Latin American Economic Outlook 28 Javier Santiso Director & Chief Development Economist OECD Development Centre Brasilia, 4th March 28 Banco Central do Brasil
The OECD and Latin America: An emerging commitment Latin American market democracies matter for the OECD and its member countries The Latin American dimension at the OECD: Mexico: Member since 1994; Chile: candidate since May 27; Brazil: enhanced cooperation, May 27 Economic Surveys: 1992, 1995, 1997, 1998, 1999 2, 22, 23, 25, 27 23, 25, 27 2, 25, 26 Latin American Economic Outlook 28
The Development Centre: A bridge between the OECD and emerging regions Membership of the Development Centre With a Governing Board open to OECD non-member countries, the Development Centre provides a framework for dialogue and experience sharing with emerging regions all over the world. Three Latin American countries are members of the Centre: Mexico Chile Brazil
Latin American Economic Outlook: The key tools Informal Advisory Board: Scholars and policy makers from Latin America and OECD countries enrich the analytical work of the project. Research and Publications: The Development Centre collaborates with OECD experts, international organisations and various Latin American think-tanks. Dialogue Forum: Key government officials from OECD and Latin American countries share experiences about the design and implementation of public policies.
I Fiscal Policy and Legitimacy II Multinationals, Telecommunications and Development III China, India and the Challenge of Specialisation
GDP per capita by quintile GDP per capita by quintile Economic growth is slower than in other regions and it has left out the poor 25 25 2 Sub-Saharan Africa 15 1994 22 growth 1 5 7 6 5 4 3 2 1 Quintile annual growth in GDP per capita GDP per capita by quintile 2 Latin America 15 1 1993 23 change 5 7 6 5 4 3 2 1-1 Quintile annual growth in GDP per capita Q1 Q2 Q3 Q4 Q5 Q1 Q2 Q3 Q4 Q5 8 OECD* 25 Developing Asia 6 2 199 2 growth 4 15 1 2 1992 22 change 5 7 6 5 4 3 2 1 Quintile annual growth in GDP per capita GDP per capita by quintile 7 6 5 4 3 2 1 Quintile annual growth in GDP per capita Q1 Q2 Q3 Q4 Q5 Q1 Q2 Q3 Q4 Q5 Source: OECD Development Centre, 27. Based on IMF, Globalization and Inequality, 27. OECD* includes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Netherlands, Norway, Singapore, Spain, Sweden, UK, US.
Improvements in inequality are slight or non existent Gini coefficient (early 25 or closest year) 65% Changes in inequality during the last decade deteriorations 6% 55% Paraguay Ecuador Argentina 5% Venezuela 45% Costa Rica Uruguay 4% Bolivia Brazil Honduras Dominican, R. Colombia Nicaragua Panama Chile Guatemala Mexico Peru El Salvador improvements 4% 45% 5% 55% 6% 65% Gini coefficient (early 199s) Source: OECD Development Centre, 27. Based on CEPALSTAT y ECLAC s Panorama Social de América Latina 26.
Fiscal policy plays a very limited redistributive role, especially taxation Public spending is a key instrument for tackling inequality Inequality before and after taxes and transfers The effects of taxes and transfers Gini coefficient Points of Gini change (% change in inequality) Source: OECD Development Centre, 27. Based on data by Goñi, López, and Servén (26)
There is no Latin curse: Quality of fiscal policy is not a matter of DNA Fiscal policy is more efficient in Europe (even in its Latin countries) in reducing inequalities and stimulating social cohesion Inequality before and after taxes and transfers Gini coefficient Source: OECD Development Centre, 27. Based on data by Goñi, López, and Servén (26).
Fiscal policy can help democratic consolidation in Latin America It is not simply a technical matter 5 45 Costa Rica Uruguay Democratic performance (% satisfied with democracy) 4 35 3 25 2 15 1 Ecuador Mexico Peru Venezuela Nicaragua Argentina Bolivia Brazil Panama Colombia Guatemala Paraguay El Salvador Honduras Chile 5 5 1 15 2 25 3 Fiscal legitimacy (% who trust taxes are well spent) Source: OECD Development Centre, 27. Based on Latinobarómetro (23).
Social cohesion is becoming an increasingly important issue in the region 35 Fiscal legitimacy (% trust taxes well spent) 3 25 2 15 1 5 Uruguay Venezuela El Salvador Dominican Republic Chile Honduras Argentina Nicaragua Colombia Paraguay Brazil Costa Rica Panama Mexico Guatemala Peru Ecuador Bolivia.4.45.5.55.6.65.7 Inequality (Gini coefficient 2s) Source: OECD Development Centre, 27. Based on Latinobarómetro (23, 25) and ECLAC s Panorama Social
Improving public spending is crucial (efficiency and progressivity) Improving the efficiency and equity of public spending is a crucial challenge for the region 6 Education Expenditures and Performance 55 Mathematics Score (PISA 23) 5 45 4 35 Indonesia Mexico Tunisia Brazil Slovak Republic Poland Thailand Uruguay Spain Norway United States 3-5, 1, 15, 2, 25, 3, Annual expenditure on educational institutions per student (21) in equivalent US dollars converted using PPPs, by level of education, based on full-time equivalents Source: OECD Development Centre, 27. Based on PISA (23) and OECD Education at a Glance (25)
Transparency can lead towards more consistent policies In democratic societies debate, dialogue and compromise are key elements for policy 5 Sweden 4 Italy France Tax Revenue (24 % GDP) 3 2 1 Haiti Venezuela Colombia Turkey Brazil Argentina Spain Slovak Rep. Switzerland Ireland Uruguay United States Korea Costa Rica Nicaragua Chile Ecuador Peru Bolivia Mexico 1 2 3 4 5 6 7 8 9 1 Media quality and independence (Index: -3=Not free, 31-6=Partially free, 6-1 Free) Source: OECD Development Centre, 27. Based on Freedom House (27) and ECLAC and OECD Revenue Statistics (27).
