The Opportunities and Challenges of Artificial Intelligence (AI) for Latin America and the Caribbean

Can Latin America and the Caribbean Unlock AI’s Potential While Mitigating Its Perils?

To fully capitalize on AI’s transformative power for Latin America and the Caribbean, policymakers, businesses, and societies must proactively address challenges related to ethics, workforce adaptation, cybersecurity, and global collaboration

By Eric Parrado

Artificial Intelligence (AI) has emerged as a disruptive force that promises to reshape economies across the globe.  With its ability to process vast amounts of data, learn from patterns, and make intelligent decisions, AI holds immense potential to revolutionize various sectors, increase productivity, and drive economic growth.  However, as we navigate this transformative era, it is crucial to carefully consider both the opportunities and challenges of AI for Latin America and the Caribbean.

AI technology offers several key features that can significantly impact our economies:

Enhanced Productivity and Efficiency.  AI’s ability to automate repetitive tasks and augment human capabilities can unlock substantial productivity gains.  By streamlining processes, optimizing resource allocation, and improving decision-making, AI has the potential to boost overall economic output.  Recent studies validates this empirically, showing that AI adoption is boosting firms’ productivity.

Job Creation and Skill Enhancement.  AI, when properly managed and regulated, has the potential to stimulate the growth of certain job types that complement technology.  While automation may render some roles obsolete, new opportunities will emerge in the fields of AI research, development, implementation, and maintenance.  In fact, recent evidence suggest that AI adoption correlates with growing vacancies in AI-related jobs.  Moreover, AI could allow workers to concentrate on tasks that require human interaction and emotional intelligence, where humans have a clear comparative advantage.

Improved Decision-Making.  AI-powered algorithms can process vast amounts of data and generate valuable insights for better decision-making.  From financial markets to supply chain management, AI’s ability to analyze complex patterns and predict outcomes can help businesses and governments optimize strategies, reduce risks, and allocate resources more effectively.

Innovation and Economic Growth.  AI constitutes not only an innovation by itself, but also has the potential of being “a new method of invention”.  It can spur innovation by enabling breakthroughs in various industries.  From healthcare and transportation to agriculture and energy, AI-driven advancements can lead to the development of new products, services, and business models, driving economic growth and competitiveness.

While the potential benefits are significant, there are crucial considerations to address to harness AI’s transformative power responsibly:

Ethical and Legal Concerns.  The use of AI raises ethical questions around privacy, bias, accountability, and transparency.  Clear guidelines and regulations must be established to ensure that AI systems are fair, transparent, and accountable, protecting individuals’ rights and fostering trust.

Cognitive Automation and the Decline of Labor.  As AI improves its ability to perform a wide range of cognitive tasks, many types of cognitive labor may be automated in the coming decades, particularly as the cost of implementing and maintaining algorithms continues to decrease.  This trend could have severe consequences on employment.  In fact, evidence already shows that recent technology innovations, for example robots, have reduced employment and wages.  If AI follows a similar trend, this could have profound consequences, especially in developing countries where labor is the primary factor of production.

Inequality.  Technological innovations do not automatically translate into shared prosperity.  Instead, they can sometimes lead to increased inequality, particularly if they show high automation potential.  This is partly because automation can increase returns to capital while reducing wages.  Therefore, it’s crucial for civil society to advocate for equitable regulations, including the taxation of AI firms, to ensure that technological innovations benefit everyone.

Governments and businesses should also prioritize training programs, so workers are equipped with the necessary skills for the AI-driven economy.  Efforts should be made to ensure a just, inclusive transition, minimizing the impact on vulnerable populations.

Bias and Inequities.  AI systems are only as unbiased as the data they are trained on.  If biased data is used to train AI algorithms, those can amplify and perpetuate existing social, economic, and racial biases.  This can result in unfair outcomes, such as discriminatory hiring practices or biased lending decisions, affecting marginalized groups and exacerbating inequality.  Ensuring fairness, transparency, and accountability in AI systems is crucial to mitigating these risks.

