitative and quantitative criteria. The IMF has not released details of these targets, but the immediate focus will be on addressing Ecuador’s twin deficits (relating to the public finances and the balance-of-payments). The fiscal deficit came in at US$3.3bn in 2018, according to the ministry of finance; this was admittedly down from US$5.8bn in 2017 but still accounted for 3% of GDP and marked the tenth consecutive year when the public finances registered a shortfall. Successive years of deficit were financed by issuing debt at comparatively high interest rates (reflecting Ecuador’s poor credit history), meaning that public debt currently stands at around 45% of GDP. The authorities have calculated that they would need to generate a primary fiscal surplus (before interest payments) of 2.2% of GDP per year in order to reduce the public debt:GDP ratio back down to 40% of GDP, which is seen as a more manageable level. 

Meanwhile, reducing the current-account deficit is important in order to ensure that Ecuador increases its stock of international reserves, which have remained extremely low in recent years, meaning that import cover has been reduced to a matter of weeks, rather than months. The latest IMF data show that the current-account deficit came in at US$373m in 2017. Full-year data from 2018 is not yet available, but the current account remained in deficit in the first three quarters of the year, at US$196m. International reserves ended last year at US$2.7bn, down from US$5.7bn in January. 

Spending cuts in prospect

The IMF is likely to place a heavy emphasis on achieving fiscal consolidation through public spending restraint. The Fund has already talked about a “realignment” of public-sector wages – a diplomatic way of phrasing likely salary cuts. The language used to talk about other spending areas was equally telling, with the IMF recommending a careful “optimisation” of fuel subsidies, as well as a “reprioritisation” of spending on capital, goods and services. These are likely to be cloaked references to heavy spending cuts. There is also some talk of efforts to lift revenue, specifically tax revenue, which is low even by Latin American standards, at only around 20% of GDP. The government has stated that it plans to submit a tax reform bill to congress in the fourth quarter of 2019, aiming to simplify the tax system, attract investment and raise collection. 

The IMF agreement is undoubtedly a big positive for the government, which had been struggling to secure funds for its large financing requirement this year. Not only will the IMF credit come in useful in this respect, but the fact that there is a lending agreement now in place will unlock loans from other multilateral institutions. There has been speculation that the inking of an IMF deal will in fact provide access to a potential total of US$10bn, should Ecuador need it. This will help ensure that Ecuador does not have to issue more expensive debt on international capital markets. 

Questions remain over implementation

However, the main question that remains unaddressed is whether the Moreno administration has the capacity to push through what are significant adjustments to the public finances and underlying economic policy stance. The political will appears to be there, but the president’s public approval ratings have dropped sharply in recent months and he lacks a formal working majority in congress, which could complicate efforts to push through unpopular reforms. Higher oil prices would help secure improvements in the fiscal situation and the current account, but do not appear to be in prospect. Oil prices have risen slightly from the lows registered late last year, but remain far from the kind of levels that would have a noticeable beneficial impact on the Ecuadorian economy. As a result, President Moreno may struggle to secure the kind of improvements that the economy urgently needs.

The powerful domestic political role achieved by the Venezuelan armed forces may, as suggested above, be an example of a particularly radical “stealth intervention”. Hugo Chávez, himself a former army colonel who had led unsuccessful military rebellions, eventually won democratic elections in 1998 and took office as president in 1999. Once in power he set about creating a specially privileged role for the military. A law banning political activity by active-service officers was repealed. Officers were appointed to run military-controlled state companies. The president gained the right to directly appoint and remove military officers, thereby accentuating their personal loyalty to him.

Among other innovations, in 2005 Chávez introduced the Venezuelan Military Doctrine, which extended the duty to safeguard the country to the entire population. In 2008 an additional entity, the Bolivarian National Militia, was created, as an armed civilian paramilitary force, which was integrated to the professional armed forces. After Chávez died of cancer in 2013, his successor Nicolás Maduro (who unlike Chávez did not have a military background) also further enhanced military privileges and the associated network of loyalty ties.  In 2013-17 12 new military defence companies were created. There are also credible reports that operational military commanders are allowed to take a share of drug, gold, and precious-metals smuggling revenue in the military districts which they command. New military ministers were appointed, and the military high command was reshuffled. Also under Maduro, another party-based militia, known as the colectivos, was created. Described by the government as community-based supporters of the revolution, opponents say they have been involved in extortion, drug trafficking, and murder.  Including these militias, the expanded military is believed to outnumber the professional armed forces, which have some 123,000 staff.

The economic crisis deepened sharply with the tightening of US economic sanctions in 2019 and an upsurge in opposition protests. This led to speculation that the army might either topple the Maduro government and call free elections or split into rival groups. In coordination with opposition leaders there was in fact an attempted coup-d’etat in April 2019, but it received little support and was easily squashed. Many analysts have subsequently argued that the regime’s intelligence services closely monitor military officers for any sign of opposition allegiance. What is evident is that the top military officials have remained much more loyal to the regime than the opposition had hoped and have resisted all attempts to persuade them to change sides. At the time of writing (November 2021) there are no signs of significant military division, a remarkable state of affairs given the sheer intensity of Venezuela’s prolonged economic and political crisis.

President Mauricio Funes delivered a New Year’s radio address celebrating the fact that the homicide rate fell dramatically in 2012. The fall can be attributed to the truce between El Salvador’s two main gangs - Mara Salvatrucha (MS-13) and M-18 in March last year. The government is now intent on consolidating the gains made by supporting an ambitious second phase to the truce, including the choice of 10 municipalities as “sanctuaries” free of crime.

The year closed with official statistics released by the Policía Nacional Civil (PNC) showing a 41% reduction in homicides compared with 2011: the PNC reported that there were 2,576 murders in 2012, down from 4,371 a year earlier. This means that 2012 was the least violent year since 2003.

President Funes said that other crimes also fell as a result of the gang truce: extortion, most notably, was down by 11% in 2012. The government is striving to make further progress in reducing extortion, while also keeping the number of homicides down, by embracing an innovative proposal to create 10 “sanctuaries” or “peace zones” in El Salvador.

The proposal was made last November by Bishop Fabio Colindres and former guerrilla Raúl Mijango, who are seeking a more lasting peace settlement after negotiating last March’s gang truce. In December the gangs accepted the proposal, under which they would commit to hand over weapons and end all criminal activity in the 10 selected municipalities. In return, the police would end night operations and gang members would receive incentives to work. Gang members would be able to move freely in these areas without fear of arrest.

The justice and security minister, retired General David Munguía Payés, has said he views the proposal positively, although it is not yet clear what role the government will play in implementing it. Extortion is the main source of funding for the gangs so how long they would be prepared to end this in the “peace zones” is a moot point, unless they were to choose some ‘unprofitable’ municipalities. In their December statement the gangs said they had provided Colindres and Mijango with a list of 10 municipalities in which they were “ready to implement this process”. These have not been made public. The plan would be for the number of “peace zones” to be increased if crime is deemed to have fallen in the 10 pilot districts.

One man who is likely to play a significant role in the new proposal is the new attorney general, Luis Martínez González, a 48-year old lawyer and notary. The left-wing Frente Farabundo Martí para la Liberación Nacional (FMLN) and right-wing opposition Alianza Republicana Nacionalista (Arena) finally managed to set aside their differences (see sidebar) to appoint a new attorney general on 4 December. Last July the constitutional chamber of the supreme court annulled the legislature’s election of Astor Escalante to the post and as a result of its institutional showdown with congress, the position had only been filled in an interim basis since then.

Both the US ambassador to El Salvador, Mari Carmen Aponte, and the UN special rapporteur on the independence of judges and lawyers, Gabriela Knaul, had exerted pressure on the legislative assembly to expedite the appointment of a new attorney general. On 26 November, after a visit to San Salvador, Aponte said she was “very worried” that congress had been unable to agree on an attorney general “(who) has a crucial role to play in guaranteeing legality, combating corruption and impunity and protecting human rights and fundamental freedoms.”

