While acknowledging the differences among countries and the potential to achieve even greater macroeconomic stability, the transformative shift from a time when the region was beset by economic problems to its present state is both striking and encouraging.

The right policy components

This encompassing macroeconomic policy framework, which includes inflation targeting, central bank independence, exchange rate flexibility, fiscal rules aimed at ensuring fiscal sustainability while allowing deviations in extraordinary cases, and international financial integration, has expanded beyond the LA5 countries. Countries like Uruguay, the Dominican Republic, Paraguay, and Costa Rica have increasingly adopted this framework, with very positive results. We shouldn’t be surprised; this mirrors the approach to macroeconomics in successful small, open, advanced countries like New Zealand, Australia, Sweden, or Canada.

This approach to shaping macroeconomic policy is also potentially friendlier to the rest of the world than the alternatives, as it doesn’t inherently demand the accumulation of excessive international reserves and facilitates cross-country capital movements. However, there will always be unforeseen shocks that are usually more difficult for a developing region to absorb. That is why it’s necessary to remain vigilant and build or rebuild buffers, including through reserves or additional insurance mechanisms like the IMF’s precautionary credit lines.

Tackling remaining challenges

Of course, the recent macroeconomic management success does not mean an end to major challenges and difficulties.

Several economies are grappling with excessive public debt, and this challenge extends even to robust economies. This issue was present prior to the pandemic, with a worrisome upward trajectory, underscoring the need for continued efforts to ensure sustainability. The task becomes even more demanding amid less favorable external conditions.

More worrisome, other countries are confronted with significant risks arising from unsustainable macroeconomic policies. Addressing them is far from simple, especially when short-termism dominates.

Nevertheless, there are several countries that have had success in rebuilding macroeconomic frameworks, some of which received IMF support.

There are also deeper challenges demanding urgent attention in the entire region, including:

• Enhancing long-term growth potential and overcoming stagnating productivity;
• improving the persistently uneven distribution of income and power among citizens;
• contributing to climate change mitigation and adapting to its effects;
• curbing the proliferation of crime and reducing insecurity, a concern consistently at the top of citizen surveys; and
• adapting to automation, robotization, and digitalization.

Tackling these challenges starts with an orderly macroeconomic foundation. Given what several countries in the region have been able to achieve in recent years, we should have a renewed sense of hope and optimism for the future.