The Latin American Economic Outlook (LEO) analyses issues related to sustainable and inclusive development in Latin America and the Caribbean (LAC). Since the LEO’s launch in November 2007, the annual report has compared LAC’s performance with that of other regions, analysed main development challenges and put forward policy recommendations, experiences and good practices.

This Latin American Economic Outlook 2019 (LEO 2019) presents a new approach to continue supporting Latin America and the Caribbean’s (LAC) transition to more inclusive and sustainable development. At the core of this approach is the understanding that development challenges and opportunities in LAC have significantly evolved with the region’s progress. Consequently, the international co-operation system for development should continue innovating to support countries in pursuing their development objectives and, in particular, the 2030 Agenda and Sustainable Development Goals (SDGs).

Renewed international co-operation can support countries in Latin America and the Caribbean (LAC) to achieve greater inclusive and sustainable development for all. Domestic and global challenges are coalescing in significant ways, while linkages between national policies and the global scenario continue to grow. In the face of this evolving context, the Latin American Economic Outlook2019 (LEO 2019) calls for improving domestic capacities and upgrading the international co-operation system for development to better fit new realities. This reflection is necessary to successfully support national development objectives and international efforts to advance regional and global public goods, as well as to pursue the universal goals of the 2030 Agenda for Sustainable Development.

The Latin American Economic Outlook 2019 (LEO 2019) presents a new approach to support Latin America and the Caribbean’s (LAC) transition to inclusive and sustainable development called “Development in Transition” (DiT). This represents an opportunity to advance towards the goals of the 2030 Agenda for Sustainable Development (Agenda 2030) by rethinking the concept of development, the strategies countries should pursue and the role of international co-operation in facilitating these efforts. In the face of significantly evolving domestic and global contexts, DiT calls for improving domestic capacities and adopting more innovative modalities of international co-operation for development. In so doing, it could support both national development objectives and international efforts to advance regional and global public goods.

Latin America and the Caribbean (LAC) is experiencing a subdued recovery. Current growth rates are below the previous decade and will be insufficient to close the income gap with advanced economies. The general macroeconomic outlook still points to significant heterogeneity across countries. This highlights differences in exposure to external shocks, main trade partners, policy space and frameworks, and idiosyncratic supply shocks. The international context presents several risks for the region and current economic growth is insufficient to defend the socio-economic achievements of the last decade, with poverty and inequality reductions on hold. This socio-economic performance highlights both new and persistent structural challenges in the region. Low potential economic growth, persistent high inequality rates and increasing poverty levels are all symptoms of key development traps.

This chapter illustrates the weakness of income per capita as a measure of development in Latin America and the Caribbean. Trends in income per capita may not fully reflect changes in other dimensions of development. Countries with similar levels of income per capita display very different development outcomes. This is especially true for those that are middle- and upper middle-income, such as most Latin American and Caribbean countries. This chapter compares current and long-term trends in income per capita with other well-being indicators at regional, national and sub-national levels. It also discusses the importance of developing adapted statistics that better reflect people’s living standards to improve the design, implementation and monitoring of public policy for development.

There are different symptoms that suggest that Latin American and Caribbean (LAC) countries are facing a number of “new” development traps that act as a barrier to further inclusive and sustainable growth. While these traps reflect some longstanding issues, they are new – or increasingly important – in the sense that they are also the result of progress towards higher income levels, which is surfacing – as well as creating – new development challenges. This highlights the relevance of the “development in transition” approach for LAC. These development traps are vicious circles that limit the capacity of LAC countries to move towards greater levels of development. This chapter highlights the existence of four main development traps: the productivity trap, the social vulnerability trap, the institutional trap and the environmental trap. These interlinked traps are particularly relevant in a rapidly changing global context, which poses new and increasingly complex challenges. Overcoming these traps and turning these vicious circles into virtuous circles will set LAC on a path of greater sustainable development and higher well-being for all.

This chapter stresses the need to continue enhancing domestic capacities to overcome development traps and therefore improve citizens’ well-being. A key starting point is National Development Plans (NDPs), which prioritise policies and adopt a well organised and comprehensive approach. Although these plans are country-specific, they have common targets and challenges in design and implementation. The chapter highlights the importance of improving and increasing public spending for successful implementation of such plans. It insists NDPs should navigate effectively in the political economy. Finally, the chapter focuses on the need to increase domestic resources for development to finance sustainable development, considering the role of taxes, financial markets, national development banks and public-private partnerships.

This chapter presents three dimensions for rethinking international co-operation as a facilitator to support LAC countries in their transition paths to sustainable development. The first dimension looks at redefining governance based on inclusiveness. It calls for countries at all income levels to build multi-stakeholder partnerships as equal partners. The second dimension looks at strengthening institutional capacities. It places national strategies front and centre and strengthens domestic capacities by prioritising, implementing and evaluating development plans, aligning domestic and international priorities, and supporting countries in maintaining a role on the global agenda. The third dimension looks at broadening the tools of engagement to include knowledge sharing, multilateral policy dialogues, capacity building, and co-operation on science, technology and innovation. Expanding international co-operation modalities welcomes a range of actors, including public actors from different ministries in a “whole-of-government” approach. The chapter calls for ongoing analyses with LAC countries on concrete options for implementing these dimensions.

This chapter offers a brief diagnosis of economic, social, environmental and institutional challenges in the Caribbean and suggests possible policy actions to address them. First, it reviews key economic issues related to the lack of competitiveness, trade deficits and the region’s high debt-to-GDP ratio, which in turn reduces its fiscal space and public investment. The following section evaluates the lag in social investment and the need to tackle poverty and inequality, youth unemployment, poor education, lack of social protection, better health and social care, ageing demographics and gender disparities. This chapter also describes the environmental vulnerability of the Caribbean, due to its geo-ecological characteristics, population distribution and economic activity, and analyses challenges related to climate change adaptation, water resources and solid waste management, energy transition and sustainable transportation. The institutional situation is also assessed by exploring the content of development plans and problems regarding access to grants and concessional resources because of the graduation of Small Island Developing States (SIDS). Both local and global actions play a role to overcome these challenges and ensure higher inclusive and sustainable economic growth.