• New attorney general

The decision by the left-wing FMLN to support the election of Luis Martínez González as attorney general was revealing. Martínez was the first choice of the right-wing Arena, having served in various ministries in legal advisory capacities in every Arena government since former president Alfredo Cristiani (1989-1994). It is worth noting that, days before his appointment, congress also voted unanimously to approve a loan of US$80m from the World Bank to upgrade the country’s hospitals. Without Arena’s support the loan could not have been approved. Arena had been steadfastly opposed to this loan on the grounds that the country could not afford it.

Initial analysis of worldwide adoption of AI has led to worries that millions of jobs currently performed by humans may be automated and, in effect, taken over by AI. According to a UN Department of Trade and Development (Unctad) report published in April 2025, 40% of global jobs will be impacted in some way by AI over the next decade. The report says that four mechanisms will be at work: first, human workers may be replaced; second, what they do may be complemented by AI; third, automation may be deepened; and fourth, new human jobs may be created. The net effect of these different forces is not necessarily clear. Unctad notes that giant digital companies in the global north favour building up capital, which improves efficiency and could undermine the traditional comparative advantage of the global south – cheaper human labour.

The report says the AI market will grow to US$4.8trn in value by 2033, but that this will be highly concentrated with around 100 companies, mostly based in the US and China, accounting for half global AI research and development spending. Tech giants such as Apple, Nvidia, and Microsoft have a combined market value of US$3trn, rivalling the GDP of the entire African continent. This level of market dominance, it says, “may widen technological divides, leaving many developing nations at risk of missing out on it benefits”.

Unctad assessed the position of ‘frontier technologies’. It found that the US has the edge in digital technologies like AI, the internet, big data, blockchain, and 3D printing. China on the other hand leads development in 5G cellular networks, drones, and solar photovoltaics (PVs). The geopolitical and technological rivalry between the two may affect the way LAC countries can access these technologies. Unctad calls for developing countries to expand reliable internet connectivity, to secure high-quality data sets so as to train AI models, as well as building digital skills in education. It also suggests the creation of a global tech facility which would “share AI tools and computing power equitably between nations”. This may, however, be a bridge too far for the big tech companies and superpower governments who will be reluctant to cede market control.

Perhaps unexpectedly, evidence is emerging that AI requires a growing number of human jobs to be done. These humans are needed to accelerate AI model training and recognition abilities, for example tagging images of objects in the databases used by self-driving cars. AI annotators are employed in Europe and the US, but the work is also outsourced to the global south where many well-educated people are available. Indian industry body Nasscom says it expects annotation revenues will reach US$7bn per annum and employ 1m people by 2030. At present US annotators are paid around US$10-20 per hour; those in poor countries get US$4-8 per hour.

Fei Fei Li, a US computer scientist who created ImageNet, one of the world’s largest image databanks, said she started using US university students for annotation work but then hired workers all round the world using Mechanical Turk, an online gig-work platform run by Amazon. The World Bank has estimated that between 4.4% and 12.4% of the world’s labour force is involved in gig work, including work on AI models. It is likely that, as models are trained, the need for human input may diminish or evolve. But many in the industry believe annotation work will never cease. Sushovan Das, a dentist working on AI-linked medical projects, told The Economist that annotation work will never disappear. “The world is constantly evolving” he said, “So the AI needs to be improved time and again.”

Human input to test and refine chatbot output is likely to continue being required. After the launch of ChatGPT in 2022 OpenAI said it was using experts to “qualitatively probe, adversarially test, and generally provide feedback” on its models. As a result of that process the models now refuse to respond to some prompts (for example, requests to write social media content promoting al-Qaeda, a terrorist group).

On 17 March, the International Monetary Fund (IMF) released a positive concluding statement following its recent mission to Panama, but stressed the need for continued progress towards financial integrity. The country’s growth model, it noted, relies on its ability to remain a competitive and attractive destination for international financial, business, and transportation services. Continued progress with tax transparency and financial integrity are essential to preserve this model, it emphasised.

The Fund noted that the Panamanian economy is expected to remain among the most dynamic in the region. The economic outlook is favourable, albeit set against the backdrop of heightened external uncertainty, it noted. The government’s commitment to fiscal discipline and “its efforts to strengthen the fiscal framework and enhance institutional capacities contribute to ensuring sustainability, and need to be complemented by a comprehensive monitoring of fiscal risks”, it advised. “As a regional financial centre, the comprehensive monitoring of systemic risks and a strong macro prudential and crisis management framework are important to safeguard financial stability”.

The IMF expects economic growth of 5.1% in 2017 and about 5.5% over the medium term, supported by the expanded Panama Canal and the wide range of investment projects currently in the pipeline. The 5.1% forecast for this year is considerably less than the 5.9% forecast by the UN’s Economic Commission for Latin America & the Caribbean (Eclac), which has calculated preliminary growth of 5.2% for 2016. Notably, the Fund expects an increase in inflation to about 2% in 2017, from just 0.7% in 2016, as fuel prices continue to normalise and economic activity strengthens somewhat.

Fiscal consolidation is slated to continue, in line with the Social Fiscal Responsibility Law (SFRL) deficit targets, implying a gradual reduction of the non-financial public sector (NFPS) deficit over the medium term and allowing NFPS debt to fall as a % of GDP. Meanwhile, the current account deficit is projected to narrow to about 3% of GDP over the medium term, “driven by a diversification of exports into primary commodities”. This deficit will be financed by broad-based foreign direct investment, the statement observes.

Risks

The IMF identifies as “key risks” factors relating to the external environment and also the extent of Panama’s progress in strengthening tax transparency and measures in support of anti-money laundering and combatting the financing of terrorism (AML/CFT). It notes that the authorities completed several important policy actions over the past year. These included the commitment to implementing the automatic exchange of tax information by 2018; ratification of the Organisation for Economic Co-operation and Development (OECD)’s Multilateral Convention on Tax Matters; and the adoption of key pieces of domestic legislation that form the legal basis for the automatic exchange of tax information, a strengthening of the revenue administration’s powers, and reinforcement of the accounting requirements for companies and foundations registered in Panama.

The Fund notes that to “obtain a positive assessment under the [OECD’s] Global Forum’s fast-track procedure in mid-2017, it is essential to address the remaining deficiencies, including strengthening the revenue administration’s human, procedural, and [information and communication technology] ICT capacities to ensure the effective exchange of tax information”.

Date: By November 2025

Election type: General election for the 63-seat House of Representatives. The country has started the process of moving from a constitutional monarchy to a republic and it is hoped this process will be complete by the time of the 2025 election.

Main contenders: The ruling Jamaica Labour Party (JLP) and the People’s National Party (PNP). The JLP, under Prime Minister Andrew Holness, won 49 seats in the 2020 election. The PNP holds 14 seats and will go into the 2025 election with a new leader, Mark Golding.

By the time of the election, the JLP will have completed two testing terms in power and will be challenged by the PNP under a fresh new leadership. Growth in 2024 was an estimated 1.3%, nothing to boast about, and crime remains a serious problem. In 2022, Jamaica had 1,508 murders, for a murder rate of 53.34 per 100,000 people, the highest homicide rate in the region. However, there has been a significant decline in murders in the last two years, with 1,139 recorded in 2024, a rate of 40.10 per 100,000 population. And, on the economic front, debt has been brought down from 110% of GDP in 2020 to 67.9% in 2024.

In the local government elections in February, the JLP won more parish councils, but the PNP won the popular vote. An opinion poll published in October by the Market Research Services Ltd (MRSL) gave the PNP 39.3% support against 30.2% for the JLP. However, a significant 28.4% of respondents were recorded as ‘Don’t Knows’. Whatever the eventual outcome, it seems certain that the PNP will gain ground significantly from its 2020 result, which was its worst performance since 1980.

The IMF has raised its forecast for GDP growth to 8.5% for 2011.

The Fund says that the construction sector is doing well thanks to the expansion of the Canal and commerce and transport are also strong. The IMF does forecast a bit of a slowdown in 2012.

