Strengthening confidence is essential for the business sector to become more dynamic and for the necessary economic reforms to be carried out to enhance the recovery of Latin America and the Caribbean post-pandemic, a report from the Inter-American Development Bank (IDB) revealed on Thursday.
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. Placing trust at the center of government decision-making would significantly revive development in the region,” he said in a statement by the IDB president, Mauricio Claver-Carone.
“Mayor trust means less bureaucracy that harms businesses, investments and the 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 trust tend to enjoy higher levels of productivity, while those where confidence indices are low 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 employee recruitment, increased tax collection, increased financial inclusion of people and an increase in the 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 in a reliable manner.
Governments must reduce information access gaps by investing in both top-tier regulatory agencies 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 case of abuse by the government, companies or other citizens.
“This report offers a path to reforms that will favor the market, while developing greater social cohesion,” said Eric Parrado, chief economist at the IDB.
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