Latin America: Achievements and Challenges
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According to Luiz de Mello, Deputy Head of Staff of the Organisation for Economic Co-operation and Development, Latin America has gone a long way in improving economic performance and fostering social development. Some countries have done better than others, depending on their specific conditions and policy settings. Where reforms have been made to strengthen the public finances, build human capital and improve the business environment, increased prosperity has been accompanied by a better distribution of the benefits of growth. But the continent also faces common challenges. Further improvements in education, skills and the investment climate will be essential for enhancing the region’s economic growth prospects and building more resilient, innovative societies.
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Latin America: Achievements and Challenges
- 1. LATIN AMERICA: ACHIEVEMENTS AND CHALLENGES THINK LATIN AMERICA Luiz de Mello, OECD Dublin, 17 April 2013
- 2. Growth has improved in Latin America, although performance varies across countries -3 -2 -1 0 1 2 3 4 5 6 7 1980 1985 1990 1995 2000 2005 2010 Region-wide real GDP growth rate (in %) 0 50 100 150 200 250 300 350 400 450 500 1980 1985 1990 1995 2000 2005 2010 Argentina Brazil Chile Colombia Ecuador Peru Venezuela, RB Mexico Real GDP (1980=100) Source: World Development Indicators (World Bank). 5-year moving average
- 3. Due to strong growth, income gaps relative to the OECD area are no longer rising 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 1980 1985 1990 1995 2000 2005 2010 Brazil Chile Colombia Peru Mexico Ecuador Venezuela, RB Argentina GDP per capita (PPP in current USD, share of OECD average) Source: World Development Indicators (World Bank).
- 4. Inclusive growth? Income gaps are shrinking in the world’s most unequal continent 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 OECD Venezuela, RB Argentina Uruguay Mexico Peru Ecuador Chile Brazil Colombia Late 2000s Early 1990s Gini coefficient (higher coefficient = more unequal) Source: World Development Indicators (World Bank) and Divided We Stand (OECD).
- 5. The macroeconomic landscape is more robust in many countries 1 10 100 1000 10000 Chile Peru OECD Colombia Mexico Ecuador Latin America &… Brazil Argentina Venezuela, RB 1985-90 2010-11 Consumer price inflation (in %) Source: ECLAC. A two-pillar strategy in the best performers: - Rules-based monetary and fiscal policy - Flexible exchange rates
- 6. Latin American economies are also becoming somewhat more resilient… 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Latin America and the Caribbean OECD Coefficient of variation of real GDP growth rate (10-year rolling windows) (high coefficient = high volatility) Source: World Development Indicators (World Bank).
- 7. …and in some cases less vulnerable to commodity price fluctuations Argentina (strong growth-commodity price correlation) Source: World Development Indicators (World Bank) and OECD Economic Outlook (OECD). 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 -2 -1 0 1 2 3 4 5 6 7 GDP growth rate (10-yr MA, %) Agric. commodity price index 0 0.5 1 1.5 2 2.5 0 1 2 3 4 5 6 7 8 9 GDP growth rate (10-yr MA, %) Agric. commodity price index Chile (weak growth-commodity price correlation)
- 8. Achieving strong, resilient, inclusive growth requires action on several fronts • A five-pronged strategy: – Raising labour and overall productivity, especially by boosting education and skills – Improving labour utilisation, especially of women – Reforming tax systems to enhance collection and efficiency – Enhancing the investment climate, especially to close still large infrastructure gaps – Creating an enabling environment for innovation and new sources of growth
- 9. Many challenges remain to improve the population’s educational attainment 0 10 20 30 40 50 60 70 80 90 100 Korea CzechRepublic SlovakRepublic Poland Slovenia Canada Sweden Finland Switzerland UnitedStates Israel Austria Ireland Chile Germany Estonia Hungary Australia Luxembourg France Norway UnitedKingdom Netherlands Belgium OECDaverage Denmark NewZealand Greece Iceland Italy Spain Brazil Portugal Mexico Turkey China % 55-to- 64 year-olds 25-to-34 year-olds Population that has attained at least upper secondary education (2010) Source: Education at a Glance 2012 (OECD).
