WASHINGTON, DC, United States (CMC) — A new departmental study released by the International Monetary Fund (IMF) on Monday has found that violent crime and insecurity remain major barriers to prosperity in Latin America and the Caribbean (LAC).

The paper, titled ‘Violent Crime and Insecurity in Latin America and the Caribbean: A Macroeconomic Perspective,’ which the IMF states does not necessarily represent the views of the Washington-based financial institution, but that of the eight authors, notes that with just eight per cent of the global population, LAC accounts for a third of the world’s homicides.

Recent regional surveys show that crime is a top concern for citizens: one in five people reported to be a victim of a crime, and 30 per cent of respondents identify crime and insecurity as the main challenge facing their country.

Insecurity harms citizens, but also the economy by undermining investment, productivity, and growth with high economic and social costs. Violent crime and insecurity are therefore macro-critical in LAC.

Building on the existing literature, the paper delves deeper into the links between crime, insecurity, and the macro-economy for LAC.

Acknowledging that drivers and manifestations of crime are complex and interlinked, the authors aim to support economic policymakers and development partners by shedding further light on the interplay between insecurity and macroeconomic outcomes, with an emphasis on the relationship between violent crime and growth, investment, and public finances.

The study found that while violent crime and insecurity are key issues at the national level, for most countries aggregate indicators mask huge internal disparities.

The variance of per capita homicide rates is 10 times higher between municipalities than across LAC countries. Granular geographic data showed that homicides tend to be clustered in areas near national borders, key transportation infrastructure, and coastal areas. Violent crime is also more prevalent in cities and regions where populations are younger and less educated.

According to the authors, violent crime hurts the economy and private sector development. Nightlight data showed that, at the municipal level, a 10 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 activities.

“Spikes in crime can contract activity quickly. A 10 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.”

Meanwhile, crime is a key obstacle to doing business in many areas with as many as 30 per cent of firms perceiving rampant crime as their key problem, and direct costs with the value of losses due to crime and firms’ spending on security estimated at around seven per cent percent of annual sales.

“Crime diminishes labour productivity, while high security costs lower the probability of firms investing in innovation. Small enterprises are the most vulnerable to the deleterious effects of crime.

“Organised crime is especially costly. The presence of gangs and drug trafficking amplify the costs of doing business. A novel analysis of Mexican firms suggests that the damage costs of crime are four times higher for firms that report gangs operating in their vicinity,” according to the study.

It found that violent crime rises with macroeconomic instability, inequality, and governance problems.

In LAC, a recession increases homicides by up to six per cent on average, an effect not observed in other regions. A spike in inflation above 10 per cent is associated with a 10 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 percent increase in homicides.

Victimisation surveys showed 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, suggesting that lack of trust and crime can be mutually reinforcing.

The study found, too, that 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 gross domestic product (GDP) — more than seven 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 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 LAC, with spending efficiency playing a critical role. For example, despite a high proportion of spending on the judiciary, the courts’ ability to punish crimes remains weak.”

The paper said that these findings highlight the importance of security for economic development, and thus for economic policymakers and development partners.

It said 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.

“Economic policies may also mitigate the cost of crime or maximise 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, UN agencies, development partners, academics, and civil society is essential to develop evidence-based data, analytics, and policy lessons.”

The paper also emphasised the need for effective and accountable criminal justice institutions to fight crime. It said combating corruption in the police and judiciary can boost trust in the administration of justice and in turn increase filing rates and reduce crime impunity.

“Police and judicial cooperation across levels of government is key especially where organised crime is pervasive, often corrupting government institutions.

“Strengthening international cooperation against illicit drugs, arms trafficking, and money laundering by enhancing intelligence sharing and coordinating joint operations would also help reduce the profitability of organized crime and the accessibility of firearms. Measures to strengthen the overall rule of law and reduce rent-seeking opportunities would also yield an economic dividend, fostering investment and growth.”

Finally, the study found that the fiscal burden of security spending underscores the need for ministries of finance to systematically monitor and enhance the efficiency of resources allocated to public order and safety, in partnership with line ministries in the security sector.

It said 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, suggesting 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.”

The study, meanwhile, drew important policy lessons and highlighted areas for additional research and collaboration.

“Going forward, there is tremendous scope to leverage the expertise and comparative advantages of policymakers across sectors, academics, civil society, and development partners to reduce crime and insecurity.

“Importantly, while local circumstances matter, more needs to be done to learn from cross-country experiences. Serious consideration should be given to the establishment of a regional knowledge platform supporting data collection, exchange, and analysis…as well as the dissemination of best practices on effective economic and security policy responses to crime and violence,” the authors wrote.