Credit: Syldavia/iStock by Getty Images via IMF

By Ilan Goldfajn and Rodrigo Valdés
WASHINGTON DC, Dec 12 2024 (IPS)

Violent crime and insecurity have a disproportionate impact on Latin America and the Caribbean, with severe consequences for socioeconomic development.

Despite representing just 8% of the world’s population, the region accounts for nearly one-third of global homicides. This as well as other alarming statistics highlight the urgent need for comprehensive strategies to address the far-reaching effects of crime and violence.

New research by the IDB and IMF highlights how crime, insecurity and low growth reinforce each other in a vicious cycle that stifles investment, reduces tourism, and accelerates emigration.

Macroeconomic instability—recessions, inflation spikes, and rising inequality—is associated with increased violence. Easily available firearms and organized crime amplify these effects, undermining institutions and the rule of law.

Quantifying the Costs of Crime

A recent IDB paper quantifies the direct losses, estimating that crime and violence cost the region 3.4 percent of GDP annually. These costs stem from productivity losses due to lives lost, injuries, and imprisonment; private-sector expenditures on security; and public spending on police, justice, and prisons.

This is equivalent to 80 percent of the region’s public education budgets and double its social assistance spending. But the impact of crime doesn’t end there. It discourages investment, reduces tourism, and drives emigration, further weakening economic resilience and constraining the region’s future growth.

IMF research reveals that crime hampers innovation and reduces firm productivity, compounding economic stagnation over time. Leveraging geo-localized data on nightlights, the study finds that halving homicide rates in violent municipalities could increase their economic output by up to 30 percent.

At the regional level, as shown in last year’s IMF research, reducing homicide rates to the global average could boost Latin America and the Caribbean’s annual GDP growth by 0.5 percentage points.

Conversely, macroeconomic instability often fuels spikes in violence: a recession in LAC is associated with a 6 percent increase in homicides the following year, while inflation spikes above 10 percent are linked to a 10 percent rise in homicides the year after. Growing inequality further exacerbates the link between economic stagnation and crime.

How can policymakers help break the cycle?

Breaking this vicious circle requires a deeper understanding of its root causes and impacts. Rigorous research and better data are essential for designing public policies that effectively reduce crime. Institutions like the IDB and IMF can generate evidence, monitor crime dynamics, advise member countries, and facilitate discussions.

As the topic has become macro critical in the region, the institutions brought together experts and policymakers in a joint conference a few weeks back.

First, sound economic policy plays a preventive role. Stability, low inflation, robust social safety nets, and opportunities that reduce inequality and expand access to education and employment are critical to breaking the cycle of violence and stagnation.

Financial authorities are also uniquely positioned to weaken criminal networks by addressing illicit markets, curtailing financial flows, and tackling money laundering—cutting off resources that sustain organized crime.

Second, because the impact of crime extends far beyond direct economic costs, economic policymakers must adopt a broader role by targeting high-risk groups, improving crime monitoring, and enhancing interagency coordination.

Effective interventions can deliver transformative results. With IMF support, Jamaica implemented reforms that protected public investment and social spending while successfully halving debt between 2012 and 2022. Community-based interventions supported by the IDB reduced gang violence in 68% of affected neighborhoods.

In Rosario province, Argentina implemented a comprehensive strategy to combat crime, including territorial control of high-risk neighborhoods by the Federal Police, stricter prison systems for high-profile offenders, and collective prosecution of criminal groups under new legislation like the anti-mafia law.

These efforts, alongside progress on a juvenile penal code to deter drug traffickers from recruiting minors, have led to 65% reduction homicides in 11 months. In Honduras, strategic security reforms contributed to a 14% decline in the homicide rate and an 8% increase in public confidence in law enforcement.

Policymakers must prioritize using resources effectively, given the scope of the challenge. Public spending on security in the region is already high—around 1.9 percent of GDP, or 7.4 percent of total public expenditure—and may be even greater where the military and subnational governments are involved.

Finance ministers and fiscal authorities need a full understanding of these costs, covering police, courts, prisons, and related institutions, to ensure funds are allocated efficiently to areas with the highest impact. They also need to monitor them in the same way they surveil other large spending tickets, evaluating their impact and pressing for results.

