Does Latin America Need More Investment?

More from the Labif conference, this time from Enrique Garcia, president of CAF, the Andean development bank. Garcia was bemoaning the amount of investment in Latin America: it's presently between 20% and 21% of GDP, he says, and it should be much higher, between 23% and 24% of GDP. If investment rose that far, he reckons that Latin America's sustainable growth rate could rise from the 5% or so it's at now to as much as 7% – closer to the sort of figures we regularly see in east Asia.

It's certainly true that Latin America isn't borrowing. There's one school of thought which attributes that to the giant sucking sound coming from the north: with the USA running the largest current-account deficit the world has ever seen, the rest of the planet, Latin America included, is being forced to finance the US and is therefore neglecting domestic investment.

To listen to Garcia, today's Latin current-account surpluses aren't anything to be proud of. The region needs vast amounts of investment in infrastructure, in education, in industry – and is being held back for lack of that investment. Now we've heard this story before, in the 1990s, when countries borrowed recklessly and paid a steep price in 1998. They don't want to make the same mistake again – and indeed much of the capital currently being raised in Brazil is equity, not debt.

It's also true that Garcia is talking his own book – if there aren't any borrowers, then the need for lenders such as CAF disappears. And his scientific-sounding numbers (a 3 percentage-point increase in investment will result in a 2 percentage-point rise in sustainable GDP growth) are surely not particularly meaningful: you can't reduce growth rates to a single variable like that.

But in this age of abundant global liquidity, it's interesting to consider that there's an entire continent which is seemingly still desperate for more investment.

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