Influences of Violent Crime on Prosperity in Latin America and the Caribbean: New IMF Study

New International Monetary Fund (IMF) research has concluded that violent crime and insecurity remain major barriers to prosperity in Latin America and the Caribbean.

Key findings of the study Violent Crime And Insecurity In Latin America And The Caribbean: A Macroeconomic Perspective, include that violent crime hurts the economy and private sector development and that violent crime rises with macroeconomic instability, inequality, and governance problems.

The research was undertaken by a team led by Raphael Espinoza, a deputy division chief in IMF’s Western Hemisphere Department.

The other experts involved are Paul M. Bisca, senior projects officer; Vu Chau, economist; Paolo Dudine, senior economist; Jean-Marc Fournier, senior economist; Pierre Guérin, economist; Niels-Jakob Hansen, economist; and Jorge Salas, senior economist.

The study affirms insecurity harms citizens, as well as the economy by undermining investment, productivity, and growth, with high economic and social costs. This meant that violent crime and insecurity are therefore macro-critical in Latin America and the Caribbean.

Examining the links between crime, insecurity, and the region’s macroeconomy, the research paper found that “at the municipal level, a ten per cent increase in homicides lowers economic activity, by around four per cent”.

“This implies that halving homicide rates could boost activity at the local level by an average of 30 per cent, although aggregate effects at the national level are likely to be smaller since crime leads to relocation of economic activity,” the report stated.

“Spikes in crime can contract activity quickly. A ten percentage point increase in the share of crime-related news is associated with a 2.5 per cent contraction in industrial production three quarters following the news spike.”

Researchers also said that Latin America and the Caribbean recession increases homicides by up to six per cent on average, an effect not observed in other regions.

They elaborated, stating: “A spike in inflation above ten per cent is associated with a ten per cent increase in homicides, on average, in the following year. A one standard deviation increase in the Gini coefficient is associated with a 12 per cent increase in homicides.

“Victimisation surveys show that where populations are concerned with the rule of law – impunity and police corruption – only one in five victims file their case with the police. Lack of trust and crime can be mutually reinforcing.”

The study looked at the burden increased security spending placed on governments’ budgets.

“While spending on security in the region is significant, it is generally inelastic to crime: Spending on public order and safety averages around 1.9 per cent of GDP (over 7 per cent of overall spending), although it tends not to react to changes in crime, suggesting that increases in security spending may be difficult to reverse,” the IMF team said.

“The fiscal burden may be higher where the military is also charged with domestic security provision. While spending more on security and deploying more police seems to contribute to lowering crime, other factors are likely more important in Latin American and the Caribbean, with spending efficiency playing a critical role.”

They said, for example, that “despite a high proportion of spending on the judiciary, the courts’ ability to punish crimes remains weak”.

“These findings highlight the importance of security for economic development, and thus for economic policymakers and development partners. Measures that promote macroeconomic stability, inclusive growth, access to job opportunities for young workers, and improvements in the rule of law can address drivers of violent and organised crime,” the report stated.

“Economic policies may also mitigate the cost of crime or maximize returns from lower criminality especially through improvements in monitoring and policy coordination across levels of government.

“Meanwhile, given the complexities and potential spillovers of violent crime, stronger cooperation between governments, international financial institutions, United Nations agencies, development partners, academics, and civil society is essential to develop evidence-based data, analytics, and policy lessons,” it added.

The experts said too that “cross-country analysis based on historical patterns suggests that reducing homicides by solely scaling up spending on public order and safety will likely prove expensive”.

For them, this suggested “the need for a more integrated and comprehensive approach that enhances the effectiveness of public order and safety spending and prioritises social investments needed to address long-standing drivers of violent crime”.

“Drawing on past experiences in the region, public expenditure reviews that assess whether government spending patterns are consistent with policy priorities and public financial management standards can help facilitate dialogue on the sustainability and impact of responses to violent and organised crime,” they submitted.

The researchers recommended the establishment of “a regional knowledge platform supporting data collection, exchange, and analysis (including in public financial management) as well as the dissemination of best practices on effective economic and security policy responses to crime and violence”.