In the first seven months of 2011 the economy grew by 10.8%, year-on-year, according to government figures. What is significant is that despite the problems of the world economy, Canal traffic in the first seven months of 2010.Tolls were up by 22% at US$1.03bn.

The Fund is also bullish about inflation which it reckons will fall. At the end of October the accumulated rate for the first 10 months of 2011 was 5.2%.

Central bank interest rates in three Andean countries (Chile, Peru, and Colombia) could be about to begin moving up, heralding a new monetary tightening cycle.

London-based consultancy Capital Economics has come up with a formula to try and anticipate when a monetary tightening policy is about to begin. This formula is currently suggesting rates will shortly move up across three of the major Andean economies, Chile, Peru and Argentina. Five criteria are involved. First, the question is whether each central bank has previously warned that an increase is on the way (the Chilean central bank tends do so explicitly, while those in Peru and Colombia tend to give more subtle hints). The second criterion is whether inflation is rising. The third is whether inflation has reached the upper half of the target band. Fourth, a good predictor of a tightening cycle is if GDP growth has accelerated by at least one percentage point in the year before the rates are increased. And in fifth place, a rise in forward-looking inflation expectations also provides an important marker.

Taking all these factors into consideration Capital Economics sees higher rates on the way. Chile meets four out of the five conditions, although inflation remains below target. The country’s inflation rate is nevertheless expected to push up and exceed the target in September, with a possible interest rate hike on the way in October. Colombia meets three of the five conditions. Inflation is above target, but has not accelerated recently and there have been no central bank hints about a rate increase. So tightening is not expected to begin until the end of Q119. In Peru, which meets the least criteria, inflation is not rising particularly strongly, and the rate is still in the lower half of the target band. However, the rate is also expected to increase quite sharply triggering rate hikes by the end of the year. 

These are good times for big Brazilian companies seeking foreign investment in their IPOs. But if you are a local company selling in the retail sector, you may be less happy.

Here's the good news. Brazilian companies continue to attract local and international investors. The IPO launched in April by BB Seguridade, the insurance arm of the state-owned Banco do Brasil, raised US$5.9bn, making it the largest world-wide since the beginning of this year, and the largest in Brazil since October 2009 when Banco Santander raised US$7bn. Also since the beginning of this year, the combined IPOs of BB Seguridade and four other companies have raised a cumulative total of US$7bn. More is on the way with Votorantim Cimentos planning a public offering expected to raise US$5.4bn later this year. “The expectation of an economic recovery in Brazil explains the proliferation of IPOs with a good share price, higher than the minimum price”, said Rodrigo Branco, chief economist at the Fundação Centro de Estudos do Comércio Exterior (FUNCEX). After a poor economic performance in 2012 (real annual GDP growth was only 0.9%), the IMF is projecting real growth of 3.0% in 2013, rising to 4.0% in 2014. Bullish analysts say that investors, put off by rising unemployment and falling consumption in developed economies, are turning to countries like Brazil and its fellow BRICS (Russia, India, China and South Africa), where a reverse situation applies: unemployment is falling and consumption is rising.

Or is it? The less good news is that despite an encouraging 'big picture', some Brazilian companies are facing significant uncertainty. The question is whether and when the economy will turn the corner and point up towards recovery. In the first half of 2013, companies are waiting nervously for better data. Higher than hoped-for inflation in March - an annual rate of 6.59%, in excess of the 6.5% target ceiling - has forced the central bank to start edging up the benchmark Selic interest rate, with a 25 basis point hike in April to 7.5%. A weak economic activity index reading for February suggested that the GDP number for Q113 may be poor. And a fall in retail sales in February, the first after an 18-month period of consistent month-on-month growth, has worried retail companies like Magazine Luisa SA and Cia. Brasileira de Distribuicao Grupo Pao de Azucar. “This could be signalling that economic activity could be at a level much lower than previously believed”, said Paulo de Sa Pereira, a broker at Fundacao Cesp. Analysts are worried that a loss of consumer confidence could delay the hoped-for-recovery and prompt a correction in the share prices of Brazilian retailers, currently trading at high p/e multiples.

Mexico’s historic Round One oil and gas licensing auctions – the first in over seven decades – opened this year to what was widely seen as a bucket of cold water: the steep slump in international oil and gas prices. But Energy Minister Joaquín Coldwell is insisting that the country is playing the long game: on 21 October he announced that the government will pursue a 5-year licensing programme running between 2015 and 2019.

Coldwell said that in the next five years Mexico will offer 96 exploration blocks and 237 production fields, over a total are of 235,000 square kilometres. This is an update on the original plan announced by the regulator, Comisión Nacional de Hidrocarburos (CNH), in June. Significantly, the area now being offered for auctions over the next five years is 32% greater than the June offer. The authorities say they have consulted with state governments and oil companies. A total of 12 companies made suggestions for the inclusion of specific areas in the auction. Coldwell said that in order to maintain competitive bidding, specific blocks had been incorporated only when suggested by three or more companies.

The minister said that the phasing of licensing rounds had also been adjusted to reflect factors such as the state of the international oil and gas market, companies’ investment capacity, and the quality of seismic data.

From next year’s Round 2 onwards, offshore areas closest to the Mexican coast will be offered first, followed by more distant and deepwater blocks coming later. This is clearly designed to push back the more technically challenging and costly deepwater blocks until a time at which international oil prices have recovered from their current lows. The auction plan is to be reviewed and updated in the third quarter of each year.

The minister did not refer to one of the key political issues facing the current government. When the energy reform was first announced, the timetable suggested that it could reverse the drop in Mexican crude oil production and add one or two percentage points to the country’s GDP growth rate by 2018, which is President Enrique Peña Nieto’s last year in office. Strong growth in an election year clearly would help the ruling Partido Revolucionario Institucional (PRI) in its bid to remain in office. The slump in international oil prices clearly means Mexico and the PRI will get less of a boost by the time of the next presidential vote: but Peña Nieto’s would-be successors will hope that by that then the energy reform will be making some kind of a positive contribution.

Haiti enjoyed macro-economic and monetary stability in the latest (September 2013) fiscal year. Very little progress was made towards addressing the country's massive structural and social problems.

At first glance, the latest note on monetary policy issued by the Banque de la République d'Haïti (BRH - the central bank) makes encouraging reading. Published at the end of the latest (September 2013) fiscal year, the note shows that commercial activity and construction achieved year-on-year growth of around 14% in June. Industrial output was 9.0% higher, although electricity production had stagnated. Thanks mainly to reasonably good harvests through mid-2013, annual food price (and overall) inflation has moderated, and was running at 5.5% in August. The government's fiscal receipts have been running in line with budget; spending has been behind budget. In the context of a US$8.5bn economy, both exports and imports have been rising quite quickly from a low base. Net foreign reserves have been stable at around US$1.1bn - or five months of imports. The currency has been broadly stable: the central bank has had to increase its sales of US dollars in order to absorb local currency liquidity. Credit advanced by the (sound) banking system has risen by a healthy 13% (see chart).

However, all this is in the context of an extremely poor country which is still recovering from the massive dislocations resulting from the January 2010 earthquake. Just two months after publishing the details of its latest Article IV Consultation with the government of Haiti, the International Monetary Fund (IMF) in mid-June 2013 revised down its forecasts of GDP growth for the September 2013 fiscal year from 6.5% to 3.4%. In its explanation of its Article IV Consultation, the IMF had emphasised the fragility of Haiti's economy, and continuing vulnerability to natural disasters. The rise in inflation to over 7% in April-May 2013 had in part been due to a surge in food prices following the damage caused by Hurricanes Isaac and Sandy. The hurricanes also hampered the overall reconstruction efforts.

Many of the figures cited by the IMF in its Article IV consultation make grim reading. At US$1,034, real per capita income in Haiti in 2011 was 25% lower than in 1991. Nearly four fifths of the population lives in extreme poverty (defined by the UN as an income of less than US$2 per day). Aside from the material destruction (estimated at 120% of 2009 GDP), the earthquake killed 200,000 people (of a population of nearly 10m): according to the IMF, the casualties included around one in three civil servants (mainly in middle management), 1,200 teachers and 500 health workers.