Concentration of Economic Power.  AI-driven advancements may concentrate economic power in the hands of a few dominant players.  Large technology companies that possess the resources to develop and deploy AI systems could gain a competitive advantage, potentially exacerbating existing inequalities.  Smaller businesses or industries without access to AI capabilities may struggle to keep up, leading to a consolidation of economic power in favor of those who can harness AI effectively.

Influence on Democratic Processes.  AI can potentially impact democratic processes, including elections and public discourse.  The use of AI-powered algorithms in targeted advertising or social media platforms can shape public opinion, potentially leading to echo chambers and the spread of misinformation.  This raises concerns about the integrity of democratic decision-making, the influence of AI-driven algorithms on political discourse, and the need for transparency and accountability in AI applications that affect public opinion.

Cybersecurity and Data Privacy.  As AI systems rely on vast amounts of data, safeguarding privacy and preventing unauthorized access become paramount. Protecting data infrastructure, implementing robust cybersecurity measures, and establishing comprehensive data protection frameworks are crucial to maintain public trust and mitigate risks.

Other recommendations, which should be tailored to specific national contexts, will also be crucial to maximizing AI’s advantages for Latin America and the Caribbean.

Foster Digital Infrastructure.  Invest in robust digital infrastructure, including high-speed internet access, to support the adoption and utilization of AI technologies.  This will enable businesses, organizations, and individuals to leverage the benefits of AI and participate in the digital economy effectively.

Promote AI Research and Development.  Allocate resources to support AI research and development in collaboration with academic institutions, private sector entities, and research centers.  Encouraging innovation and knowledge creation will contribute to the development of AI expertise within the countries of Latin America and the Caribbean and foster homegrown AI solutions.

Enhance Education and Skills Development.  Prioritize educational programs that equip individuals with the necessary skills for the AI-driven economy.  Foster partnerships between educational institutions and industry to develop AI-related curricula and provide training opportunities, ensuring a workforce capable of leveraging AI technologies effectively.

Support Entrepreneurship and Startups.  Create a conducive environment for AI startups and entrepreneurs by offering financial incentives, access to funding, and mentorship programs.  Foster innovation ecosystems and facilitate collaboration between startups, established businesses, and research institutions to drive AI-driven entrepreneurship.

Encourage Collaboration and Knowledge Sharing.  Promote collaboration among governments, academia, private sector entities, and civil society organizations at regional and international levels.  Facilitate knowledge sharing, exchange of experiences, and collaborative initiatives to address common challenges and leverage shared expertise in AI.  Establishing common ethical standards, sharing best practices, and promoting international cooperation can help address challenges such as data governance, intellectual property rights, and algorithmic transparency.

Invest in AI for Social Impact.  Encourage the application of AI in addressing social challenges, such as those in education, healthcare, food security, and poverty alleviation, among others.  Support AI-driven solutions that have a positive impact on marginalized communities, enhance public services, and promote inclusive development.

Artificial Intelligence has the potential to revolutionize economies, enhancing productivity, driving innovation, and creating new opportunities.  To fully capitalize on AI’s transformative power for Latin America and the Caribbean, policymakers, businesses, and societies must proactively address challenges related to ethics, workforce adaptation, cybersecurity, and global collaboration.  By doing so, they can shape a future where AI serves as a catalyst for inclusive economic growth, while upholding human values and safeguarding societal well-being.

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Polarization in Latin America and the Caribbean

"Reducing polarization, building consensus, building governance, makes it possible to design and implement public policies that make it possible to break out of the vicious circle into which several countries in the region have fallen recently and which end in protests and conflicts."

"The consequences of polarization are eventually the greatest risk facing the region because they impact governance, predictability, social peace, integral development and democratic institutions."

Vulnerabilities, Lack of Resilience and Polarization: Latin America and the Caribbean at the Crossroads 

By Adrián Contursi and Luis Porto

Latin America and the Caribbean face recurrent external shocks and the uncertainties and challenges of today's world: geopolitical struggles, the techno-productive labor transition (4th industrial revolution and the work of the future), the challenges of climate change, increased migratory flows, security problems and organized crime, and inequality, among others. 

