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LACPR_Santiago2016

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Towards Inclusive Growth in Latin America
The Latin American and the Caribbean Context
OECD Latin America and the Caribbean Regional Programme
3rd Meeting of the Steering Group
December 6, 2016 - Santiago de Chile

Published in: Economy & Finance
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LACPR_Santiago2016

  1. 1. Angel Melguizo Head of the Latin America and Caribbean Unit OECD Development Centre OECD Latin America and the Caribbean Regional Programme 3rd Meeting of the Steering Group December 6, 2016 - Santiago de Chile Towards Inclusive Growth in Latin America The Latin American and the Caribbean Context
  2. 2. 1 Latin American economic outlook Towards higher growth, inclusion and better governance2 Latin America and the OECD3 Towards Inclusive Growth in Latin America: a view from the OECD LAC Programme
  3. 3. Recovery in Latin America is taking long… GDP growth in Latin America and the OECD (% annual) Source: For OECD, OECD Economic Outlook 100 database. For Latin America and the Caribbean, IMF 2016 World Economic Outlook Database, October.
  4. 4. … coupled with high financial volatility Volatility index and risk aversion to Latin America 300 400 500 600 700 800 900 1000 Spread (basis points) Panel B. EMBI LATAM Lehman max 2008 Tapering max 2013 EMBI Global 0 10 20 30 40 50 60 70 80 90 VIX (Index) Panel A. VIX Tapering max 2013 Lehman max 2008 China 2015 BRA downgrade 2015 FED 2015 Impeachment 2016 Brexit 2016 Lehman max 2008Tapering max 2013US elections Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
  5. 5. Price of commodities (100 = 2005) Risk factors I. (Even) Lower commodity prices 0 50 100 150 200 250 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Brent crude oil price Minerals, ores and metals Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
  6. 6. II. ‘New normal’ and (sharper) slowdown of China GDP growth in Latin American economies with different scenarios for China (%) -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 2008 2009 2010 2011 2012 2013 2014 2015 2016p 2017p 2018p Soft landing Hard landing Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
  7. 7. III. (Faster) Tightening of monetary conditions Monetary policy in advanced economies (Interest rates) 0 1 2 3 4 5 6 USA UK EURO Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
  8. 8. Trade restrictions rising in G20 countries (Number of trade restrictive measures in-force since the crisis) IV. Rising protectionism Source: WTO-OECD-UNCTAD (2016), G20 Trade Policy Monitoring Report.
  9. 9. Faced with limited demand policies: monetary… Inflation rates in selected economies in LAC under different inflation regimes (%) -5 0 5 10 15 20 25 30 Brazil Chile Colombia Guatemala Mexico Paraguay Peru Uruguay CostaRica Argentina Bolivia DominicanRepublic Guyana Haiti Honduras Jamaica Suriname TrinidadandTobago Venezuela TheBahamas Barbados Belize Ecuador ElSalvador Nicaragua Panama 2015 2016 Inflation target upper bound 12233 37 482 Inflation target regime Intermediate regimes Fixed exchange rate Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
  10. 10. … and fiscal Fiscal stimulus (Change in the structural primary fiscal balance, % GDP) -9 -7 -5 -3 -1 1 3 5 Argentina Brazil Chile Colombia Costa Rica Mexico Peru Uruguay 2007-14 Fiscal stimulus Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
  11. 11. ‘Américas Latinas’ are becoming even more evident… GDP growth for selected Latin American countries (% annual) Source: For Chile, Colombia, Costa Rica and Mexico the OECD Economic Outlook 99 database is used. For Brazil the OECD Interim Economic Outlook (September 2016) is used. For the rest of the Latin America and Caribbean economies CEPALSTAT is used. -10 -8 -6 -4 -2 0 2 4 6 8 2015 2016 2017
  12. 12. … within relately modest trend growth trajectories Illustration of the position of selected Latin American economies in the business cycle (2016-20, deviation from trend using HP filter) Source: OECD Development Centre ARGBRACHL COL CRI MEX PER VEN -0.04 -0.03 -0.02 -0.01 0.00 0.01 0.02 0.03 0.04
  13. 13. Productivity is not everything, but in the long run… Labour productivity in selected countries in Latin America and Asia (% productivity of the US, 5 year moving average, PPP) 0% 10% 20% 30% 40% 50% 60% 70% 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 Korea Latin America Chile Colombia China Mexico Source: OECD/ECLAC/CAF (2015), Latin American Economic Outlook 2016: Towards a New Partnership with China
  14. 14. The test on socio-economic progress Poverty and inequality reduction GDP growth and poverty rates in Latin America (%) -2 -1 0 1 2 3 4 5 6 7 0 10 20 30 40 50 60 1980 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Poverty Growth (RHS) Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