Government revenues (and grants) and spending amount to around 25% and 30% of GDP respectively. As the BRH's latest data on expenditure indicates, the government has difficulties in executing programs. Haiti rates poorly in the World Economic Forum's Global Competitiveness Index analysis and in other external assessments of its business environment.

In June 2013, an IMF mission to discuss the Extended Credit Facility (ECF) provided to the Haitian government highlighted a number of structural reform priorities: '(i) raising domestic revenue collection, primarily through strengthening the tax and customs administrations; (ii) further improving public financial management; (iii) strengthening institutional capacity to enhance the execution and efficiency of public investment; (iv) enhancing financial intermediation and the financial sector; and (v) accelerating reforms to improve the business environment.'  The IMF mission also emphasised the importance of further collaboration between the government and the donor community.

In fact, potential donor fatigue is another substantial challenge that the country faces. In February 2013, the International Crisis Group (ICG) published an analysis that highlighted the political stagnation under the administration of President Michel Martelly and the continuing delays to the holding of elections (pending for two years now): the patience of the donor community appears to be running out.

In essence, the challenges facing Haiti 'focus on a need for good governance, consensus-building among the elites, poverty reduction strategies effectively implemented and strengthened rule of law. Sadly, these challenges have never been confronted effectively. ... Without a national pact, President Martelly unfortunately faces the spectre of a failed presidency, and Haiti risks international abandonment.' Nine months later, this bleak assessment remains valid. The country is enjoying a (very) fragile economic and financial stability, thanks to the government's need to cooperate with the IMF and other multi-lateral agencies, but that is all.

• Funding the long-delayed elections

The US ambassador to Haiti, Pamela White, said in early August that her government would provide US$10m to help organise elections to fill a third of the 30-seat senate. White urged legislators to set aside their differences and approve a schedule and a budget for the elections. He stressed that political stability was absolutely essential to Haiti’s continued social and economic development, not to mention to its ability to assuage the concerns of foreign donors as well as attracting foreign investors. Currently some 130 elected municipal officials have been replaced with presidential appointees, leading the political opposition to accuse Martelly of having little inclination to hold the elections.

President Michel Martelly followed White’s remarks by promising that the senate elections, now overdue by almost two years, “will be held by the end of the year”. Haiti’s “transitional college of the permanent electoral council [Ctcep in its French acronym]” sent a draft of the electoral law to Martelly in July, but as of late October has yet to get final parliamentary approval.

• Tourism

Tourism is a priority sector for the Martelly government, according to a June 2013 study by the Instituto Igarapé. In 2011 there were 349,000 tourist visits, on latest World Bank figures, up from 255,000 in 2010, the year of the earthquake, but less than 387,000 in 2009.

The report - which notes that despite dire warnings, only 3.1% of 2,231 tourists surveyed reported any kind of criminal victimisation - stresses that “initial efforts to improve the infrastructure for the industry are starting to take root”. Recalling that, as the ‘Pearl of the Antilles’, Haiti was previously a prime tourism spot in the Caribbean until the political instability of the 1990s, with former US president Bill Clinton (1993-2001) and his wife and former secretary of state Hillary Clinton famously honeymooning there in the mid-1970s, the report notes initiatives like the investment in the ministry of tourism.

A US$15m hotel operated by Best Western International opened in the hillside district of Pétionville at the end of March this year – the first opening by a US hotel chain in 15 years. With developers reportedly building or planning at least seven other hotels, totalling some US$100m in investment, other projects include Royal Oasis, an upscale hotel in Pétionville opened last December by the Spanish firm Occidental Hotel & Resorts, while Marriott International is building a US$45m hotel scheduled to open in 2015.

These efforts are starting to pay off. In July two land packages were launched for US travellers heading to Haiti via Transat Holidays USA, a division of the Canadian-based tour operator Transat AT – the first such Haiti packages for US tourists, who normally visit Haiti on cruise ships.

A common thread running through this report is that companies take on ESG commitments in a range of different circumstances. At one end of the spectrum a decision to commit to specific ESG goals may be purely voluntary and reflect a particular company’s vision of a desirable future for the world. At the other end of the spectrum ESG activity may be absolutely obligatory, required by international treaties, national legislation, or regulatory bodies. There are many ‘in -between’ situations between those two points. Companies that float green bonds may, by doing so, be signing up to specific metrics on emissions, decarbonisation, or water use. International trade agreements may make certain types of ESG commitment and reporting obligatory for certain export markets but not for others. A company may choose to take on commitments for PR or marketing purposes or because they will attract particular types of customers. Sometimes there will be a mix of motivations, and these will shift over time.

The USMCA or US, Mexico, and Canada free trade agreement is an interesting case since, along with domestic labour reforms, it is forcing international companies operating in Mexico to make major changes to their industrial relations, pay higher wages, and support the rights of independent trade unions. This is in contrast to decades of an authoritarian, top-down, labour union leadership which manipulated union elections and signed opaque and undemocratic collective bargaining agreements (CBAs).

The starting point for change was the introduction of a federal Labour Reform Law in May 2019. This affirmed the rights of employees to vote for their representatives by secret ballot, and to join a trade union of choice. The law also created an independent labour court to resolve differences between the employers and the workers. Conciliation and Labour Registration Centres were created, to mediate in disputes and to keep authentic, up-to-date copies of the CBAs. Reflecting the commitment to a new approach, in 2018 Mexico had also ratified Convention 98 of the International Labour Organisation (ILO) which upholds workers’ freedom of association and the right to organise.

Writing for US-based think tank Brookings, Alfredo Domínguez Marrufo, general director of the Federal Centre for Conciliation and Labour Registration (FCCLR - a body set up by the reform) says it has had strongly positive results. According to him, formal employment in Mexico has grown to record levels, exceeding 26m. Real wages have increased by 17.8% (in the five years to October 2023), and the national minimum wage is up by 85% over the same period (and by more in northern states on the US border). Outsourcing, which Domínguez says undermines wage levels, was banned in 2021. While these benefits cannot be exclusively attributed to the labour reform, as other factors were also in play, it is clear that it did play a part.

The second major driver of change has been the renegotiation of the old North America Free Trade Agreement (NAFTA) which was updated and renamed as the USMCA, coming into force in July 2020. A distinguishing feature of the USMCA was that it went beyond purely trade matters to fix minimum labour and environmental standards in an attempt to ensure Mexico-based companies would not have an unfair advantage over their US and Canada-based competitors. Chapter 23 of the agreement commits the signatories to defend workers’ rights in line with the ILO’s definition of fundamental principles covering minimum wages, hours of work, and occupational health and safety. The parties must also promote compliance through “appropriate government action” such as training inspectors. This is also the first FTA signed by the US where there is specific reference to banning the import of goods made by forced labour as well as commitments on violence against workers, protection of migrants, and workplace discrimination. Separately, in legislation approved in 2023, the Mexican ministry of Labour and Social Welfare has also acquired the power to designate certain goods as having been produced by forced labour, which would allow the application of an import ban.  

Perhaps the most important aspect of the USMCA in terms of labour protection was the introduction of the ‘facility specific’ Rapid Response Labour Mechanism (RRM). The RRM is an independent panel of labour experts which provides a way of resolving disputes and enforcing the rights of workers to free association and collective bargaining that are embedded within the USMCA. When a panel finds that there has been a ‘denial of rights’ it can request the imposition of escalating trade sanctions on the companies involved. These range from suspension of preferential tariffs to a complete ban on imports into the United States of goods produced at the facility.