To face this scenario, resilience is needed, but the multiple vulnerabilities, sometimes fragilities of States, leave countries trapped in vicious circles that do not make it possible to develop capacities.  If international prices help, exports can cushion some shocks, but this is not enough to reduce vulnerabilities and develop capacities. 

This is due to the well known reflection that economic growth does not mean development.  Increasing poverty, informality and inequality are a constant threat to the countries of the region. 

Investments are needed to facilitate structural change and export diversification (infrastructure, technological preparation, institutional strengthening), investments in sustainable development and investments to reduce vulnerabilities (education, housing, health, social safety nets).  In short, investments are needed in public goods and services that increase social returns and increase the attraction of private investment. 

This requires governance and consensus.  However, in some of the countries of the region, polarization is high and/or increasing.  To observe the current polarization in the Americas, one can turn to the Digital Society Project, which focuses on studying the interactions between politics and social networks.

The Digital Society Survey asks 35 questions to experts.  One of them allows us to observe social polarization: - How would you characterize the different opinions on major political issues in society? 

The categorization of the response considers the value 0 (zero) as high polarization and the value 4 (four) as a society with no polarization at all.  The question helps to measure social polarization, as it is a perception of the position of the parties.

Figure 1 shows that only Canada (2.75) is the country in the region that is close to a limited polarization (reference value = 3), where differences of opinion are only on some political issues, resulting in few clashes of views. 

Meanwhile, values 1 (one) and 2 (two) refer to a moderate polarization, differing in opinions on most political issues, and a medium polarization, where differences are found around half of the existing issues. 

Finally, the countries with values equal to 0 (zero) or close to it, are highly polarized, due to the fact that in almost all political issues there are differences of opinion, with constant clashes in the points of view.  It is also observed that the countries that are close to these values have been showing it for several years and, therefore, social polarization has been recurrently established. 

The first observation, as old as Hermetic philosophy (principle of polarity), is that polarization is a matter of degree.  Being a matter of degree, it can be stated that the absence of polarization can be due to either unanimity (a single pole) or perfect pluralism (multiple poles coexisting), with perfect polarization (in theory) being that where there are two homogeneous poles of similar size and diametrically opposed positions. 

Being a matter of degree, it is necessary to define a reference for the purpose of being able to determine when it is high or low and in reference to what.  In this sense, it can be defined with respect to, for example, a consequence of polarization. 

For example: What degree of polarization can lead to conflict, or uncertainty about the rules of the game and reduced investment?  The second observation that emerges from the graph is that there were some changes in social polarization in the year 2021 taking 2020 as the pivot axis, which coincides with the development of the pandemic and the renewal of authorities in the countries that express changes in their reference values. 

We do not have enough information to know whether these changes are linked to perceptions of cooperation between political parties to address the pandemic or to other causes, but it begs the question of the importance of small changes.  Can small changes in polarization lead to large changes in its consequences? 

To continue with the examples above, what is the change in polarization that is needed to reduce the risk of conflict or increase investment?  Note that this is not an indicator of polarization of populations but the perception that the surveyed experts have of the polarization of political parties. 

The polarization of populations, however, need not be as high as the polarization of (political) elites.  In general, the population tends to be less polarized than the elites, but can be strongly influenced by them. 

And when the social and economic situation is perceived with dissatisfaction by the population, indignation, protests, and conflicts are triggered and polarization prevents the construction of consensus, of a collective identity.  

The inability of formal and informal institutions to maintain social cohesion due to the lack of collective identity and consensus feeds back into polarization and potential or real conflict.  Reducing polarization, building consensus, building governance, makes it possible to design and implement public policies that make it possible to break out of the vicious circle into which several countries in the region have fallen recently and which end in protests and conflicts. 

Not doing so reproduces polarization and its consequences on the population, particularly on the most vulnerable.  This is the crossroads. The consequences of polarization are eventually the greatest risk facing the region because they impact governance, predictability, social peace, integral development and democratic institutions. 

To reduce polarization, it is necessary to delve deeper into its dimensions (economic, beliefs, moral, political) and its causes, and how it spreads from the political, economic and social elites to the population. 