  15. 15. Socio-economic challenges are faced with limited political capital… Trust in elections in Latin America (% population, 2014) Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 % Youth (15-29) Adult (30-64)
  16. 16. … in a shifting wealth world Source: OECD/ECLAC/CAF (2015), Latin American Economic Outlook 2016. Towards a new partnership with China Contribution to global growth by regions (%) 0 10 20 30 40 50 60 1991-95 1996-2000 2001-05 2006-10 2011-15 2016-21 Economías avanzadas China América Latina India
  17. 17. 1 Latin American economic outlook Towards higher growth, inclusion and better governance2 Latin America and the OECD3 Towards Inclusive Growth in Latin America: a view from the OECD LAC Programme Overcoming the middle-income trap Strengthening the emerging middle class Improving governance to re-build trust
  18. 18. Latin America and OECD, diverging paths Latin America and the OCDE in the middle-income range (GDP per capita constant 1990 PPP dollars) 1800 2800 3800 4800 5800 6800 7800 8800 9800 10800 11800 GDPpercapitaconstant1990PPPdollars OECD avg LAC avg HIGH MIDDLE LOW Source: OECD Development Centre, Overcoming the middle income trap in Latin America: an empirical approach. Forthcoming
  19. 19. Latin America has been trapped in the middle-income range for decades The middle income trap in Latin America and the OECD (GDP per capita constant 1990 PPP dollars) Source: OECD/ECLAC/CAF (2015), Latin American Economic Outlook 2016: Towards a New Partnership with China
  20. 20. Latin America and recent middle-income trap evaders… 1800 2800 3800 4800 5800 6800 7800 8800 9800 10800 11800 GDPpercapitaconstant1990PPPdollars Ireland Israel Poland Singapore Spain Portugal Greece Malaysia South Korea China LAC avg HIGH MIDDLE LOW Source: OECD Development Centre, Overcoming the middle income trap in Latin America: an empirical approach. Forthcoming Latin America and the OECD in the middle-income range (GDP per capita constant 1990 PPP dollars)
  21. 21. … learning from OECD experiences to spur productivity? • Tax revenue • Investment • Public revenues Macroeconomic Indicators • Quality of education • Domestic credit • Exports diversification • Capabilities Productive Structure • Rule of law • Democracy stabilityInstitutional Source: OECD Development Centre, Overcoming the middle income trap in Latin America: an empirical approach. Forthcoming
  22. 22. 1 Latin American economic outlook Towards higher growth, inclusion and better governance2 Latin America and the OECD3 Towards Inclusive Growth in Latin America: a view from the OECD LAC Programme Overcoming the middle-income trap Strengthening the emerging middle class Improving governance to re-build trust
  23. 23. A Latin American middle class in the making… Source: World Bank Equity Lab and OECD Development Centre LAC population distribution by per capita income level (%) 43 23 34 39 21 35 15 20 25 30 35 40 45 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Poor (under $4) Vulnerable ($4-$10) Middle class ($10-$50)
  24. 24. … with new (higher) aspirations; still vulnerable due to informality Source: OECD Development Centre and Tulane University (forthcoming), Fiscal policy and the emerging middle class in Latin America An analysis based on the Commitment to Equity. Informality among the emerging middle class (% of households without a contributor to pensions/health) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% URY CRI BRA MEX COL PER BOL SLV GTM Vulnerables (4-10 USD/dia) Clase media (10-50 USD/dia)
  25. 25. Vulnerability is being transmitted to Latin American youth 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Extreme poor 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Moderate poor 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Vulnerable 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Middle class NEET Informal StudentFormal From school to work transitions in Latin America (%; LAC-16) Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
  26. 26. Weak social contract - Fiscal policy’s impact on inequality is very limited… 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 Denmark Iceland Germany France Korea OECD Canada Italy Spain Greece US Argentina ElSalvador Mexico Ecuador Uruguay Chile LAC CostaRica Bolivia Peru Guatemala Brazil Honduras Colombia Gini Index Market income Disposable income Impact of direct taxes and transfers on income inequality (Gini before/after) Source: For Latin American economies Lustig et al. (2016), “The impact of taxes and social spending on inequality and poverty in Argentina (2011), Bolivia (2009), Brazil (2009), Chile (2013), Colombia (2010), Costa Rica (2010), Ecuador (2011), El Salvador (2011), Guatemala (2011), Honduras (2011), Mexico (2010), Peru (2009) and Uruguay (2009): An overview”, CEQ Working Paper, No. 47, CEQ. For OECD economies The OECD Income Distribution database (IDD), download date 25/04/2016 OECD.stat.
