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S&P: Latin America must improve productivity to escape the world’s middle class

October 3, 2011

To become upwardly mobile and escape from the “the world’s ‘middle class,’” Latin America will have to increase productivity, according to a report released by the credit rating agency Standard and Poor’s.

“Latin America has the opportunity to develop its own combination of skill- and resource-intensive growth that can take advantage of its talent and natural resources as well as its geographical proximity to the U.S. and [European Union] markets,” said Joydeep Mukherji, a Standard and Poor’s credit analyst.

Years of reforms and restructuring have helped to insulate the region from outside shocks, the report notes, but have not added much to Latin American countries’ potential for long-term GDP growth.

This means that although Latin America has increased productivity in certain key areas, it is falling behind the rest of the “the world’s middle class,” specifically Asia, in widespread economic structural reform, the report said.

“On the whole, Latin America has not been as successful as many Asian countries in shifting workers from low to higher productivity sectors,” Mukherji said.

Latin America should continue to develop its internal engines of growth, the report said, to avoid negative impacts from potential faltering GDP growth in both the United States and European Union.

Governments in Latin America could work with the private sector to improve productivity and bolster the region’s capacity to sustain long-term GDP growth, which, along with rising tax revenues, would allow for greater fiscal flexibility in the region, the report said.

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