In the period in which USMCA has been in force, in other words for just under four years, the RRM has been invoked 23 times. Twenty-two of those times were complaints brought by the United States, through the Office of the US Trade Representative (USTR), against labour practices in facilities in Mexico. The one remaining case was brought by Canada against a plant in Mexico in March 2023. The number of annual RRM cases started low but accelerated: there were two RRM cases in 2021, four in 2022, and 13 in 2023. Initially RRM cases were mainly in the automobile industry but have spread to general manufacturing, services, and mining.

The US government says that 17 out of the 22 cases it referred to Mexico were resolved to its satisfaction. These cases resulted in Mexican workers receiving US$5m in backpay and benefits, the reinstatements of dozens of dismissed employees, and elections in which workers selected independent unions to represent them in nine facilities. In several cases the US and Mexican governments have agreed remediation plans. In one case a remediation plan was agreed but not implemented because the company involved decided to shut down its operation in Mexico. If governments cannot agree on an RRM case, the matter can be escalated to a RRM Dispute Settlement Panel (RRLP). This has happened twice, involving a mine and a telecommunications facility. Most RRMs have targeted facilities operated by Mexican subsidiaries of US companies, but subsidiaries of companies with headquarters in Europe, Japan, Korea, and China have also been affected.

An important issue for companies operating nearshoring facilities in Mexico, designed to serve the US market, is that timescales to respond to a complaint are very short. When a petition about a labour rights violation is first made, USTR has 30 days to review the relevant documents and decide whether to support it. If it decides the claim is credible it makes a formal request to the Mexican government, which then has 10 days to decide whether to conduct a review and 45 days to investigate. At this stage the US Treasury may suspend processing of tariffs on imports from the relevant facility. Publicity about the claim may also affect the share price of the company operating the facility.

Corporate lawyers say the way the system is configured poses some difficulties for companies. There is little clarity on channels for companies in Mexico and the US to present their defence or counterarguments. Executives are not always allowed to attend RRM hearings or to participate in site visits. Recommendations include stepping up knowledge and training about labour rights and employment law. If the number of cases continues rising, both governments will need to hire more experts to assist with management of the panels. There are some signs that RRM cases are in fact poised to expand into the services sector.

The political background to the USMCA is noteworthy since it was drafted during the Donald Trump Republican Party presidency in the US (2017-2021) but achieved a degree of cross-party support from the Democrats. Trump administration officials were motivated to preserve employment in the US automobile industry and many provisions in the USMCA are indeed designed to maintain or enhance the competitiveness of US production. The addition of ESG-style elements relating to the environment and labour rights was largely at the suggestion of congressional Democrats. Their inclusion was accepted by Republicans who saw them as another way of establishing a level playing field and preventing unfair competition against US-based manufacturing. Finally, the left-wing Mexican government of President Andrés Manuel López Obrador (AMLO) saw benefit in automobile industry provisions seeking to make tariff-free access to the US market conditional on the payment of a higher minimum hourly rate to Mexican workers.

Liz Shuler, president of the American Federation of Labour and Congress of Industrial Organisations (AFL-CIO, the main US labour federation), has argued that USMCA should be judged by its ability to close “the 10:1 wage gap between manufacturing workers in the US and Mexico, by raising the real wages of Mexican workers”. Her assessment of USMCA is that, together with Mexican labour reform, it has made some progress but that “a number of Mexican states have been dragging their feet on setting up the state and local labour courts that are critical to enforcing the new labour laws”. Shuler is more enthusiastic over the role of the RRMs which she says have led to concrete wins including independent union representation, higher wages, and the reinstatement of dismissed workers.

While governments primarily look at decarbonising the electric power sector, transport is another key activity generating greenhouse gases, and the switch there, from internal combustion engines to battery-driven electric ones, will play a major part in determining the pace of the ongoing energy transition. The global adoption of EVs is being led by China and Europe, but in the US too the process appears to be accelerating, which will likely push up adoption rates in Latin America. A report by research group Facts and Factors says the global EV market is expected to grow at a blistering 24.5% annual rate in 2022-2028. Overall sales value is expected to surge from US$185bn in 2021 to US$980bn by 2028. Uptake of EVs is still limited by some obstacles. Because of the advanced technologies involved new EVs cost significantly more than equivalent internal combustion models (although they are cheaper to run). As production runs remain relatively short the industry has not yet been able to fully capture economies of scale. In addition, sales are dependent on the building of national power-charging networks.

Despite those difficulties, the EV expansion is gathering pace. In the US in 2022 EV sales surged by 65% to reach 750,000 units. Last year 5.8% of all US vehicle sales were electric. If hybrid models are included, total US sales in 2022 were 918,000 units. Cox Automotive, a consultancy, expects this year’s sales to exceed 1m units. The US government is actively promoting the switch to EVs. Overall, it is offering an estimated US$83bn worth of loans, subsidies, and tax incentives to help the industry take off. The Joe Biden administration wants to decarbonise transport but is simultaneously seeking to minimise any dependence on China for battery technology.

The US private sector has responded strongly. Planned EV investment running to 2030 stands at US$210bn, according to the National Resource Defence Council (NRDC). Ford is leading the way with investment of US$50bn, followed by GM with 30bn. The investment total includes plans to expand the US’s only lithium mine in Nevada. Tesla, a market leader in EVs, is expected to invest US$5bn-8bn a year until 2024, mainly in the US and Germany.

In Latin America, Brazil is leading the EV adoption race. There are currently 125,504 EVs on the roads, and some local production has begun. Last year 8,440 new EVs were registered, three times the amount in 2021. These cars represented only 0.43% of total new vehicle registrations, but the proportion is expected to grow strongly from that low base. If hybrids are included sales totalled 49,245 units, or 2% of the Brazilian market. The Brazilian EV Manufacturers’ Association (ABVE) predicts combined EV and hybrid sales will reach 5% of the market this year. Two small local EV assembly plants are in production, owned by Toyota of Japan and Chery of China. In addition, BYD of China assembles electric buses and is planning to start passenger car production in 2025.

“Production potential in Brazil is enormous because of its mineral riches and energy potential”, says Adalbert Maluf of BYD, who also serves as president of ABVE. Great Wall, another Chinese EV manufacturer, is also investing in local production. Brazilian-owned Hitech is planning to produce electric utility vehicles. The country also has two lithium battery factories operated respectively by Moura of Brazil and BYD of China. BorgWarner, a company that works closely with Mercedes Benz of Germany, is also planning to commence local battery production.

Surprisingly perhaps, Mexico, despite a highly developed traditional automobile industry and its close economic integration with the US, had a relatively slow start in the EV race. Sales of EVs and hybrids are however currently growing at a 53% annual rate. Statistics institute INEGI says that in the first 11 months of 2022 their share of total vehicle sales stood at 4.7%. Daniel López, commercial director of charge-point company Evergo, told EFE news agency that “Mexico is a propitious country because of its geographic position, since the US is one of the world’s three largest EV markets.” In his view, after a slow start, the Mexican government is now beginning to support the switch to EVs.

Recent announcements have been significant. In February, Foreign Minister Marcelo Eberard said Mexico was gearing up to build several manufacturing hubs for EVs around the country. At least some would be located near the planned renewable energy hub in Sonora state (see Mexico section above). He said BMW, Audi, GM, Fiat Chrysler, and Tesla had all expressed interest and that the government would “give them all the facilities we can”. As mentioned above, at the beginning of March Tesla announced that it had decided on Mexico as a site for a new ‘Gigafactory’ producing batteries. And BMW had already announced a US$866m investment in a new plant at San Luis Potosí. Eberard talked up the nearshoring advantages Mexico could offer, noting that “the fiscal burden for the export sector is already a lot lower comparted with the United States”.

Elsewhere in Latin America, it is estimated that there are about 17,000 EVs and hybrids on the road in Argentina, a very small proportion of the existing stock of roughly 15m vehicles in circulation. Combined EV and hybrid sales last year rose by 33.4% to 7,846 units. There is no large-scale local production, although some Argentine companies and start-ups have been experimenting with light models designed for urban use with maximum speeds under 100kmh. Last year, Coradir, one of those companies, produced 196 units of a model known as the Tito. EV uptake in Argentina faces various obstacles. Without government subsidies or incentives, new models are very expensive. Argentina’s high inflation rate and weak currency sharply increases the cost of imported components. The EV sector remains largely unregulated. A bill to regulate the industry was submitted to congress in 2021 but its discussion has been repeatedly delayed.