And, although the difference of opinions is healthy and necessary for a democracy, it is also necessary to build bridges between the different options in a society.  Polarization is reduced by strengthening these bridges. 

The inability of formal and informal institutions to maintain cohesion at the economic, social and political levels, as well as the morphology of the structure of social, economic and political relations, are the causes of polarization. It is important to fill the gaps, it is important to strengthen the networks in the three arenas: economic, social and political. 

It is important to build bridges between actors from different poles.  Bridges to reduce polarization, build consensus, collective identity, governability, predictability for private investments, quality in public goods and services for greater social return. Bridges for democracy and development.

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For people living in remote areas, where access to paper money can be difficult, Central Bank Digital Currencies, CBDCs could be a game changer - especially in cases of natural disasters

One of the countries taking the lead in Central Bank Digital Currencies - CBDCs is The Bahamas.  In October 2020, it issued the Sand Dollar, becoming the world’s first country to create a digital version of its traditional currency.  This represents a direct liability for the central bank and is backed by international reserves.

Is There a Future for Digital Currencies Issued by Central Banks in Latin America and the Caribbean?

by Victoria Nuguer - Cloe Ortiz de Mendivil

Boosting financial inclusion has long been essential in Latin America and the Caribbean, where more than 200 million people lack access to financial services and large numbers of citizens are unable to open a bank account because of poverty, geography, discrimination, and lack of proper identification.

Alternative systems, however, could be transformative.  They could be crucial in a region where greater financial inclusion can help combat poverty and inequality and promote savings and investment.

The Potential of Central Bank Digital Currencies

One potential solution lies in what are known as central bank digital currencies (CBDCs).  In dozens of countries around the world, central banks are weighing the possibility of issuing their own digital currencies that would not only promote financial inclusion and reduce the costs of financial transactions but preserve the crucial role of monetary authorities in managing the economy.  By creating digital records of transactions, they would bring more citizens into the tax system, aid in the distribution of social welfare payments, and help combat money laundering and other illegal activities that can occur with unregulated cryptocurrencies.  For people living in remote areas, where access to paper money can be difficult, CBDCs could be a game changer, especially in cases of natural disasters.

The Bahamas Takes the Lead

One of the countries taking the lead is The Bahamas.  In October 2020, it issued the Sand Dollar, becoming the world’s first country to create a digital version of its traditional currency.  This represents a direct liability for the central bank and is backed by international reserves.  To use Sand Dollars, businesses and individuals must enroll in an authorized financial institution. Their digital currency is then stored in an eWallet that can be accessed through a mobile phone application or a physical card.  It is safer than cash, easy to use, carries no transaction fees for individuals, allows for faster transactions, and creates a record of income and spending that can be used as supporting evidence for micro-loan applications.

As one of the first official retail digital currencies in the world, the Sand Dollar has had its share of challenges.  The central bank has had to ensure the interoperability between service providers and commercial banks, including the guarantee that the digital currency can always be converted to cash if the need arises.  It has also had to create measures to ensure cybersecurity and data privacy and develop a vast infrastructure of digital support.  Efforts to educate the population on how to use the new currency, as well as to trust it, are ongoing.  The fact that less than 1% of transactions through the central bank currently involve Sand Dollars means that the government still has to meet the challenge of adoption.

New Experiments in Digital Currencies

As of June 2022, several countries had officially launched their CBDCs, with nine of them in the Caribbean—The Bahamas, Jamaica, and all the Eastern Caribbean Currency Union members, except Anguilla, which was in the pilot phase.  Within the region, Belize, Brazil, and Haiti are currently developing CBDCs, while many other countries are in the research phase.

All of this indicates a potentially promising future for digital currencies backed by central banks in a region where boosting financial inclusion is crucial for prosperity.  The fact that CBDCs can remove barriers of access to the financial system, increase the speed of financial transactions, reduce their cost, and give governments a powerful tool to increase tax revenues and make welfare payments, indicates that their day may have come, even if the use of cash, as well as debit and credit cards, is likely to continue.

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