I Fiscal Policy and Legitimacy II Multinationals, Telecommunications and Development III China, India and the Challenge of Specialisation
Latin American economies are becoming global financial actors Some countries, like Brazil, have more outward 1 than inward flows of FDI Foreign Direct Investment Flows in Latin America Outward Inward USD Millions 8 6 4 2 1995 1997 1999 21 23 25 Source: OECD Development Centre, 27. Based on UNCTAD World Investment Report 26, CEPAL La inversión extranjera en América Latina y el Caribe 26 and Economist Intelligence Unit estimations.
Latin America is the world s first destination for FDI in telecommunications Source: OECD Development Centre, based on PPI Database, World Bank Source: Information and Communications for Development 26, World Bank
12 1 8 6 4 2 Investment in telecommunications has accompanied a marked increase in connectivity The number of telephone lines has multiplied by 1 in Latin America, to some extent because of foreign investment Foreign Investment in Telecommunications and connectivity Cumulative Foreign Investment in Telecommunications (in USD billion) Telephones per 1 inhabitants 199 1995 2 25 Source: OECD Development Centre, based on SEDLAC (27) and IADB (27) data.
Mobile telephony has played a key role in increasing coverage Lines per 1 inhabitants 5 Mobile Landline Broadband 4 3 2 1 199 1995 2 25 Source: OECD Development Centre, based on ITU, 26, World Telecommunications Database
However, the connectivity boom has not benefited all in the same way Inequality is high: a quarter of poor households have a telephone at home, 3 times less than high-income households 1 Proportion of the population with a telephone at home Richest quintile Poorest quintile.8.6.4.2 Chile Argentina Brazil Costa Rica Mexico Paraguay Bolivia Peru Nicaragua Haiti Source: OECD Development Centre, based on SEDLAC surveys.
Much remains to be done in order to guarantee contestable markets Perfect competition Monopoly Source: OECD Development Centre, based on companies data.
I Fiscal Policy and Legitimacy II Multinationals, Telecommunications and Development III China, India and the Challenge of Specialisation
Emerging economies are increasingly present on the global scene When the OECD was founded, its member countries accounted for 75% of world GDP, today they represent 55% of world GDP Source: OECD Development Centre, based on Maddison (23) The World Economy Historical Statistics
China and India could be angels rather than demons for Latin America s commercial development % of exports 7 6 5 4 3 2 1 Asian countries competition * vs. Chinese exports to US, %, 25 % of exports 6% 5% 4% 3% 2% 1% % Latin American countries competition* vs. Chinese main export products, 25 Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: OECD Development Centre, 26 Based on Working Paper by Blázquez, Rodríguez and Santiso, 26
The Asian boom has had a strong impact on the trade balance of several Latin American countries China s and India s rising demand for Latin American commodities (1998-25) Increasing commodities prices (19-25) $ millions 1 2 1 8 6 4 2 Agricultural Raw Materials Food Ores & Metals 1998 21 23 25 Price index (197=1) 2 16 12 8 4 Aluminium Copper Coffee Petroleum 19 191 192 193 194 195 196 197 198 199 2 Rise in Indian imports from Latin America (1997-25) Rise in mineral exports from Latin America (1998-25) $ millions 1 8 6 4 Sugar/mollasses/honey Copper ores/concentrates Fixed veg oil/fat, soft $ millions. 12 1 8 6 4 Petroleum and products (left) Copper ores/concentrates (right) Nickel ores/concs/etc (right) 1 8 6 4 $ millions. 2 2 2 1997 1998 1999 2 21 22 23 24 25 1998 1999 2 21 22 23 24 25 Source: OECD Development Centre, based on WITS Database, 27.
The rise of China and India also represents a wake-up call: The challenges of specialisation Latin America risks to fall on an excessive raw-material specialisation Source: OECD Development Centre, 27. Based on WITS and Comtrade data.
Exploiting comparative advantages: The proximity to export markets Mexico benefits from its geographic proximity to its major export markets 24 Days 4 Days 11,7 Km 16 Km Shipping time Mexico is more competitive in manufacturing more sophisticated products which require short delivery times
Infrastructure is a serious drawback for Latin America s trade development 4 35 3 25 2 15 1 5 Time for exports Cost of exports 2 16 12 8 4 Colombia Venezuela India Peru Average LAC Chile China Brazil Mexico Argentina Colombia Argentina Average LAC Mexico Brazil India Peru Venezuela Chile Days $ per container China Regional performance in the infrastructure pillar 7 6 5 4 3 2 1 Infrastructure Indicator Latin America and C. India China Eastern Europe East Asian NIC's Source: Doing Business Report. World Bank, 27.
Latin American Economic Outlook 29 and more Fiscal Policy and development. Migration and development. Innovation and development.
Latin American Economic Outlook 28 www.oecd.org/dev/leo Thank you Merci Obrigado Gracias