Poverty and development in LAC J. Humberto Lopez

1. Poverty and development in LACJ. Humberto Lopez September 27, 2013 Columbia University

2. Structure & messages of the presentation • i) The evolution of poverty in LAC over the past 15 years • A positive story • ii) What is behind this good news? • Good policies (and well, also some good luck!) • ii) Looking forward: receding tailwinds? • Need to stress the policy side of the equation

3. LAC achieved impressive gains in shared prosperity in the last 15 years, exceeding its past performance… 43.2 38.6 33.7 32.3 26.6 21.1 For the first time, in 2010 the middle class (those between $10 and $50 a day) exceeded the poor ($4 a day)…

4. LAC achieved impressive gains in shared prosperity in the last 15 years, exceeding its past performance… The decomposition of poverty changes into growth and changes in inequality suggests that growth accounts for 2/3 of the reduction in poverty and changes in inequality for 1/3.

5. …helped by the evolution of commodity prices… Evolution of key commodity prices (in 2005 US$)

6. …by a much improved macro-financial immune system… Latin America’s New Macro-Financial Immune System Before Now Currency/Monetary Policy Banking/Prudential Policy Debt process/Fiscal Policy Weak/non credible/pro-cyclical Fragile/unsound Fragile/unviable/ pro-cyclical Credible/countercyclical Sounder More viable/less pro-cyclical

7. …and by public policies that have contributed to lower inequality. Decomposition of changes in inequality by income component

8. But commodity prices tailwinds are receding Recent evolution of key commodity prices

9. And economic activity in the region is clearly loosing steam

10. Economic growth is decelerating in LAC and prospects are being revised down

11. And despite the progress on the inequality front, inequality is still extremely high The most equal country in LAC (Uruguay) is less equal than the most unequal non-LAC country in the OECD (Turkey). The region remains the most unequal in the world.

12. The region’s external competitiveness lags that of the South East Asian MICs… Real Exchange Rates and Reserves Index 2005=100 Notes: LAC-IT: Brazil, Chile, Colombia, Mexico, and Peru. East Asian MICs: Indonesia, Malaysia, Philippines, South Korea, and Thailand. The lines represent simple averages. Total Reserves Excluding Gold are measured as a share of 2006-2007 average GDP in Current US Dollars. Sources: IMF and Bank for International Settlements

13. …and some key doing business indicators need to get better Source: WDI. Note: Data refer to 2012. Disclosure Index ranges from 0 to 7 and higher values indicate more disclosure.

14. Public policies have still a limited impact on inequality Notes: The charts report the Gini coefficient for market income (before taxes and cash transfers) and disposable income (after taxes and cash transfers). Source: Lopez and Serven, World Development (2011)

15. Important challenges remain in terms of the social contract The level of satisfaction with local services has also been stagnant since 2004 at around 50%. Citizen trust in the state remains low with less than 50% of the citizens reporting trust in the state. Overall, trust has stagnated in LAC, falling in almost half of all countries.

16. Thank you very much!