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Countries of Latin America and the Caribbean Have "Three Speed" Economies

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1 July 2004|Press Release

Different business realities require different policies to encourage the development of these countries' productive structures.

The productive structure in the countries of Latin America and the Caribbean is today more heterogeneous than it was in the past and than other developing economies, such as those of eastern Asia. The region has a model based on "three speeds", each of which requires different types of public policy to develop, according to the study, Productive Development in Open Economies, presented by the Economic Commission for Latin America and the Caribbean (ECLAC) at its Thirtieth Session, current taking place in San Juan, Puerto Rico.

According to the report, these "three speeds" depend on the legal system and the size of the companies involved. A first group or "speed" consists of informal micro-businesses that, given their structure and capacity, are less productive and operate in an environment poor in opportunities for development and learning.

The second group involves small and medium-sized companies in the formal sector (PYMEs), which also find it hard to access resources, especially financing, and specific tools that would allow them to develop their ability to compete. The last group involves large domestic and foreign firms, which often have near international productivity levels, but produce few clusters or links with the rest of the country's economy and, in some cases, are not very good at generating innovation.

Given that countries do not really offer the equality of opportunities that would allow these different production units' initiatives to prosper to the same degree, ECLAC proposes to governments that they implement active public policies to level the playing field, through specific actions to remove obstacles affecting these companies differently.

In the case of small informal firms, inclusion strategies are necessary, which aim to move as many small productive units as possible from the informal to the formal sector of the economy. These inclusion policies should simplify administrative rules and tasks, reduce the tax burden and simplify declarations, offer broader access to credit for small investments and, above all, for labour capital, and provide training in basic management and technological skills.

A modernization strategy is necessary for the second group, the PYMEs. Support for productive modernization should consist of horizontal policies to improve access to information, credit, technology, and marketing and sales systems. These policies should be complemented with actions to promote a horizontal articulation (through associations) among PYMEs, to strengthen their links to larger companies and reinforce productive structures at the local level or along specific production chains.

Finally, the ECLAC study indicates that in the case of large companies densification should be applied, which aims to introduce more knowledge into the domestic production web, along with establishing a more closely articulated network of productive, technological, business and labour relationships. This strategy can be implemented through several programmes, among others, those that focus on strengthening clusters within the export base; those that encourage public-private cooperation to develop potential comparative advantages, attract high quality foreign investment, support the growth and internationalization of domestic firms and reinforce service infrastructure to remove bottle necks in productive development.