Latin American and Caribbean economies growing but must manage risks, says World Bank

The economies of Latin America and the Caribbean are growing again after a number of difficult years, but the fragile recovery highlights the need to increase efforts to build resilience and manage risks, according to a new report from the World Bank. The report, From Known Unknowns to Black Swans: How to Manage Risk in Latin America and the Caribbean, was produced by the World Bank’s office of the chief economist, Latin America and the Caribbean. “We’ve hit a bump in the road to recovery,” commented Carlos Végh, World Bank chief economist for Latin America and the Caribbean. “This makes it all the more important to better understand and manage risks and other shocks, from financial turbulence to natural disasters.” The region is now expected to grow 0.6% in 2018 and 1.6% in 2019 (1.6% in 2018 and 2.1% in 2019 excluding Venezuela). Weaker growth is expected in South America due to the market turbulence that started in Argentina in April, the growth slowdown in Brazil, the continued deterioration of the situation in Venezuela, and a turn for the worse in the external environment. The report states: “External factors that remain relatively benign for the region include robust growth in the US, slowing but still strong growth in China, and a recovery in commodity prices. Nevertheless, challenges persist, such as the normalisation of monetary policy in the US with higher interest rates that have contributed to a drastic fall in net capital inflows to the region, a strengthening of the dollar, a fall in most major emerging markets’ currencies, and trade tensions.” It also points to the fact that the region is extremely exposed and vulnerable to natural disasters, such as earthquakes, floods and hurricanes. It explains that the region is among the most vulnerable on the globe due to high population density in the areas where these disasters strike and the need for better risk management practices. “Given existing economic uncertainties, it is more important than ever to build resilience to face the future with greater assurance,” said Jorge Familiar, World Bank vice-president for Latin America and the Caribbean. “This is particularly relevant in this region due to its exposure to risk.” The report highlights the example of the Pacific Alliance catastrophe bonds for earthquakes, which it says would have been unthinkable not long ago. In addition, it notes that risk sharing across countries through mechanisms such as the Caribbean Catastrophe Risk Insurance Facility can provide readily available funds for the recovery after a member country suffers a hurricane. However, it warns that unforeseen shocks, or ‘black swans’, like the 2008 global financial crisis, are impossible to predict and cannot be insured. “To prepare for an uncertain future, it is particularly important for the region to understand the different types of risk and what insurance mechanisms may be available. As more progress is made in this area, countries in Latin America and the Caribbean will be able to insure against many more risks, making the region a much safer place to live and prosper,” notes the report.

Latin American and Caribbean economies growing but must manage risks, says World Bank

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