What’s Good (and Bad) about Latin America’s Business Climate

Featured Q&A:

Some Latin American countries attracted near-record foreign direct investment last year, as continued economic growth and relative political stability brought investors from around the world into the region. Looking ahead, what makes the region attractive to foreign and domestic investors, and what policy, legal, and regulatory changes would increase Latin America’s appeal? How does Latin America’s business climate compare to other parts of the world that are competing with it for investment?

Guest Comment: Francisco Acuña
“One of Latin America’s greatest challenges to exploiting opportunities for foreign and domestic investment over the long term is the lack of a reliable and efficient legal system that can be trusted by both citizens and foreign investors. Instead of merely focusing on technical fixes or economic reforms, some Latin countries need to invest more political and social capital on deeper reforms within their justice systems. In recent decades, several Latin American governments have made efforts to implement economic reforms. Review successful cases like Chile, Uruguay, and Costa Rica, and you see that they are the ones that also developed the type of judicial systems that brought security to both national and foreign investors. Countries that made economic reforms without improving their legal systems have lagged both in economic growth and in foreign investment. Why then, has it been so difficult to move forward with serious legal reforms? Meaningful judicial reforms usually require far more political and social effort than economic reforms. These legal reforms, however, are paramount to the region’s ability to make itself more competitive for investment. In addition to attracting more business, a reliable political and legal system also makes it easier for societies to support other reforms which can benefit the economy even further and thus, attract more foreign investment.”

Contributor: Francisco Acuña

As published in the Inter-American Dialogue’s Latin American Advisor newsletter. For more information about the Inter-American Dialogue, please visit their website at www.thedialogue.org.