Transnational Crime Demands Regional Cooperation

Tackling crime solely at the national level isn’t sufficient. Criminal groups operate across borders, making isolated responses ineffective and fragmented. To address this shared challenge, countries must collaborate more closely to develop stronger, more coordinated solutions.

Recognizing the transnational nature of crime, the IDB’s Alliance for Security, Justice, and Development seeks to unite governments, civil society, and private-sector actors. This alliance not only aims to strengthen institutions and enhance cooperation but also supports public policies and mobilizes resources to implement evidence-based solutions that effectively combat organized crime and violence.

Regional collaboration is crucial for disrupting the sophisticated, interconnected networks of organized crime that undermine the rule of law and economic stability. By fostering unified efforts, institutions like the IMF and IDB alongside governments and civil society, have a critical role to play in this effort.

With people’s lives on the line, the true impact of these efforts must be felt on the ground—by creating safer streets, restoring hope in communities, and offering individuals a real chance to thrive economically in a future free from violence.

Ilan Goldfajn was elected president of the Inter-American Development Bank (IDB) on November 20, 2022, and took office on December 19, 2022. He previously served as director of the Western Hemisphere Department at the International Monetary Fund (IMF) in 2022, where he supported countries in implementing IMF programs and contributed to climate change policy dialogue. Earlier, he was an economist at the IMF from 1996 to 1999.

Source: IMF Blog

IPS UN Bureau

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Credit: andresr /istock by GettyImages via IMF

By Gustavo Adler and Rodrigo Valdés
WASHINGTON DC, Apr 29 2024 (IPS)

Latin America’s workforce grew by nearly 50 percent in the two decades before the pandemic, helping boost economic growth. Now demographic trends are turning, and likely to weigh on growth in the coming years.

We expect growth in Latin America to average about 2 percent per year in the next five years, below its already low historical average. These projections are also considerably weaker than those for other emerging market economies across Europe and Asia, which are also expected to slow but still grow by 3 percent and 6 percent annually, respectively.

This weaker outlook party reflects long-standing challenges of low investment and slow productivity growth. The additional challenge this time is that the demographics are turning, and the labor force won’t grow as fast as before.

Turning Demographics

Population growth will continue decelerating, falling from about 1 percent per year in the two decades preceding the pandemic to about 0.6 annually in the next five years. This is not necessarily bad news as a growing population does not automatically mean rising income per capita—the most relevant measure of wellbeing.

Although a larger population means a larger labor force and aggregate output, it also means a larger number of people among whom output is shared. Still, growing the economy through a larger population can help in other ways, including by increasing revenues to repay high debt levels.

More importantly, the demographic dividend is fading as the region’s population is aging and the share of the working-age population is peaking. This means that the share of the population able to generate income will stop growing. It is an important change as this share had been growing until now, enabling the labor force to grow 0.5 percent per year since 2000. In contrast, we expect no growth in the share of working-age population over the next five years, on average.

Boosting participation

Keeping the labor force engine running will require boosting labor force participation. And some of this is expected to happen, as the share of working-age jobseekers is projected to continue rising.

But for this to become a reality, it will be key to further integrate women into the labor force. Their participation remains low, at only 52 percent of working-age women compared to 75 percent of men.

Policies can help. Expanding childcare programs and providing more training for women can help raise female participation, as we have discussed in recent country reports, including for Brazil and Mexico.

Ensuring that household taxation does not discourage secondary household earners and eliminating asymmetric childcare and parental leave benefits between men and women, that ultimately discourage hiring of women or affect their pay, can also help bring more women into the labor force.

Countries can also grow their workforce by providing vocational training opportunities, raising the retirement age, eliminating disincentives for work after retirement and adopting policies that facilitate employment of older workers.

Tackling crime—an important factor behind migrant outflows in some parts of the region—should also be on the agenda.

But also, as demographics become less favorable, countries will need to put more effort into raising labor productivity growth, by tackling poor governance, stringent business regulations, and widespread informal work (which constrains firms’ growth and the associated productivity gains).

This will help raise living standards even amid demographic headwinds.

Latin America’s many years of hard work to strengthen macroeconomic frameworks has paid off. Countries successfully navigated the last two large global economic recessions and avoided a painful repeat of past crises.

Now they must take advantage of this resilience to focus on boosting potential growth, a persistent challenge that’s mounting as demographic fortunes turn.

Source: International Monetary Fund (IMF)

IPS UN Bureau

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