Breaking Latin America's Cycle of Low Growth and Violence
On February 6, 2025, the Georgetown Americas Institute welcomed Rodrigo Valdés of the International Monetary Fund (IMF) and Joyce Wong of the Inter-American Development Bank (IDB) to explore the cycle of low economic growth and rising violence in Latin America. The conversation, moderated by GAI Founding Director Alejandro Werner, focused on new research by the IDB and the IMF examining the link between crime, insecurity, and economic stagnation in the region.
The session explored how violent crime imposes a considerable economic burden on the region, representing over 3% of GDP each year, and how this harmful cycle of crime and economic downturn can be disrupted through comprehensive policy interventions.
Valdés emphasized the negative economic effects of crime, particularly its influence on business expenses, labor markets, and local economic activities. He pointed out that rising violence induces macroeconomic instability, which, in turn, contributes to more criminal activity. He also discussed how factors such as youth unemployment and educational disparities worsen crime levels. Additionally, Wong stressed the importance of including crime as an economic variable, referring to the fact that Latin America accounts for one-third of global homicides despite representing less than 10% of the world's population.
Trends in Economic Instability and Crime Dynamics
Valdés discussed how crime impacts different economic sectors, emphasizing that businesses in high-crime areas incur increased costs from security measures. He noted that larger firms generally spend less on security despite suffering considerable losses due to crime. Valdés also highlighted the role of drug trafficking and smuggling along country borders as major drivers of violence and economic instability.
Wong further explained the cyclical relationship between economic downturns and rising crime, focusing on how recessions in Latin America are often followed by increases in homicide, a pattern that distinguishes the region from others. She also pointed out that inflation spikes in Latin America correlate with higher homicide rates, showing how economic instability impacts crime at a deeper level.
"As real wages go down, as opportunities go down, there's something deep and almost insidious happening to crime." - Joyce Wong
The Economic Costs of Crime
Valdés highlighted the findings of a recent IMF and IDB report, which reveals that crime and violence cost the region 3.4% of its GDP annually. This figure includes the direct costs of lost productivity due to lives lost, injuries, and imprisonment, as well as the private and public sector spending on security and law enforcement. These costs, Valdés noted, represent nearly 80% of the region's public education budgets and double the region's spending on social assistance. Beyond these direct costs, crime also discourages investment, reduces tourism, and accelerates emigration, further harming economic resilience.
Wong discussed the broader socioeconomic scars caused by crime, identifying that economic recessions combined with high crime rates create intergenerational impacts. She described how young individuals may join gangs due to financial pressures within their families, a decision that can have long-term consequences for the future of the household. This scarring effect is a permanent burden on the economy.
Wong also reinforced Valdés' point about the connection between stable macroeconomic policies and reduced crime rates. She further stressed the need for policymakers to consider crime within the broader scope of economic policy.
"Macroeconomic policy—we don't usually frame it as crime prevention. But keeping the macro in check is, in a sense, crime prevention." - Joyce Wong
