Beyond Resilience: Charting a New Growth Path for Latin America and the Caribbean

By Ilan Goldfajn and Eduardo Levy Yeyati
June 23, 2026

For decades, the economic narrative of Latin America and the Caribbean (LAC) has been written in the shadow of volatility. From the "Lost Decade" of the 1980s to the hyperinflationary episodes of the 1990s and the commodity price collapses of the early 21st century, the region has often found itself trapped in a cycle of boom and bust. However, the current landscape offers a different story: one of hard-won macroeconomic stabilization. Yet, as the region stands at a critical juncture, the fundamental question remains—how to move beyond mere resilience toward a sustainable, high-growth equilibrium that translates institutional gains into tangible improvements in living standards.

The State of the Region: From Crisis Management to Structural Stagnation

In recent years, the LAC region has demonstrated a level of institutional maturity that would have been unimaginable twenty years ago. Central banks across the region have asserted their independence, fiscal frameworks have been tightened, and the wild swings in exchange rates have been largely tempered. This "resilience" is not merely a technical achievement; it is a political one. It represents a social contract that prioritizes stability over the siren song of populist spending sprees.

However, this achievement is currently being overshadowed by a persistent economic malaise: the growth deficit. While the region has avoided the catastrophic collapses of its past, it has simultaneously failed to ignite the engines of long-term development. Growth rates remain stubbornly low, trailing behind emerging peers in Southeast Asia and parts of Eastern Europe. This stagnation threatens to undermine the very stability that policymakers have worked so hard to establish.

A Chronology of Economic Transition

To understand the current impasse, one must look at the progression of the region’s economic policy over the last three decades:

• The 1990s – The Era of Structural Adjustment: Following the debt crises of the 80s, the region adopted the "Washington Consensus" model, focusing on privatization, trade liberalization, and fiscal austerity. While inflation was largely conquered, the social costs were high, leading to the political shifts of the early 2000s.
• The 2000s – The Commodity Super-Cycle: Driven by soaring demand from China, the region experienced a period of unprecedented prosperity. However, the failure to diversify economies during this time left many nations vulnerable when prices eventually corrected.
• The 2010s – The "Great Correction": As commodity prices plummeted, the region faced a reckoning. Many countries fell into recession, and the fragility of their institutional frameworks was exposed.
• 2020–2025 – The Resilience Test: The dual shocks of the COVID-19 pandemic and the subsequent global inflationary surge tested the region’s fiscal and monetary resolve. Unlike previous cycles, most LAC nations managed to keep inflation expectations anchored, signaling a new, more robust era of central banking.
• 2026 and Beyond – The Reform Imperative: The current moment is defined by the realization that macroeconomic stability is a necessary, but insufficient, condition for development. The focus has shifted toward productivity-enhancing structural reforms.

Supporting Data: The Productivity Gap

The divergence between the region’s resilience and its growth performance is best illustrated by the data on Total Factor Productivity (TFP). Since the early 2000s, TFP growth in Latin America has been essentially flat, while the OECD average has seen a modest but consistent upward trajectory.

This data suggests that the region’s primary constraint is not a lack of resources, but a lack of investment—specifically, private investment. The "investment gap" is driven by a combination of high regulatory costs, uncertain legal environments, and a persistent infrastructure deficit. Without a significant shift in the private investment climate, the region risks a "middle-income trap" where rising wages (if they occur) are not matched by productivity gains, rendering exports uncompetitive.

The Reform Agenda: A Well-Sequenced Approach

The path forward requires a transition from passive stabilization to active structural transformation. This is not a call for a return to state-led development, but rather a blueprint for "market-enabling" reforms.

H3: Sequencing for Success

Reform fatigue is a real political risk in the region. Therefore, the sequence of implementation is paramount:

1. Lowering the Cost of Doing Business: Before tackling grand structural overhauls, governments must reduce the bureaucratic friction that stifles SMEs. Simplifying tax codes and digitizing public administration are "low-hanging fruit" that can provide immediate stimulus to the private sector.
2. Infrastructure Connectivity: The physical and digital divide remains a major barrier. Public-private partnerships (PPPs) that are protected by robust, transparent legal frameworks are essential to bridge the infrastructure gap.
3. Human Capital Development: The region faces a skills mismatch. Education systems must be reoriented toward the needs of the 21st-century labor market—specifically in STEM and technical vocational training—to ensure that the workforce is ready for the digital and green transitions.

Official Responses and Institutional Perspectives

International financial institutions, including the IMF and the World Bank, have recently pivoted their messaging. Where the focus once lay heavily on fiscal consolidation, there is now an increasing emphasis on "growth-friendly" fiscal policy.

"We have seen the region build an impressive firewall against external shocks," notes a senior economist at the Inter-American Development Bank. "But resilience is a defensive strategy. It keeps you from falling, but it doesn’t push you forward. The next phase must be about incentivizing capital allocation toward sectors that offer high-productivity growth."

Regional finance ministers have echoed these sentiments, noting that the political appetite for reform is constrained by a fragmented electoral landscape. In countries like Brazil, Mexico, and Chile, the challenge is to build broad-based coalitions that see economic reform not as a partisan project, but as a national necessity for social mobility.

Implications: The High Stakes of the Next Decade

The implications of failing to ignite growth are profound. If the region continues to grow at its current sluggish pace, it will face mounting pressure from a demographic shift that will soon see the "demographic dividend" begin to fade. As the population ages, the window of opportunity to build the institutions and infrastructure necessary to support a more prosperous society will close.

Furthermore, the lack of growth has clear political consequences. The rise of anti-establishment movements across the continent is a direct response to the perception that the "old ways" of managing the economy have failed to deliver for the average citizen. If the current stabilization efforts do not lead to tangible increases in disposable income and job creation, the region risks a return to the populist volatility that characterized the past.

The Path to Prosperity

The solution lies in a virtuous cycle: improved macroeconomic stability reduces the risk premium for investors; lower risk premiums lead to increased investment in technology and infrastructure; and these investments, in turn, drive productivity and wage growth. This is the only path that can move Latin America and the Caribbean from the category of "resilient emerging market" to "dynamic, high-growth economy."

The foundations have been laid. The institutional architecture of the region is stronger than it has been in half a century. Now, the task is to build the house—a house of sustained growth, innovation, and broad-based opportunity. The transition from resilience to growth is not merely an economic imperative; it is the ultimate test of the region’s democratic maturity.

Ilan Goldfajn is the Director of the Western Hemisphere Department at the International Monetary Fund. Eduardo Levy Yeyati is the Dean of the School of Government at Universidad Torcuato Di Tella and a leading voice on Latin American economic policy.