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Mr. Jose L. Torres and Sidonia McKenzie
Uruguay enjoys favorable social outcomes, and its labor indicators are comparable to other Latin American countries, but its youth unemployment is one of the highest in the world. To help understand this duality, we employ synthetic panels from repeated household surveys for LA6 countries from 1990-2018 to investigate the determinants of the youth-to-adult unemployment gap. We find that a large part of the Uruguayan gap cannot be explained by standard variables, which opens the possibility that other uncontrolled factors, including labor market institutions, might be at play.
Mr. Antonio David, Frederic Lambert, and Mr. Frederik G Toscani
We analyze the performance of labor markets in Latin America since the late 1990s. Strong GDP growth during the commodity boom period led to important gains in employment and a fall in the unemployment rate as labor demand outpaced an increasing labor supply. We emphasize the role of informality in the dynamics of labor markets in Latin America. A re-examination of Okun’s law shows that informality dampens changes in unemployment accompanying output fluctuations. Moreover, we present some evidence that countries with higher redundancy costs and cumbersome dismissal regulations, exhibit “excess” informality over and above what would be expected based on their income and educational levels. Labor market reforms could thus contribute to reducing informality and increasing the responsiveness of labor markets to output growth. However, looking at selected case studies of reforms using the synthetic control method, we find mixed results in terms of labor market outcomes.
Mr. Marcos d Chamon, Mr. David J Hofman, Mr. Nicolas E Magud, and Alejandro M. Werner


Foreign exchange intervention is widely used as a policy tool, particularly in emerging markets, but many facets of this tool remain limited, especially in the context of flexible exchange rate regimes. The Latin American experience can be informative because some of its largest countries adopted floating exchange rate regimes and inflation targeting while continuing to intervene in foreign exchange markets. This edited volume reviews detailed accounts from several Latin American countries’ central banks, and it provides insight into how and with what aim many interventions were decided and implemented. This book documents the effectiveness of intervention and pays special attention to the role of foreign exchange intervention policy within inflation-targeting monetary frameworks. The main lesson from Latin America’s foreign exchange interventions, in the context of inflation targeting, is that the region has had a considerable degree of success. Transparency and a clear communication policy have been key. For economies that are not highly dollarized, rules-based intervention helped contain financial instability and build international reserves while preserving inflation targets. The Latin American experience can help other countries in the design and implementation of their policies.

International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper analyzes Nicaragua’s social security system, which is projected to run out of liquid reserves by 2019, several years earlier than anticipated. To avoid burdening the budget, reforms to the system are urgently needed. A deep actuarial, economic, and operational analysis is needed to design a comprehensive reform program. Such a program must ensure that the defined-benefit, pay-as-you-go system can sustain itself for another generation of workers and that improved health care benefits can be maintained. A politically acceptable, pragmatic solution appears within reach. However, the authorities should act quickly to avoid a costly bailout of the system.
International Monetary Fund. Western Hemisphere Dept.
Uruguay has achieved more than a decade of high and inclusive economic growth, supported by social stability and reduced regional linkages. The country has weathered the recent global and regional headwinds relatively well so far. Yet the economy is slowing down, while inflation remains above target, and deposit dollarization has risen. While the baseline projection foresees a temporary and moderate slowdown, the country is exposed to further shocks, especially from the immediate region.
International Monetary Fund. Western Hemisphere Dept.
This Information Annex highlights that in August 2011, the Inter-American Development Bank’s Board of Executive Directors approved the new Country Strategy with Uruguay (2010–15). Sovereign-guaranteed lending under the new program is expected to reach approximately US$1.8 billion, which is considered consistent with Uruguay’s five-year budget. The program includes additional nonreimbursable financing for technical assistance and analytical work. Lending under the previous Country Strategy (2005–09) reached approximately US$1.3 billion. It is expected that all four of the Inter-American Development Bank’s private sector windows will approve loans and technical assistance in the energy, transport, agribusiness, and global services sectors.