6  region has a notably high number of small and informal firms), lower rates of investment and the loss of sectors with higher than average rates of productivity growth. In such a complex setting, Latin American economies could benefit considerably from the design and implementation of a broad reform agenda to drive the region’s competitiveness and productivity, seizing the opportunity to transform productive structures. Government infrastructure spending can play a significant role,12 against a background of low private investment demand, which should come alongside reflection on the composition of government expenditure. On the education front, the challenge is more qualitative than quantitative for countries such as Argentina, Brazil and Mexico, which continue to lag behind in terms of educational quality despite spending no less on education as a share of GDP than OECD member countries.13 Authorities could pass legislation to improve general institutional quality. More specifically, they could also facilitate entrepreneurial initiatives by easing burdensome regulations and working to reduce the informal sector, which would also drive up the revenue-raising capacity of tax systems. Likewise, the region would benefit from greater trade integration, both internal and external. For example, the 2019 ratification of the trade agreement between the European Union (EU) and MERCOSUR should, on the estimates available,14 have significant positive effects on trade flows and on GDP in both areas, particularly in the MERCOSUR region. Within the EU, where the impact is likely to be more modest, Spain is among the countries whose economies will benefit most from the agreement.
In a more broad-based market downturn, though, we would be concerned that a repricing of financial assets could trigger sudden and large redemptions from these funds, possibly resulting in forced asset sales, which could amplify stress in less liquid markets. This would have wider implications in the form of impaired market liquidity and possible spillovers to the real economy. While leverage in the euro area fund sector is low on average, there are also pockets of high leverage among some types of alternative funds, and these need to be monitored closely. Even if leverage of UCITS funds is not excessive, it can still add to the procyclical selling of assets if a fund tries to keep its leverage constant during periods of stress. I hope that gives you a good perspective on our current assessment of financial stability risks. I look forward to hearing your own views on these and other vulnerabilities for the euro area financial system. 2/2  BIS central bankers' speeches