IMF update

 

Dear MARIA, We just published a new blog—please find the full text below.  Breaking Latin America’s Cycle of Low Growth and Violence (Credit: Syldavia/iStock by Getty Images) By Ilan Goldfajn and Rodrigo Valdés 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. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here.

Dear MARIA, In today's edition, we highlight: December 2024 F&D magazine: The Economics of Housing Breaking Latin America's cycle of low growth and violence Persistent fall in private borrowing brings global debt down Mongolia Country Focus IMF Managing Director at 2024 High Level Caribbean Forum, and much more

F&D MAGAZINE Housing’s Unique Role in Lives and Economies Demands Greater Understanding (Credit: Cristiana Couceiro) The housing sector plays a transformative role in shaping national economic outcomes. Yet housing is often missing in macroeconomic analysis, writes Finance and Development magazine’s Gita Bhatt in a new blog. The just-released December issue of Finance & Development details how housing markets and the economy interact, the nature of recent challenges—including the property slump in China—and the potential solutions that can make real estate markets work for everyone.  At the root of the current affordability crisis: demand far exceeds supply, with adverse implications for economic mobility, productivity, and growth, she says. To access the full issue, click here or here (pdf). Subscribe here for F&D’s agenda-setting explorations of economic and financial issues. Read the Blog

ECONOMIC GROWTH Breaking Latin America’s Cycle of Low Growth and Violence (Credit: Syldavia/iStock by Getty Images) 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, write the Inter-American Development Bank’s Ilan Goldfajn and the IMF’s Rodrigo Valdés in a new blog. 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, the authors write. A recent IDB paper quantifies the direct losses, estimating that crime and violence cost the region 3.4 percent of GDP annually. Crime 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.  Read the Blog

PUBLIC DEBT Persistent Fall in Private Borrowing Brings Global Debt Down (Credit: Fang Xia Nuo/iStock by Getty Images) Global debt decreased about one percentage point to 237 percent GDP. The values for 2023 are now available from the just released IMF’s Global Debt Database, write the Fund’s Vitor Gaspar, Carlos Gonçalves, and Marcos Poplawski-Ribeiro in a new blog. Global private debt fell by 2.8 percentage points to 143 percent of GDP, below the 2019 level, and more than compensated for the increase in public debt. According to the latest Fiscal Monitor, global public debt is high, rising, and risky. Empirical analysis points to low growth prospects as the main driver of the fall in private debt in 2023, the authors write. The way households and businesses react to current and expected future growth is very important for private debt. Given weak growth prospects many firms and households are opting to pay down debt. The fall in private debt slowed down compared to 2022 mainly because of a reduction in the contribution from unexpected inflation to debt erosion. Read the Blog

COUNTRY FOCUS Tighter Fiscal Policy Can Help Mongolia Control Inflation (Credit: IMF Photo & heckepics/iStock by Getty Images) Discussions at the Bank of Mongolia’s recent international conference marking its centennial highlighted an important policy issue: how to better align monetary and fiscal policies to tackle high inflation, write the IMF’s Angana Banerji and Thomas Helbling in a new Country Focus article. Ideally, monetary and fiscal policies should work in concert but also within their mandates and objectives. In Mongolia, there is room to make the monetary-fiscal ride smoother to arrive at target inflation more quickly, the authors note. The Bank of Mongolia has played a major role in Mongolia’s transition from a centrally planned economy to a market economy. The Bank established a two-tier banking system in 1991 to separate the central bank from commercial lenders, scrapped the fixed exchange rate in 1993 to promote exports and improve the balance of payments, and phased out direct controls in favor of a market-oriented monetary policy framework.  The Bank also introduced elements of an inflation targeting framework in 2013 but its journey toward full-fledged inflation targeting remains incomplete. Improving government policies can play an important role in keeping inflation in check, say the authors. Read the Article

CLIMATE CHANGE Global Transition to Renewable Energy Essential for the Caribbean: Georgieva (Credit: IMF Photo) A rapid global transition to renewable energy is essential to mitigate some of the climate challenges facing the Caribbean, IMF Managing Director Kristalina Georgieva said in remarks to the 2024 High Level Caribbean Forum in Barbados. Yet, achieving this transition is a complex journey requiring substantial upfront investments and well-designed incentives, while balancing competing priorities for development and resilience. “Despite the challenges, I firmly believe the region has a tremendous opportunity,” said Georgieva. “The Caribbean economies showed incredible resilience through the pandemic and its aftermath. Now is the time to seize the opportunity provided by global developments to plan and coordinate a green energy transition that fosters inclusive, sustainable, and resilient growth across the region. With its abundant sunshine, strong winds, and geothermal potential, the Caribbean can be a global leader in this transition and an example for the rest of the world.” The benefits of a shift to green energy are profound. While Caribbean nations contribute only a fraction of global greenhouse gas emissions, the economic case for a renewable energy future is compelling, she said.