Although the government remains in default on most external bonds, it is desperately trying to remain current on its obligations on the Pdvsa 2020 bond, with a US$949m repayment falling due on 29 October. The bond is backed by 50.1% of shares in Pdvsa’s US-based refinery arm, Citgo, which remains an important physical asset for the government.

The state oil company, Petróleos de Venezuela (Pdvsa), has failed to make over US$7bn in scheduled interest and capital repayments in the past year, as chronic shortages of foreign exchange have forced the government into default on most of its sovereign and Psvsa bonds. However, there have been reports that the government planned to make a scheduled US$949m repayment on the Psvsa 2020 bond that fell due on 29 October (at the time of writing, no confirmation was available about whether the payment has been made).

Government is desperate to retain Citgo

Unlike many of the sovereign and Psvsa bonds, the 2020 instrument is backed by Citgo as collateral. Although the country remains critically short of US dollars, with international reserves hovering around the US$8.8bn mark in late September, the Nicolás Maduro-led administration will want to service the bond, fearing that bondholders may take legal action to seize Citgo assets if it lets the instrument slip into technical default.

But even if the government has managed to make the payment, Citgo’s assets remain under threat from other areas. The Canadian-based mining firm Crystallex has been pursuing the Venezuela government in international courts, related to Venezuela’s failure to make a US$1.4bn payment awarded by the World Bank’s arbitration panel after the government nationalised Crystallex’s mining assets in the country in 2008. Crystallex is requesting that US courts authorise the sale of Venezuela’s US-based Citgo assets in compensation. US courts ruled in August that Citgo assets must be sold; the Venezuelan authorities subsequently tried to reverse the sale order, but US courts ruled in late October that they would not halt the planned sale process. A further ruling is expected in late December regarding how the sale will be structured.

Oil production plummets

In the meantime, operational problems continue to hamper Psvsa’s oil production capacity. According to the International Energy Agency (IEA), oil production has plummeted, falling to just 1.23m barrels per day (b/d) in September, down from 1.61m b/d in January and just under 2m b/d a year ago. Given that OPEC’s quota for Venezuela currently stands at 1.97m b/d, oil production is clearly massively below potential (and one of the main reasons why total OPEC production remains under quota). This has meant that the Venezuelan economy has felt very little impact from the recent rise in international oil prices, particularly since the government remains under pressure to repay overdue bilateral credit from China and Russia.

With little obvious source of external finance available, the government looks set to limp on, only attempting to service debt that is backed by Citgo as collateral. The Venezuelan government has made repeated references to the possibility of fresh credit lines from Russia and China, but in reality there have been few new loans agreed in recent years, with Russia and China both preferring to renegotiate repayment terms rather than extend new funds. With officials from both countries currently meeting the Venezuelan authorities in Caracas, another easing of repayment terms might be on the cards, but it is difficult to see how this will do anything put delay an eventual collapse.

Colombia stands out from its immediate neighbours for various reasons. One of the most important is the exceptionally high levels of violence the country has experienced for a long period. In fact, for more than half a century left-wing guerrillas, right-wing paramilitaries, and criminal cartels have been fighting for control of territory and drug trafficking routes. According to official data, a total of just over 450,000 people, mostly civilians, died because of the conflict in the 1985-2018 period. A military deadlock in the 1990s led to the conservative presidency of Álvaro Uribe (2002-2010), during which the army went on the offensive and kidnappings and homicides were sharply reduced. Uribe’s hardline security policies weakened the rebels and enabled his successor, Juan Manuel Santos (2010-2018), to launch peace talks with the largest guerrilla group, the Fuerzas Armadas Revolucionarias de Colombia (Farc). A peace deal, enabling guerrillas to lay down their arms and participate in peaceful politics, was reached in 2016, although Farc dissidents and other groups continued fighting.

In 2022 and for the first time in a generation, a left winger, Gustavo Petro, was elected president offering social reforms and a “total peace” plan under which his government promised to open parallel and simultaneous negotiations with all illegal armed groups. The take-up of this offer was patchy, however and major groups such as the Ejército de Liberación Nacional (ELN) guerrilla group and the Clan del Golfo drug trafficking organisation did not commit to the process. An important distinguishing feature of the following election in 2026 is that it pitted Petro’s ally, the left-wing former senator Iván Cepeda against a true far-right “outsider”, Abelardo de la Espriella, a wealthy lawyer who had entered politics around a year earlier.

In the 2026 campaign security, crime, and the role of armed groups dominated the agenda. According to pollster Invamer, 37% of voters said security was the country’s top problem in April, followed by meeting basic needs (17%) and unemployment (16%). De la Espriella said he would drop “total peace” and instead apply an “iron fist” against crime. Paloma Valencia, another first-round conservative candidate, also promised to boost military and security service budgets. On the left, Cepeda said he would extend the peace talks with armed groups. Many observers were critical of “total peace” noting that the armed groups had used it to regroup, re-arm, and recruit new members.

On economic issues right-wing candidates proposed lower taxes, less regulation, reductions in the size of government, renewed oil and gas exploration, and policies to attract foreign investment. This contrasted with Cepeda’s promises of increased social spending and more progressive taxation. Also under discussion were reforms of the health system, pensions, labour rights, and the energy transition. Campaigners expressed concern over election-related violence. In 2025 a potential contender in the presidential race, Miguel Uribe Turbay, was assassinated at a political rally in Bogotá.  

Paying taxes and dealing with Latin American governments in all sorts of different areas is time consuming, bureaucratic and often deeply frustrating. But a new Inter-American Development Bank (IDB) report says taking the process online, though what it calls digital transactional public services, could cut the time required by 74%, cost less, and help reduce corruption. So why isn’t there more e-government?

Latin Americans live in fear of the trámite. Any trámite is a piece of business conducted with the government: it could be to get a birth certificate, a driving licence, register a property, or to pay taxes. Each trámite or transaction may have various different procedural steps, including the submission of other documents or payments. The IDB report, titled ‘Wait no more: red tape and digital government in Latin America and the Caribbean’ says there is a really powerful business case for increasing e-government in the region. At present, completing a single transaction with the government takes an average of 5.4 hours across the region, and in some countries can take up to 11 hours. On the government side, providing a face-to-face transaction – such as an official to sign or stamp documents – costs 40-times more than carrying out the same piece of business online. The benefits of taking the process online are significant: according to Ana María Rodriguez Ortiz of the IDB, using digital tools “promotes competitiveness, trust in government, and social inclusion through agile citizen-state interaction”.

Yet Latin American governments are hardly rushing to take up the new opportunity. In only three countries (Brazil, Mexico, and Uruguay) can more than half of government transactions currently be done online. In the European Union by contrast, around 81% of transactions can be carried out online. In Latin America, according to a survey conducted by the IDB, only 7% of respondents said they had conducted their last government transaction online. One of the problems is simply that many Latin American citizens are not connected. Only 66% said they had a subscription to mobile broadband, and 11% said they had fixed broadband. Only 40% had a debit card, essential for making online payments.

When governments do offer online transactions, they are often poorly designed and not user friendly. Only half of all transactions can be completed in one session: 25% require three interactions or more, which increases the time and cost of accessing basic services such as education, health, paying taxes, or obtaining a birth certificate. Forty percent of those surveyed said their last attempt to conduct an online transaction with the government had failed; governments at the same time make little effort to understand the citizens’ online user experience.

There is also evidence that the current mix of online and face-to-face transactions discriminates against the poor. Low-income people are more likely to have to attend in person to carry out a transaction, meaning they lose precious income by having to take time off work. Thirty percent of low-income respondents said they had had to pay a bribe to successfully conclude a face-to-face transaction, compared with 25% among higher income respondents. The report concludes that governments should do a lot more to understand the needs of online users; they should simplify transactions and eliminate unnecessary stages in the process; they should invest in broadening access to online transactions; and they should improve the quality of in-person provision.