- 10. In some countries, informality remains widespread in the labour market 0 10 20 30 40 50 60 70 percentage Source: OECD Economic Survey of Mexico, 2011 based on ILO (2009), Labour Overview - Latin America and the Caribbean. Informality across Latin American countries
- 11. Further progress on income distribution also depends on the tax-benefit system… 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 Argentina Brazil Chile Colombia Mexico Peru Non-Latin American… Market income After taxes and transfers 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 Chile Mexico Non-LatinAmerican OECD Market income + Cash transfers - Income tax + Education (in-kind) + Health (in-kind) Gini coefficient before and after taxes and transfers Source: Latin American Economic Outlook 2012 (OECD).
- 12. … and ensuring effective service delivery, which calls for resource mobilisation 0 5 10 15 20 25 30 35 40 Other Goods & Services Property Payroll Social Security Income & Profits % of GDP Tax revenue-to-GDP ratio (2010) Source: Revenue Statistics in Latin America (OECD).
- 13. Investment ratios need to rise to meet social demands and sustain growth Source: World Development Indicators (World Bank). Low investment, coupled with important deficiencies in areas that have a bearing on social development (water and sanitation) Infrastructure deficiencies are worse for transport and energy Important social dimension: vulnerable social groups are often hardest hit 10 20 30 40 50 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 High income: OECD Latin America & Caribbean Sub-Saharan Africa India China Gross fixed capital formation (in % of GDP)
- 14. The regulatory environment can be strengthened to encourage investment… OECD average NON-OECD average 0.000 0.050 0.100 0.150 0.200 0.250 0.300 0.350 0.400 0.450 China SaudiArabia Indonesia India Japan NewZealand Iceland Mexico Jordan Tunisia Russia Malaysia Canada Korea Kazakhstan Australia Israel Ukraine Poland Peru Austria Mongolia UnitedStates Brazil Switzerland KyrgyzRepublic Norway Turkey Denmark Chile Morocco Latvia Egypt UnitedKingdom Ireland Sweden CzechRepublic SouthAfrica Italy Hungary SlovakRepublic France Lithuania Belgium Greece Argentina Colombia Germany Estonia Spain Finland Netherlands Romania Slovenia Portugal Luxembourg 2012 FDI Regulatory Restrictiveness Index Source: OECD Closed = 1; Open = 0
- 15. … as well as the business climate 0 5 10 15 OECD Eastern Europe and Central Asia East Asia and Pacific South Asia Middle East and North Africa Sub-Saharan Africa Latin America and the Caribbean USA EU (15) 2006 2011 0 50 100 0 100 200 300 Procedures for starting a business No. of procedures Duration (days) Cost (% of income per capita) Source: Doing Business (World Bank).
- 16. There is room to improve innovation performance in Latin America 0 2 4 Peru Colombia Ecuador Mexico Chile Argentina Latin America &… Brazil OECD 0 200 400 600 800 1000 Peru Colombia Ecuador Latin America &… Brazil Argentina Mexico Chile OECD per million population Non-residents Residents R&D, 2010 (in % of GDP) Patent applications (per million population) Source: World Development Indicators (World Bank).
- 17. New sources of growth are needed, such as investment in knowledge-based assets ARG AUS AUT BEL BRA BRIICS CAN CHE CHL CHN CZE DEU DNK ESP EST EU27 FIN FRA GBR GRC HUN IND IRL ISL ISR ITA JPN KOR LUX MEX NLD NOR NZL OECD POL PRT RUS SAU SVK SVN SWE TUR USA ZAF 0 1 10 100 0 1 10 100 Triadic patent families (per capita) Trademarks abroad (per capita) 500 500 IDN Axes in logarithmic scale Source: OECD Science, Technology and Industry Scoreboard (OECD).
- 18. Latin America has much to benefit from participation in global value chains 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Shareofforeignvalueadded in grossexports 0% 10% 20% 30% 40% 50% 60% 70% GlobalValue Chain participation Source: Inter-American Development Bank.
- 19. • Much progress over the years, but uneven performance across countries • Reforms, where implemented, have contributed to stronger, more resilient and inclusive growth • But to-do list to narrow gaps in living standards remains long, with further strategies reflecting country conditions • Emphasis on education and skills, business climate and effective regulation is essential for boosting innovation To sum up
- 20. Thank you!