The International Economic Association’s Women in Leadership in Economics Initiative (IEA-WE) connects women economists worldwide and helps showcase their important empirical research, especially in developing countries. IMF Podcasts has partnered with the IEA-WE to produce a special series featuring the economists behind the invaluable local research that informs policymakers in places often overlooked. Driving Change kicks off this limited-run series from Turkey, with economist Ipek Ilkkaracan, who makes a strong business case for investing in social care infrastructure.

COUNTRY FOCUS How Vanuatu Can Return to Sustainable Growth After Airline Bankruptcy (Credit: AsianDream & Samantha Bailey/iStock by Getty Images) Vanuatu, the Pacific archipelago nation of about 350,000 people between Australia and Fiji, finds itself at a crucial crossroads, the IMF’s Evan Papageorgiou and Maria Gonzalez write in a new Country Focus article. The IMF’s recent staff report on Vanuatu reveals an economy grappling with a series of shocks: two destructive tropical cyclones last year; the fallout from the effective bankruptcy of its national airline, Air Vanuatu; and the challenges brought about by declining proceeds from its Economic Citizenship Program, or ECP, the nation’s citizenship-by-investment plan. The current headwinds are not new, but rather, long-term adverse risks that finally have materialized. Air Vanuatu’s financial and operational weaknesses preceded the pandemic and culminated with the company’s bankruptcy in May 2024—a blow to the island's connectivity and tourism industry, as well as its domestic and international labor mobility and cargo networks, the authors say. Vanuatu's road forward is challenging, but with targeted policies and a commitment to reform, the nation can deliver a brighter, more stable future that is promising for its citizens. But Vanuatu will also need continued international support to overcome these major challenges. The assistance found in partnerships with global institutions like the IMF, multilateral development banks, and regional alliances and bilateral partners, will play a pivotal role in providing the expertise, resources, and financial support necessary for Vanuatu to achieve its economic goals, the authors conclude.

Poland is one of the success stories of European economic convergence. The country, which in January takes the reins of the Council of the European Union (the decision-making institution representing the Union’s member states) is now the EU’s sixth largest economy. This convergence process was driven by the 2004 EU enlargement, which also welcomed the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Slovenia, and Slovakia into the Union, expanding the EU’s population by about 20 percent.   Twenty years later, as new EU accession discussions are underway, it is worth looking at how much the earlier enlargement benefitted new members and the whole Union, and reflect on the economic returns of broadening the European single market. A new note by the Regional Economic Outlook for Europe shows that the 2004 EU enlargement brought substantial income gains. These gains were particularly large in the new member states: after 15 years GDP per person was on average more than 30 percent higher than it would have been without EU accession. Read More

Weekly Roundup CAPACITY DEVELOPMENT METAC 20th Anniversary For the past two decades, the IMF's Middle East Regional Technical Assistance Center (METAC) has been instrumental in promoting economic policies that foster a more prosperous future for all. METAC’s 20th anniversary conference in Cairo brought together representatives from member countries, development partners, and IMF staff to explore the importance of strong government commitment to reforms, enhanced capacity development, and the vital support from development partners to implement economic policies that drive inclusive growth. Panelists shared valuable insights and practical strategies from global experiences in overcoming governance challenges, underscoring the importance of collaboration and innovation to achieve sustainable progress.

Thank you very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Miriam Van Dyck Editor IMF Weekend Read mvandyck@IMF.org

(Photo courtesy of respective podcast guests) Driving Change kicks off this limited-run series on women-led development economics from the ground up, in collaboration with the International Economic Association.  Listen to the first three episodes below.  Turkish economist Ipek Ilkkaracan makes a strong business case for investing in social care infrastructure. (Transcript) Colombian economics Professor Marcela Eslava discusses her research in fixing Latin America's dysfunctional social security network. (Transcript) Kenyan economist Rose Ngugi on how indices are helping local counties design more effective policies. (Transcript) The International Economic Association’s Women in Leadership in Economics Initiative (IEA-WE) connects women economists worldwide and helps showcase their important empirical research, especially in developing countries. IMF Podcasts has partnered with the IEA-WE to produce a special series featuring the economists behind the invaluable local research that informs policymakers in places often overlooked.   Listen to the podcast on: IMF.org | Apple Podcasts | Spotify | Soundcloud | YouTube     Thanks for listening to the podcast. We're always looking to improve your experience so let us know if you have any suggestions! Send your comments to me at bedwards2@IMF.org.   Bruce Edwards Producer, IMF Podcasts