One of the most-cited events in Costa Rican history is the civil war of 1949, which led to the abolition of the army and, in the eyes of many historians, a decisive break with the patterns of military interventions that have punctuated the timelines of many other Latin American countries. The civil war was fought after a disputed presidential election, and left a death toll of an estimated 2,000 people. José Figueres Ferrer, leader of the armed uprising, promoted a new constitution that guaranteed universal suffrage. The army was replaced by a civilian police force. The constitution came into force in 1953. Since then Costa Rica has celebrated 17 consecutive presidential elections (the latest was held this year). In other words, the country has enjoyed 65 years of uninterrupted democratic rule.

According to the EIU’s Democracy Index 2017, Costa Rica was ranked 23^rd out of 176 countries in 2017, and classified as a “flawed democracy”. Its strongest scores were for electoral process and pluralism, civil liberties, and the functioning of government. It scored less well for political culture and political participation.

General elections were held in Costa Rica in early 2018. Although Fabricio Alvarado Muñoz, an evangelical senator with conservative social views won the first round in February, a convincing victory was achieved in the second round on 1 April by Alvarado Quesada, a former labour minister under the unpopular outgoing administration of President Luis Guillermo Solis (2014-2018). Some observers noted however that the country’s traditional political parties lost ground in the elections. Quesada campaigned as an outsider. The Partido de Liberación Nacional (PLN) only supported Quesada in the second round.

A snapshot of the state of cryptocurrencies and fintech in mid 2022 suggests various conclusions. Perhaps the most important is that both are demonstrating explosive growth and are likely to move towards some kind of underlying convergence. It is clear that in future money will be transacted even more digitally than it is today, on mobiles and other devices, at greater speed and convenience, and with greater multi-currency convertibility. In five years’ time the region’s financial architecture will be unrecognisable. However, there is uncertainty over how this will play out. The transition will be turbulent – some cryptocurrencies and some payment platforms are likely to fail or to be absorbed by others as the new world begins to emerge.

Old problems will change but not disappear. In some ways digital money reduces cash-based corruption; in other ways it creates new opportunities for cyber-crime. The threat from money laundering by major drug-trafficking cartels will remain substantial. The challenge for regional governments will be to update regulations rapidly to keep up with technological change. Likewise, the fact that a greater proportion of the region’s population has a mobile phone than owns a bank account provides an opportunity to raise financial inclusion. But without a programme of targeted public education and other reforms such as a reduction in red tape, financial inclusion will not rise on its own.

Perhaps most importantly, the hopes of a number of governments that cryptocurrencies can become some kind of silver bullet, able to magically sidestep economic sanctions or deflect the fiscal austerity demands of multilateral lending agencies such as the IMF, look unrealistic. Digital payments systems will in the long-term help increase economic efficiency and competitiveness, but in the short to medium term will not resolve the complex headaches posed by fiscal and monetary policy challenges.  

A long-standing feature of Latin American and Caribbean economies has been a high level of informality, defined as the proportion of the labour force that works outside the tax and benefits system. Despite some reductions during the commodity boom decade, it is estimated that nearly half the region’s workforce remains informal, and the proportion may be edging up as a result of the current recession. Here we examine the impact of informality on living standards, productivity, economic growth, and corruption.

Estimating the size of the informal labour force is quite complex, and has involved overcoming a number of statistical issues. However, according to a working paper published by WIEGO (Women in Informal Employment Globalising and Organising) and using International Labour Organisation (ILO) data, informal employment now accounts for 51% of non-agricultural employment in the region. For comparison, the proportion in other areas of the world ranges from a low of around 10% in Eastern Europe and Central Asia (given the legacy of centrally planned economies, where informal employment was considered illegal), to 33% in China (based on a survey of six cities), and up to 82% in South Asia.

More women than men are informally employed in Latin America. According to WIEGO, 54% of the region’s female workers and 48% of male workers are informally employed. The overall rate affecting both genders also varies sharply between countries. According to the ILO, the rate varies between a low of 39.8% in Uruguay and a high of 75.1% in Bolivia. While good economic growth in the region during the commodity boom years may have led to a slight reduction in the share of informal employment, it is hard to detect a clear trend and there are signs that informality may be increasing again.  Writing for the Americas Society/Council of the Americas (AS/COA) in April 2015, Elizabeth González said that the regional informality rate had fallen from 50.1% in 2009 to 46.8% in 2013, which she described as a “slow but sure” reduction. However, as we have seen, WIEGO estimates that the number is now back up to 51% and comments that,“contrary to predictions, the informal economy has not only persisted, but has also emerged in new forms and in unexpected places”.

A lot of informal workers in Latin America
Share of informal jobs in total employment (%)

Source: International Labour Organisation (ILO); various years 2006-2010

Informality matters for a number of reasons. One is that informality and poverty tend to be positively correlated. A recent paper by the Organisation for Economic Cooperation and Development (OECD), Promoting productivity for inclusive growth in Latin America, notes that there is a broad correlation between the degree of labour force informality and inequality in the distribution of income. Countries with higher informality rates tend to have more unequal distributions of income and greater poverty. While it is possible for certain informal occupations to pay comparatively well – some taxi drivers, domestic servants, or street sellers can in certain circumstances have good earnings – the reality is that they lack the protection for the bad times that are enjoyed by formal workers – everything from health insurance through to unemployment support or pensions.

Informal workers as a whole earn less money, have greater instability of employment, and are more exposed to working in unsafe or dangerous environments. “To cite just one example”, the OECD report states, “individuals with fewer skills are often confined to operate in low-productivity, precarious jobs, frequently in the informal economy.”

The ‘invisible’ nature of informal workers – meaning that their details are not known or captured by social services – has also been an obstacle for government-backed poverty reduction programmes.  The more successful programmes have had to find ways to deal with this problem. Brazil’s Bolsa Família programme – an example of a conditional cash transfer (CCT) approach, has made payments to mothers in poor households, on condition that they can demonstrate things like their children’s school and health clinic attendance. It is significant that this programme involves building at least a minimal database of information about the beneficiaries. Other government programmes which, for whatever reason, fail to capture the details of the intended beneficiaries, have tended to be less effective. Some have become politicised and are no more than electorally motivated giveaways. Others may be well-run programmes but by their very nature are restricted only to formal workers (such as health insurance or pension programmes).

The formal/informal split also leads to major inefficiencies and distortions in the functioning of labour markets. Typically, informal workers have very low earnings and little or no protection, while formal workers have higher wages, coupled with employment law protection and trade union representation. According to research by the IMF, skilled workers in Colombia earn on average four times the wages of unskilled workers, the largest wage gap in the region. This situation creates inflexibilities in the way companies respond to the business cycle. Because the cost of laying off formal workers is high, companies tend to be slow to adjust employment levels to business conditions. A recent report by UBS notes that in Latin America “firms tend to hire only gradually in the upswing of the cycle, while the decision to lay off in the downswing is usually delayed until the point where large scale firings are made necessary” – a situation said to be typical of the current stage of the labour market in Brazil. Rigid formal labour markets also tend to trigger higher inflation at an earlier stage of an upswing in the business cycle.

ILO regional director José Manuel Salazar said in December 2015, “The cumulative effects of the economic downturn that began three or four years ago and deepened during 2015, can be described as a crisis in slow motion”. Latin America’s unemployment rate increased to 6.7% in 2015, the first upwards move in five years. “There are signs”, Salazar added, “that there may be increasing informality, which according to the latest available data has reached 130 million workers”. Another reflection of the problems of informality has been highlighted by the World Bank, which estimates that there are now more than 20m ‘ni-nis’ in Latin America, a descriptive tag derived from the Spanish phrase ‘ni estudia ni trabaja’ – people aged 15-24 neither in full time education nor in formal work. The report said that typically, male ni-nis often drop out of school, become unemployed “and are only lucky enough to find unstable jobs in the informal sector, usually never going back to school”.

