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Latin America Is Going Fiscal At Full Speed

March 4, 2009 - 0 Comments

The Challenge is how to Turn Economic Packages Into Opportunities that Create Sustainable Growth and Competitive AdvantageNumerous market indicators already signal that the global economic crisis is now impacting Latin America. Unless the U.S. economic stimulus package (or officially, the American Reinvestment & Recovery Act) works and each country in the region puts in place comprehensive counter-cyclic policies, the crisis’ impact could be even longer and more devastating. Countries across the region are experiencing a reduction in the demand on their exports in varying degree. This reduction has generated rapid increases in trade deficits and difficulties in accessing international financing, a situation that has been exacerbated by the repatriation of funds from foreign investors. These elements have combined to create major pressure to domestic currencies; in just the last six months the Brazilian real has lost 32% of its value. The immediate impact in consumption, investment and employment has been more than evident.To attack the different symptoms, countries in the region have adopted different measures. So far macroeconomic policy has been the medicine of choice. However, the crisis is so deep that for many economists and Governments, it is now clear that monetary policy will not be enough, and that the case for a major fiscal counter-cyclical policy is now essential. Latin America Is Going FiscalFiscal stimulus is underway across the region. Perhaps with the exception of Peru, it’s not clear if the measures in place have been conceived as part of a comprehensive stimulus plan, or if they’re remedies developed by different ministers to address specific circumstances. For example, countries such as Brazil enacted policies and announced large investments, mostly in housing and employment benefits to support the construction industry. It is now clear that more Government action would be necessary to ensure the crisis does not worsen. This is not the time for Governments to take the risk of doing too little, too late. ICT as an Enabler to Create Sustainable Growth and Competitive AdvantageBroadband networks are a critical foundational element for the information economy and the ability to compete. Broadband networks are now part of every nation’s essential infrastructure. Unfortunately, broadband penetration in Latin America is below 5% in almost all countries and therefore increasing it is critical to create a foundation for growth and competitiveness. The economic stimulus packages that would probably be put in place could become a unique opportunity to connect every household and business in the region.The Obama administration recognized the power of ICT in the Economic Stimulus Package developing important initiatives and providing specific funding for broadband deployment, adoption, and mapping. Provisions included rural utilities service grants, loans for rural broadband, distance learning, and telemedicine; education technology; green construction (powered by ICT), healthcare IT, data security, and smart grid.The circumstances in Latin America are different and the U.S. package is not a recipe to replicate, but it does provide some ideas that countries can evaluate and adapt to their immediate needs. Certainly the expansion of the access and backhaul networks and education on ICT would need to be a priority in any country that wants to be a serious competitor in the information economy.Sound decisions are critical to ensure precious money is not wasted as comprehensive plans are put in place. Governments must ensure these plans not only lead to large and rapid investments, but also ensure they create sustainable growth and a competitive advantage.

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