This article discusses the factors that have led to the relatively low microeconomic, or allocative, efficiency of Latin America, compared with other faster-growing economies, particularly in East Asia. It also identifies the major structural impediments to improving efficiency of the economies, and, finally, suggests policy and institutional reforms necessary to improve Latin America’s performance in the future. The article builds on an analysis of the region’s long-term economic performance and the major dilemmas and issues faced by the countries. An important conclusion of the article is that even with prudent macroeconomic policies, the problems are rooted in the micro-economy. In other words, the fundamental economic problems faced by the region can only be overcome by making major structural changes in the economies. These structural changes, in turn, would lead to higher and more inclusive growth.