  27. 27. Source: OECD/IDB/ECLAC/CIAT (2016), Revenue Statistics for OECD countries and Latin America and the Caribbean … partially explained by Latin American limited fiscal muscle Total tax revenues in Latin America and OECD countries (% GDP, 2014) 0 10 20 30 40 OCDE(34) ALC(22)³ Guatemala Rep.Dominicana ElSalvador Paraguay² Bahamas Panamá Venezuela² Perú Ecuador México² Honduras Chile Colombia Nicaragua CostaRica Jamaica² Uruguay TrinidadyTobago Bolivia² Barbados² Argentina Brasil
  28. 28. 1 Latin American economic outlook Towards higher growth, inclusion and better governance2 Latin America and the OECD3 Towards Inclusive Growth in Latin America: a view from the OECD LAC Programme Overcoming the middle-income trap Strengthening the emerging middle class Improving governance to re-build trust
  29. 29. Regional governance challenge Time for integration (at last)? Intra and extra-regional participation in GVCs (% of gross exports) Backward participation Forward participation 62% 49% 5% 9% 30% 22% 46% 40% 0 5 10 15 20 25 30 35 1995 2011 1995 2011 1995 2011 1995 2011 European Union Latin America North America SouthEast Asia Intra - regional backward participation Extra - regional backward participation 69% 62% 7% 9% 24% 16% 50% 58% 0 5 10 15 20 25 1995 2011 1995 2011 1995 2011 1995 2011 European Union Latin America North America SouthEast Asia Intra - regional forward participation Extra - regional forward participation Source: Kowlaski et al. (2015), based on OECD Trade in Value Added Database
  30. 30. Domestic governance challenge Low trust is impacting views on the political system (2016-18 wave) 0 10 20 30 40 50 60 70 80 90 100 Venezuela Argentina Ecuador Uruguay Bolivia Peru Colombia CostaRica Chile Nicaragua Brazil Paraguay Guatemala Panama Honduras ElSalvador Mexico 16-29 years 30 years and over Support for democracy as the best form of government in Latin America (% population, 2014) Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
  31. 31. 1 Latin American economic outlook Towards higher growth, inclusion and better governance2 OECD Latin American Programme3 Towards Inclusive Growth in Latin America: a view from the OECD LAC Programme Pillars: Productivity, Inclusion, Governance Principles: Strategic, Mutual, Collaborative Building blocks: Data, Policy Dialogue, Analysis/Advice
  32. 32. OECD Latin American Regional Programme: 3 connected pillars (plus 9 policy areas) • Education and skills • Innovation and the digital economy • GVCs and SMEs • Women and youth, migration • Formality and social protection • Tax revenues and expenditure efficiency • Integrity, transparency and accountability • Public governance and regional development • Regulation
  33. 33. • Strategic (improving supply + demand-driven) Productivity, Inclusion and Governance • Mutual learning (OECD-LAC region) Good practices in Latin American countries (PPPs,Fiscal rules, CCTs, Pensions …) • Collaborative (never alone) ECLAC, CAF, IDB, SEGIB, CIAT, WB, … + the private sector OECD Latin American Regional Programme: 3 principles
  34. 34. • Policy assessment: comparable indicators Education (PISA, PIAAC), Taxes (REVStats), Trade (TiVA), Red tape (PMR), Well-being … • Policy dialogue Networks – Policy makers; Private sector • Analysis and advice Flagship reports (Latin American Economic Outlook), Country reviews (Surveys, MDCRs), Targeted (Skills Strategy; Getting it right; Better Policies), … OECD Latin American Regional Programme: 3 building blocks…
  35. 35. • High Level Meetings and regional publication Productivity (with IDB)/Inclusion/Governance • International Economic Forum on Latin America and the Caribbean (with IDB, Ministry of Finance and Economy France) • Latin American Economic Outlook (with ECLAC, CAF) • Comparable indicators e.g. How’s Life Initiative for Latin America (with ECLAC) OECD Latin American Regional Programme: … set on a core
  36. 36. • The economic slowdown and modest global growth asks for action towards inclusive growth • Structural reforms (competition & integration) and productive investment (skills, infrastructures) are key • Fiscal policy – sufficient, transparent, efficient and progressive – and governance will be central Towards Inclusive Growth in Latin America: a view from the OECD LAC Programme
  37. 37. Towards Inclusive Growth in Latin America In search of an innovative narrative for action Source: América invertida, dibujo de Joaquín Torres García, 1943

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