Why Latin America is at risk of adjusting to a ‘third lost decade’

ECLAC warns that Latin America walks towards a third decaderdida Lima, Oct 9 (EFE).- Latin America has begun the path towards a third lost decade in economic matters, warned this Wednesday the executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), José Manuel Salazar-Xirinachs. “If we see that line (of growth) forward and the perspectives of what we see will be the growth of 2025 and 2026, we are beginning to walk through a third lost decade in terms of growth“said Salazar Xirinachs at the fortieth period of sessions of ECLAC being held in Lima.

Last August, the organization confirmed that Latin America completed, between 2015 and 2024, the worst stage of growthwith an average rate of 0.9%, from the so-called “decade loss” of 1980. Already at that time, he warned that, if profound structural changes were not made, the region was heading towards a third lost decade. When presenting the position document “America Latin America and the Caribbean facing development traps: essential transformations and how to manage them“, Salazar-Xirinachs asserted that there are “three vicious circles that reinforce each other and limit the ability to advance towards higher levels of development.”

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These three “traps“are the low capacity to grow, high inequality and low mobility and social cohesion, as well as low institutional and governance capacity bit effective. When commenting on the low capacity to grow and mentioning that Latin America and the Caribbean is going through a third lost decade, he maintained that “It is very difficult to reduce poverty, reduce informality and create quality jobs“, in addition to making it difficult to increase tax revenue. For this reason, Salazar-Xirinachs maintained that “There is a structural problem of low capacity to grow.” “It is not a temporary issue, it is something deeper“he stressed.

Among the causes, he cited the low growth of productivity and low productive diversification, low investment -Latin America has the investment “lowest in the world”-, and the “lack of human talent in the required skills and training“. In this regard, he recalled that, in 2023, the average labor productivity in constant dollars was 4% lower to that of 1980. Salazar-Xirinachs stressed that, from 2011 to 2019, it was recorded in Latin America “the lowest average annual rate of job creation in the last 70 years”1.5%, which shows a “not very dynamic labor market“.

About the ““high inequality trap”recalled that the Gini index shows that Latin America has the highest rate in the world. This is due to the low growth and dynamism of the labor market, in which there are “oceans of companies” of small productivity and size, compared to a much smaller one for medium or large companies. There are also differences in territorial matterwith “much of the inequality rooted in that structure”regressive tax systems, social and social protection policies “weak“, educational systems “with serious weaknesses“.

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Likewise, structural gender inequality and inefficient care systems, “high inequalities and special segregation in urban areas“, in addition to discrimination and violations of human rights suffered by certain population groups. “It is not enough to work with one of these factors, you have to work in an integrated way“added Salazar-Xirinachs.

Finally, when referring to the “trap of low institutional capacities and ineffective governance”commented that ““solid institutions are required to manage the transformations”with long-term state policies.

EFE