A further by-product of high levels of informality is that Latin America has inefficient and often regressive tax collection systems. With high rates of tax evasion, governments have tended to focus on the taxes that are easier to collect – meaning a high reliance on sales taxes like Value Added Tax (VAT), considered regressive since it has a greater proportional impact on the poor than on the rich. There also tends to be over-reliance on energy or mining royalties in hydrocarbons and minerals-producing countries. In general, as direct taxes are only levied on those in formal employment, the rates tend to be higher than if they were spread across a wider section of the work force. But even then, income tax is widely avoided or diluted.

In Mexico, for example, a member of the middle class in formal employment can expect to pay a 35% income tax rate, while a poorer but also formal employee will pay 20%. However, the real gap between the two rates is much smaller. The middle class tax payer benefits from a wide range of tax exemptions (among other things for medical bills, mortgage interest and children’s education) meaning that his or her effective tax rate is closer to 20%. Seen from the point of view of the informal worker, there is little incentive to become a taxpayer, particularly taking into account the low levels of trust in the government. Some efforts have been made in Mexico to offer incentives to informal workers to become formal and pay taxes, but they have not yet been sufficient to encourage much movement. Policy analysts suggest that some form of gently tapered tax system, whereby low earners start at very low rates – and receive clear social benefits for doing so – might be required.

Informality also tends to combine with financial exclusion. In Mexico, it is only possible to open a bank account if the applicant can produce details of a formal employer, salary levels and taxes paid. Not surprisingly, as more than half the population is informal, only 39% have bank accounts (World Bank data, 2014). The data also shows that under one third of adults had a debit card (27%), less than a fifth had a credit card (18%), and just under one-tenth (8%) had a mortgage. In Peru, only 29% have bank accounts (2014). Equifax, a ratings agency, has calculated that 10.7m Peruvians have access to credit from the financial system. This is less than half the population. Here too efforts are being made to support greater inclusion, for example, through the development of micro-credit institutions and some finance houses that are prepared to lend to people in the informal sector. There are also attempts to use new technology, such as mobile banking, to reach the unbanked. Peru has developed an electronic payment system known as the ‘billetera electrónica’, which may widen the availability of basic financial products.

A report by the Instituto Mexicano de la Competitividad  (IMCO) notes another phenomenon partly caused by a high informality rate. Around 98% of all financial transactions in the country are conducted in cash, compared to a global average of 38%. Cash-reliant countries tend to have larger informal or “shadow” economies (39% of GDP on average) compared to less cash-reliant countries (20% of GDP on average). Cash and corruption tend to go hand in hand. Low cash-reliant countries tend to perform better in the Corruption Perceptions Index (a ranking prepared annually by the NGO Transparency International) than high cash-reliant ones. Cash also facilitates illegal activities. Cities where social security payments are made electronically have up to 10% fewer robberies and muggings than those that pay out in cash. Finally, electronic payments are more efficient and IMCO suggests that properly managed, they could boost growth by between 0.4 and 0.5 of a percentage point of GDP.

Perhaps one of the most important downsides of a high rate of informality is that it is also associated with low levels of economic productivity, arguably one of Latin America’s main economic problems in the early part of the 21^st Century. Having half the working population outside the tax and benefits system also means that an economy is likely to be working in very small enterprises, using low levels of capital, technology, and innovation, and consequently having very low output per employee.  The OECD has noted that although Latin Americans work longer hours than the average in OECD countries, this is more than offset by a huge gap in productivity levels. OECD general secretary Angel Gurría has argued that Latin American governments need to pursue “a more inclusive concept of productivity growth”, which would include better education and skills for young people, the creation of higher quality jobs, reducing barriers to entrepreneurship, trade and investment, encouraging innovation and modernising infrastructure.

Suriname is an early test case of how the International Monetary Fund (IMF) will work with countries hard hit by the global slump in commodity prices.

On 22 January 2016, the IMF announced that it had been approached by the government of Suriname for financial assistance. An IMF mission concluded its visit to Paramaribo on 11 February.

Suriname’s main exports are alumina (32% of the total in 2013), refined petroleum (10%), and gold (24%). Falls in the prices of alumina and energy over the last year, and the slippage in the price of gold prior to 2014, have hit both the economy and government revenues hard.

The most pressing problem facing the authorities has been the steady fall in foreign exchange revenues, which dropped from US$631m in January 2015 to US$596m in April and to US$308m in January 2016. Fitch Ratings anticipates that reserves will be boosted when the Merian gold mine commences production and begins to generate new export revenue, however this will not happen before late 2016.

As the [chart] shows, this is in the context of a nearly stagnant economy with total GDP of just over US$5bn (or a little more than US$9,000 per capita). There has been a very sharp deterioration in the current account. The IMF is looking for the deficit to widen from 7.4% of GDP in 2014 to 9.4% of GDP in 2015. Suriname’s current account had been in surplus in 2010-2012.

The fall in mineral prices has also had a damaging impact on public finances, with the overall budget deficit expected to blow out from 5.3% of GDP in 2014 to 9.0% in 2015. The government’s revenues from minerals exceeded its non-mineral deficit in 2011. Over the next three years, the non-mineral deficit amounted to 13%-15% of GDP.

However, the government’s situation is far from disastrous. While government borrowing has been rising, the overall level of indebtedness remains low. Over the four years to the end of 2014, domestic debt remained broadly unchanged at a little over 12% of GDP, while external debt grew from 15% to 21%. The IMF estimates that total debt grew to just under 37% of GDP through 2015.

In addition, the Centrale Bank van Suriname (CBVS – the central bank) has kept inflation under control, in spite of the persistent budget deficit. Average inflation peaked at nearly 18% in 2011 but has since fallen to 3%-4%. Over the course of 2015, the CBVS increased the amount of liquidity that is available to the banks. As of mid-2015, the banks had net foreign assets that were equivalent to 11% of GDP. These assets were mainly foreign currency holdings and net foreign currency deposits with banks outside Suriname. The banks’ net foreign assets more or less offset the currency mismatch that arises because their foreign currency deposits (about 55% of the total) exceed their foreign currency loans within Suriname.

And the authorities have already taken steps to address the challenges. In mid-November 2015, the CBVS devalued the Surinamese dollar by 21%, moving the rate at which the currency is pegged from US$1:SRD3.30 to US$1:SRD4.00. The CBVS also made the currency regime more flexible, in that the currency will be allowed to fluctuate by 5% either side of the central rate. The government has also announced that it will phase out water and power subsidies, which amounted to 4.3% of GDP in 2014, and said that it would reduce capital expenditure in its budget for 2016.

The government’s reduction in the subsidies represents a major turnaround. In its previous (October 2014) Article IV consultation with the government, the IMF had highlighted fiscal slippage as a major problem.

It remains to be seen what assistance is provided by the IMF to the government of Suriname, and on what terms. Possible initiatives include the introduction of a value added tax (VAT), which the government has been considering since 2014; a review of the new health insurance system (which was introduced in 2013) and whose financial sustainability has been questioned by the Managing Director of the country’s largest insurance firm; and a review of the new General Pension Plan, which was to have been funded largely on a pay-as-you-go (PAYG) basis.

It is also reasonable to expect that the IMF will push for changes that make Suriname an easier place in which to do business. In its Doing Business 2016 report, the World Bank gave Suriname an overall ranking of 156 (down from 154 in 2015) out of 189 countries considered. Suriname performs particularly poorly in terms of starting a business (183), enforcing contracts (186), registering property (176), and getting credit (174). Except in relation to trading across borders, for which Suriname’s ranking improved from 95 to 77, there was no improvement in any of the aspects considered.

The coming months will provide useful pointers in relation to two issues. One is the general approach of the IMF to countries that have run into serious economic and financial problems as a result of the slump in mineral and energy prices. The other is the attitude of the government to fiscal discipline and structural reform, given its tendency to dodge hard decisions in the past.