Building a Better Digital Economy
Geoffrey Okamoto, First Deputy Managing Director, IMF
Remarks to IDB Miami-LAC Conference
The Light Box at Wynwood — Miami, Florida
June 24, 2021
I want to thank the IDB for inviting me to be here with all of you this
week. As a technologist, who then went into finance, and now is in public
service, I think the need for discussing these issues has never been
greater, and there’s no better context to have it in than with respect to
Latin America and to be here in Miami.
This is one of the first conferences I’ve been to since the onset of the
COVID-19 pandemic and it’s impossible to have lived through the past year
and not come out with a different perspective. One thing for certain is
that our reliance on technology lessened the impact on the pandemic. You
could order meals, sign mortgage loan agreements, and hold a virtual
quinceanera thanks not only to technological innovation, but the
accompanying societal adoption. This trend, by all indications, is going to
continue at light-speed. We all need to be ready.
All countries should do everything they can to use this technological super
cycle for a much-needed growth tailwind that raises living standards and
addresses longstanding challenges. It is important for me to be here, in
Miami, and to speak with leaders like you is because building a better
digital economy is particularly important for Latin America and the
Caribbean. Our research at the IMF indicates that this region has lagged
others in ensuring that all people can share in the prosperity that a
digital transition brings.
This digital divide exists because many do not have access to digital
technology, or if they do, they lack the skills to use it productively.
This digital divide is already giving way to an economic divide, and if
further left unaddressed, a social divide isn’t out of the question. That’s
something this region cannot afford. The people of Latin America and the
Caribbean deserve every opportunity to pursue prosperity — prosperity that
is now inextricably linked to continued technological innovation and
There are proper roles for the government and for the private sector. Both
will need to collaborate to maximize the growth opportunities that present
themselves. If done well, governments will be able to deliver prosperity to
citizens after a year in which IMF data shows standards of living in most
countries declined, and the private sector will be able to offer
transformational products, in new markets, to more customers, with higher
incomes. It truly can be win-win.
We know how this can work, because it works in other places. I come from
California, a then-frontier that people flocked to in the 1800s in search
of gold, leaving behind their more comfortable and established lives on the
East Coast. I’m convinced that spirit, somehow and someway, persisted in
the California ether and gave rise to the Silicon Valley that has powered
California’s economy. But all people, by our nature, want to push the
boundaries of what’s possible to improve our lives and secure a better
future for the next generation. That same spirit has ignited tech hubs all
over the world, where disrupters and the investors that believe in them are
injecting dynamism and growth into their economies.
To make this work in Latin America, we need to focus on some key issues.
First, there needs to be sufficient investment in basic digital
infrastructure. Governments and private firms both need to play a role, but
governments should focus on investments that may be inaccessible or
unprofitable for private providers. Some of this is physical infrastructure
— after all, it’s impossible to participate in the digital economy if
you’re not connected — but a lot of it is also digital identity
infrastructure and critical data on SMEs that private firms can use to
construct a better ecosystem for startups. It is reassuring that we have a
strong partner in IDB that understands this and can help build out digital
infrastructure of various types throughout the region. In some areas of
work, where it’s possible to coordinate this across countries as well, the
region will see even greater benefits.
Second, governments need to reconsider their regulatory frameworks and make
sure ey are conducive to private sector investment and innovation.
Regulation that is too tight favors companies that are large enough to
afford expensive and complex compliance. Right-sizing regulation with an
eye toward facilitating the entry of smaller firms may be opposed by
established players, but a more dynamic economy is in everyone’s interest,
attracting investment and creating better-paying jobs. We can start today.
In the case of FinTech, for example, mechanisms like guidance units set up
within regulators and so-called “sandboxes” can be used as a stop-gap
measure to encourage innovation while more thorough reviews are undertaken.
Third, new firms need access to the right people. Developing human capital
is key. Governments need to invest properly in education, particularly in
STEM fields, while the private sector needs to assist by investing in
training employees for that “last-mile” on technical skills specific to
their business. The two go hand in hand, and this is an example where
coordination makes all the difference.
Fourth, the financial sector needs to be capitalized and regulated with an
eye toward maintaining stability while also channeling capital to new
market entrants. The safest entity to lend to may be a government, a
state-owned enterprise, or a conglomerate with outsized market power, but a
financial sector that is overly incentivized to allocate capital to these
entities is effectively starving more dynamic parts of the private sector
of the resources they need to grow. In the long-term the goal is to have a
mix of banks, capital markets, and even FinTechs themselves allocating
capital to new firms, each able to finance at different scales, on
different terms, and assume different risks. Governments that maintain
capital account openness can avail themselves of foreign investment, much
of which is engaged in a global search of good investment opportunities at
a time when yields are low in many Advanced Economies.
Fifth, investors and firms need access to a sound and stable legal
framework with a judicial system that understands property rights,
including the importance of intellectual property rights. Startup investing
is almost by definition one of the highest-risk investments you can make,
and it’s difficult to attract it at sufficient scale if the private sector
isn’t clear on what their rights are or if they will be able to enforce
their rights when needed.
Many countries in Latin America and the Caribbean need to make substantial
improvements in one or more of these areas to fully unlock a digital
economy that powers growth and is inclusive of people that, to date, are
falling further behind.
It’s also worth noting that there are emerging challenges that need to be
addressed. Safe, trusted, and reliable digital ecosystems lie at the heart
of adoption and usage of new digital products and services. Cyber threats
increase exponentially as consumers connect through their mobile devices to
a host of communication networks such as public Wi-Fi. It becomes important
then to ensure that the entire digital ecosystem is designed with cyber
security in mind. The development of global standards in this domain must
keep pace with the changes, especially as we move into a quantum processing
world with super computers. Of course, with such computing power and
advanced analytics, we need to equally be aware of biases that may be built
into algorithms that may impact the digital divide.
At the International Monetary Fund, we want to do all we can to support
countries during this transition. It starts with deploying our expansive
analytical expertise to help countries understand the amount of growth that
they could be leaving on the table without acting now, as many of the
elements that I highlighted can understandably be politically difficult to
execute. In the FinTech space, the IMF along with the World Bank proposed
the Bali FinTech Agenda, which reinforces competition and commitment to
open, free, and contestable markets. We are preparing to deepen our work on
digital money and the implications this has for the international monetary
system that we have been responsible for since our creation. Crypto
currencies, stable coins, and central bank digital currencies have sweeping
implications for monetary policy, capital flows, and the role of the
Building a better digital economy is therefore a collective effort amongst
a wide set of stakeholders and it’s great to have the IDB convening all of
us here to put some energy into the conversation. We need to take action
now and Latin America can show others how to successfully accelerate
development of the digital economy. We need greater enhanced focus to
ensure that the digital revolution benefits the many and not just the few.
Thank you very much for your time this afternoon. I’m very optimistic on
the prospects for the region and you can count on me, my colleagues at the
IMF, and of course the IDB, to do all we can to help this region realize
the full growth potential that digital innovation brings.
IMF Communications Department
Phone: +1 202 623-7100Email: MEDIA@IMF.org