IDB: greater confidence is key to the post-pandemic recovery in Latin America and the Caribbean

Strengthening confidence is essential for the business sector to become more dynamic and to carry out the economic reforms necessary to enhance the post-COVID recovery in Latin America and the Caribbean, revealed a report by the Inter-American Development Bank (IDB).

According to the report “Trust: the key to social cohesion and growth in Latin America and the Caribbean” Mistrust is a problem that limits the socioeconomic development of the region and affects the ability of its countries to solve complex challenges, such as climate change.

Nine out of ten people in the region distrust others, according to the study that found levels of trust equivalent to a quarter of those of developed countries that make up the Organization for Economic Cooperation and Development (OECD).

“Promoting trust through greater transparency and stronger institutions should be a priority on the political agenda in Latin America and the Caribbean. Putting trust at the center of government decision-making would significantly revive development in the region”, IDB President Mauricio Claver-Carone said in a statement.

“Greater trust means less bureaucracy that harms business, investment and innovation. It means more transparent governments, committed to keeping their promises and being accountable”He added.

For Claver-Carone, trust also allows citizens to contribute their voice and opinions to actively participate in democracies, supporting the construction of more inclusive societies.

Countries with higher confidence tend to enjoy higher levels of productivity, while those with low confidence indices have a larger informal economy relative to their Gross Domestic Product (GDP), according to the report.

High levels of trust produce stronger democracies, increased entrepreneurship and innovation, higher business growth and hiring of employees, higher tax collection, increased financial inclusion of people, and increased demand for public goods such as quality education, according to the IDB study.

The report recommends that the governments of the region, when designing public policies, create incentives for public officials, economic agents and citizens to act reliably.

Governments must reduce access to information gaps by investing in both top-tier regulators and education by making more information available to citizens to empower them and deter unreliable behavior, according to IDB research.

Likewise, governments must increase accountability and strengthen independent institutions that ensure compliance with the rules so that citizens feel they can count on them in the event of abuse by the government, companies or other citizens.

“This report offers a path towards reforms that will favor the market, while at the same time developing greater social cohesion”, said Eric Parrado, chief economist at the IDB.