S America warned on importance of reforms

LATIN America must invest more in education, training and health if it is to sustain strong economic performance and dampen the inflationary impact of heavy inflows of foreign capital, the Inter-American Development Bank says today.

The IDB's annual report underlines that the region's success can no longer be sustained by cheap unskilled labour, one of the principal reasons for speculative foreign investment. It also emphasises that continued inflows of foreign capital, on a scale similar to the dollars 60bn flooding into the region in 1992, will have to be attracted into stable long-term investments rather than short-run speculative ventures.

The IDB urges countries in the region to improve their legal systems to protect commercial contracts, establish clear rules for public procurement, and eliminate bureaucratic and political intereference in business.

Likewise, governments will need to pursue structural reforms to expand new technologies in the private sector. 'It is therefore essential that governments invest more resources in education and the retraining of labour,' the IDB says.

The region is poised for a second generation of social reforms, the IDB argues, which would combine social equity with sustainable growth. In addition to raising the level of skills, reforms should aim to generate employment opportunities for the poor, stimulate investment in human resources and urban centres and adopt a more positive government approach to social reforms.

Financial systems should also be redesigned so that they provide support for small and medium-sized businesses, which are an important source of job creation.

The IDB says reforms like these would do much to ensure that Latin America as a whole sustains the 3 per cent average growth rate of 1992 in spite of weak growth or recession in the industrial world.