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Can Latin America Escape Its Second Lost Decade?

Latin America’s economies continued to be the worst-performing in the developing world in 2023. To boost economic growth, the region’s political leaders must increase their investments in science and technology, foster regional integration, and reaffirm their commitment to democratic governance.

BOGOTÁ – Latin America has come to the end of its second lost decade of development. Average annual growth hovered just below 0.9% for the 2014-23 period – worse than the 1.3% rate in the 1980s. GDP per capita, however, is projected to be slightly higher in 2023 than in 2013, owing to slower population growth. By contrast, it was not until 1994 that the region’s GDP per capita returned to its 1980 level. Still, Latin America has a severe growth problem.

To be sure, economic performance has varied across countries. The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) estimates that Mexico, Central America, and the Caribbean outperformed South America in 2023. Among the largest economies, Mexico, Brazil, and Colombia fared better than Chile and Peru, which recorded zero growth, while Argentina’s ailing economy contracted by 2.5%. Venezuela grew by 4.5%, but its GDP remains less than a third of its size a decade ago.

Although foreign direct investment has remained robust, private external financing has been limited, and borrowing costs have increased. While bond issuance in Latin America and the Caribbean grew by 30% in the first ten months of 2023, it was still roughly half of the annual average between 2019 and 2021. Moreover, the average yield of Latin American bonds is currently around 8%, compared to roughly 5% in 2021, despite a modest decline in risk margins. The primary driver of this increase has been the higher yield on ten-year US Treasuries.