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Latin America’s Development Challenges

Latin America’s Development Challenges. Lessons from the OECD Latin American Economic Outlook www.oecd.org/dev/leo. Jeff Dayton-Johnson Senior Economist and Head of the Latin America and Caribbean Desk OECD Development Centre. Bertelsmann Stiftung Berlin, 5 June 2008.

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Latin America’s Development Challenges

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  1. Latin America’s Development Challenges Lessons from the OECD Latin American Economic Outlook www.oecd.org/dev/leo Jeff Dayton-Johnson Senior Economist and Head of the Latin America and Caribbean Desk OECD Development Centre Bertelsmann Stiftung Berlin, 5 June 2008

  2. A growing commitment OECD & Latin America • 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 2007; Brazil: enhanced cooperation since May 2007 • Economic Surveys: • Latin American Economic Outlook 2008 • 1992, 1995, 1997, 1998, 1999 • 2000, 2002, 2003, 2005, 2007 2003, 2005, 2007 2000, 2005, 2006

  3. Bridging OECD & emerging economies Development Centre • 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. • Four* Latin American countries are members of the Centre: • Mexico • Chile • Brazil • Colombia

  4. Slower growth, not shared with the poor The Context 25 7 Latin America 20 6 5 15 4 1993 2003 change 10 3 Quintile annual growth in GDP per capita GDP per capita by quintile 2 Quintile annual growth in GDP per capita GDP per capita by quintile 5 1 0 0 - 1 Q 1 Q2 Q3 Q4 Q5 Quintile annual growth in GDP per capita GDP per capita by quintile GDP per capita by quintile Quintile annual growth in GDP per capita Source: OECD Development Centre, 2007. Based on IMF , Globalization and Inequality, 2007. OECD* includes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Netherlands, Norway, Singapore, Spain, Sweden, UK, US.

  5. Democratic consolidation The Context Source: Latinobarómetro (2007), Bertelsmann Transformation Index (2007)

  6. 1 Pension Reform: What Benefits? 4 3 Fiscal Policy: A Critical Tool for Development China and India: Threats and Opportunities 2 Telecommunications and Development

  7. A mixed impact on national savings Pension Reform Source: OECD Development Centre (2007), based on World Bank Development Indicators.

  8. Development /deepening of financial markets Pension Reform Pension Fund Assets as percentage of GDP, 2006 Source: OECD Development Centre (2007), based on Global Pension Statistics database.

  9. 1 Pension Reform: What Benefits? 4 3 Fiscal Policy: A Critical Tool for Development China and India: Threats and Opportunities 2 Telecommunications and Development

  10. Latin America leads developing world in telecoms FDI Telecoms Source: Information and Communications for Development 2006, World Bank Source: OECD Development Centre, based on PPI Database, World Bank

  11. Investment in telecommunications has FDI-led increase in connectivity Telecoms The number of telephone lines has increased by a factor of 10 in Latin America, in part because of foreign investment Source: OECD Development Centre, based on SEDLAC (2007) and IADB (2007) data.

  12. Unequal distribution of benefits Telecoms Inequality is high: a quarter of poor households have a telephone at home, 3 times less than high-income households Source: OECD Development Centre, based on SEDLAC surveys.

  13. Limited contestability of markets Telecoms Perfect competition Monopoly Source: OECD Development Centre, based on companies’ data.

  14. 1 Pension Reform: What Benefits? 4 3 Fiscal Policy: A Critical Tool for Development China and India: Threats and Opportunities 2 Telecommunications and Development

  15. Opportunities for trade development China/India Latin American countries competition* vs. Chinese * Asian economies competition vs. Chinese exports to main export products, 2005 US, % , 2005 60% 70 50% 60 50 40% 40 30% % of exports 30 % of exports 20% 20 10% 10 0 0% Perú Japan Chile Brasil Chinese Taipei Malaysia México Thailand Indonesia Uruguay Philippines Colombia Singapore Argentina Venezuela South Korea :SourceC.HJ.Kwan, Nomura Institute of Capital Markets Research Source: OECD Development Centre, 2006 Based on Working Paper by Blázquez, Rodríguez and Santiso, 2006

  16. Strong demand for Latin American exports China/India Source: OECD Development Centre, based on WITS Database, 2007.

  17. Excessive specialisation in commodities exports? China/India Source: OECD Development Centre, 2007. Based on WITS and Comtrade data.

  18. 1 Pension Reform: What Benefits? 4 3 Fiscal Policy: A Critical Tool for Development China and India: Threats and Opportunities 2 Telecommunications and Development

  19. Revenues are low and structurally regressive Fiscal legitimacy Source: OECD Development Centre (2008), OECD (2007), Revenue Statistics 1965-2006 for OECD countries

  20. Spending constrained by low revenues Fiscal legitimacy Government Revenues/GDP Government Expenditures/GDP Source: OECD Development Centre (2008)

  21. Little redistribution through taxes and transfers Fiscal legitimacy 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, 2007. Based on data by Goñi, López, and Servén (2006)

  22. Quality as well as quantity Fiscal legitimacy Education Expenditures and Performance 600 550 Slovak Republic 500 Poland Norway Spain United States (PISA 2003) Mathematics Score 450 Thailand Uruguay 400 Mexico Indonesia Tunisia 350 Brazil 300 - 5,000 10,000 15,000 20,000 25,000 30,000 Annual expenditure on educational institutions per student (2001) in equivalent US dollars converted using PPPs, by level of education, based on full-time equivalents Source: OECD Development Centre, 2007. Based on PISA (2003) and OECD Education at a Glance (2005)

  23. … is closely linked to democratic legitimacy Fiscal legitimacy 50 Costa Rica 45 Uruguay 40 Venezuela Honduras Nicaragua 35 Chile Argentina El Salvador 30 Brazil Bolivia Democratic performance (% satisfied with democracy) 25 Panama Ecuador Colombia Guatemala 20 Mexico 15 Peru 10 Paraguay 5 0 0 5 10 15 20 25 30 Fiscal legitimacy (% who trust taxes are well spent) Source: OECD Development Centre, 2007. Based on Latinobarómetro (2003).

  24. Closely linked to inequality Fiscal legitimacy Fiscal legitimacy (% trust taxes well spent) Inequality (Gini coefficient 2000s) Source: OECD Development Centre, 2007. Based on Latinobarómetro (2003, 2005) and ECLAC’s Panorama Social

  25. The role of international capital markets Fiscal legitimacy Are international investors less spooked today by Latin American elections? BRAZIL: Lula’s story Investment banks’ recommendations regarding sovereign debt surrounding elections

  26. Fiscal Policy and Latin American Development LEO 2009 • Fiscal policy, growth and development • The quality of public spending: the case of education • The structure of tax systems in Latin America • Public debt and international capital markets • Fiscal policy and the informal economy

  27. Latin American Economic Outlook 2008 www.oecd.org/dev/leo Vielen Dank! Thank youMerciObrigadoGracias

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