The Latin American Economic Outlook (LEO) analyses critical aspects related to sustainable and inclusive development in Latin America and the Caribbean (LAC). Since the LEO’s launch in November 2007, the annual report has compared LAC’s performance with that of other regions, analysed main development challenges and put forward policy recommendations, experiences and good practices.

The Latin American Economic Outlook (LEO) 2020 considers the digital transformation as an opportunity to overcome development traps faced by the region, which have been exacerbated during the Covid-19 pandemic. This transformation is affecting development trajectories across the globe. In Latin America and the Caribbean, it offers opportunities to speed up development.

The Latin American Economic Outlook 2020 focuses on the role of the digital transformation as a tool that can help foster development in the region, particularly in the context of the current Covid-19 crisis, and emphasises that international partnerships are essential to reaping the benefits of the transformation. This report also presents current macro-structural challenges and policies, in the context of the Covid-19 pandemic, and urges for further action to be taken, at both national and international levels.

The Latin American Economic Outlook 2020 analyses and provides policy messages to capitalise the digital transformation to foster inclusive and sustainable development in the region, in particular in the context of the current coronavirus (Covid-19) crisis. This overview summarises the main results and messages of the report. First, it examines the socio-economic impacts of the Covid-19 crisis in the region and how it exacerbates existing vulnerabilities. It also highlights the relevance of the digital transformation to overcome LAC’s development traps. It then analyses the digital transformation’s potential to: 1) improve productivity growth and diversification; 2) foster inclusiveness and well-being; and 3) strengthen public institutions and improve governance. Last, it explores how new international partnerships play an important role in reaping the benefits of the digital transformation.

The coronavirus (Covid-19) crisis has been an exceptional, unexpected and exogenous shock to Latin America and the Caribbean, where most of the countries were already suffering from anaemic or zero growth. The region confronts the crisis with structural challenges, including a vulnerable middle class, persistent inequalities, laggard productivity and constrained fiscal space. The persistence of structural bottlenecks caps the space for rapid recovery. In some countries, inequality reduction has stalled in the most unequal region in the world, and increases in poverty and indigence are expected in the context of the coronavirus (Covid-19) crisis. Against this scenario, innovative and effective actions have been implemented to contain the damage, but further efforts will be needed at the national and international level for a sustainable recovery. Digital transformation proved to be a useful tool during the pandemic, but only for some firms and citizens. If gaps in coverage, access and use are properly addressed, digital transformation will play an essential role in the economic recovery and holds the potential to help overcome the persistent challenges and spur more sustainable and inclusive development.

Productivity in Latin America and the Caribbean relative to the Organisation for Economic Co-operation and Development (OECD) area has been falling since the 1950s. The growing gap reflects a production structure based on natural resources and abundance of low-skilled labour, which results in low value added. Large productivity gaps within sectors and firms reveal a heterogeneous productive structure. Structural difficulties could be amplified by the coronavirus (Covid-19) crisis. The digital transformation could help countries face the pandemic by improving productivity and efficiency and diversifying the productive matrix. However, its net impact will depend on policy choices and the development of indispensable and complementary factors, including communication infrastructure, transport connectivity as well as digital skills and capabilities.

Access to and use of digital tools in Latin America and the Caribbean can have a strong impact on inclusiveness. Digital tools, such as the Internet, are less unequally distributed than income and some public services. Despite significant reductions in socio-economic, gender, age and geographical disparities, policies should focus on closing the remaining gaps. This chapter describes such advances and the trends in Internet access and use at home, work and school. It presents the potential impacts of the future of work, and assesses the digital skills of the current workforce. It also analyses schools’ role in the digitalisation era and in fostering digital inclusiveness. It concludes by describing how, in the context of the coronavirus (Covid-19) crisis, the digital divide constitutes a vulnerability in the region and may amplify other inequalities in the absence of appropriate policies. In this context, digital inclusion must be understood as necessary to ensure social welfare.

Rising levels of mistrust in public institutions and dissatisfaction with public services in Latin America and the Caribbean illustrate a weakening social contract, which can be further eroded by the impact of coronavirus (Covid-19). The digital transformation represents a unique opportunity to improve the function and service quality of public institutions. While emerging institutional risks must be taken into account, moving towards digital governments can help public institutions become more trustworthy, efficient, inclusive and innovative. The digital transformation affects a range of public policies, which need to be included in a comprehensive framework, such as national development strategies, to guarantee coherence and synergies and make the most of new technologies. Connecting digital strategies to national development plans is crucial to align digitalisation efforts with broader, long-term development objectives.

As digitalisation creates both opportunities and challenges that transcend borders, international co-operation is a key dimension to make the most out of the digital transformation at local, national and international levels. This chapter describes how a renewed model of international co-operation can help LAC countries harness the digital transformation to foster their sustainable development. It first looks at how digital co-operation has helped LAC countries build their domestic capacities to overcome the interlinked challenges of the development traps, thus promoting a multi-dimensional approach to development and aligning national and international priorities. This chapter then explores how building a regional digital market can help the region tap into its digital potential, by harmonising strategies, articulating all levels of digital development and involving multiple stakeholders in a regional policy dialogue on digital issues. To do so, LAC countries can take advantage of useful international experiences, including the European Union’s digital strategy. Finally, LAC countries can also take advantage of being fully involved in multilateral initiatives to address issues arising from digitalisation, notably addressing the tax challenges arising from the digitalisation of the economy.

This chapter explores the main challenges Caribbean countries face in promoting the digital transformation and summarises the impact of the coronavirus (Covid-19) crisis on these economies. In particular, it analyses regional and national digital strategies, focusing on key dimensions, including communication infrastructure, digital government and digital security, and highlighting disparities across and within countries. To make the most of the digital transformation, countries must implement national digital strategies effectively and increase sub-regional co-operation and co-ordination in information and communications policy, broadband infrastructure, e-government systems and policies aimed at using technology-based tools to manage and prevent natural disasters.