Latin America and the Caribbean: Challenges and Opportunities in a Time of Crisis

1
Latin America and the Caribbean Challenges and
Opportunities in a Time of Crisis

• Alicia Bárcena
• Executive Secretary of ECLAC
• Woodrow Wilson International Center for Scholars
• Washington D.C., 11 September 2009

2
Dilemmas and uncertaintiesafter the crisis

• Old and new forms of protectionism
• A new international financial architecture or
  just cosmetic changes?
• Will there be more regulation? What willbe the
  combination of public policies?
• Bilateralism (chinamerica) as opposed to
  multilateralism (open regionalism)
• Uncertainty concerning climate change
• Unemployment, informality and poverty
• Fragile democracies

3
MANAGING FIVE TRANSITIONS

• From market supremacy to a new role for the State
• From traditional to new geopolitical and economic
  alliances
• From social exclusion to an inclusive development
• From exclusive RD to extensive innovation for
  all
• From oil-based to a carbon-free sustainable
  economy

4
SHORT HISTORY OF THE CRISIS

• The known links subprime crisis-investment
  banks-financial systems-crisis in confidence
• The reconfirmed link transfer to the real
  economy. No decoupling
• The proven effects lower economic activity,
  negative growth, drop in international trade and
  FDI, reduction in remittances.

5
FRUSTRATION IN THE REGION AFTER BOOM YEARS
(2003-2008)

• Solid fiscal policies and improved levels of
  public debt profile
• Increased exchange rate flexibility and
  unprecedented international reserves (150
  between 2003 and 2008)
• Surplus in the regional current account coupled
  with economic growth
• Ready access to external financing
• Increased trade (I X) (value 138 volume
  49)
• Terms of trade improved by 25 in the region
• Per capita GDP grew by more than 3 per year for
  five consecutive years
• Unemployment diminished from 11 to 7.5 coupled
  with the creation of more quality jobs
• Poverty rates fell by 10 percentage points (from
  44 to 34)

6
Estimates for a prompt recovery are negative for
2009 in the 4 main channels
Commodity prices
Foreign direct investment
Remittances and tourism
External demand
Source Economic Commission for Latin America and
the Caribbean (ECLAC), on the basis of official
data.
7
Exports of LAC fell by 31 and imports fell by
29 in value in the first half of 2009
LATIN AMERICA AND THE CARIBBEAN MERCHANDISE
EXPORT AND IMPORT GROWTH IN THE FIRST HALF OF
2008 AND 2009 (Growth rates relative to the
year-earlier period)
EXPORTS
IMPORTS
In volume exports fell by 15.3
In volume imports fell by 25.3
All export destinations were affected but those
to China have dropped the least
Source Economic Commission for Latin America and
the Caribbean (ECLAC), on the basis of official
data.
8
Inflows of FDI are expected to fall, after
peaking historically in 2008
LATIN AMERICA AND THE CARIBBEAN FOREIGN DIRECT
INVESTMENT (Millions of dollars)
Source Economic Commission for Latin America and
the Caribbean (ECLAC), on the basis of official
figures.
9
Remittances have fallen significantly
LATIN AMERICA AND THE CARIBBEAN MIGRANTS
QUARTERLY REMITTANCES (Annual growth rates with
respect to the same period of the previous year)
Source Economic Commission for Latin America and
the Caribbean (ECLAC), on the basis of official
figures.
10
LONG HISTORY OF THE CRISIS

• Development model based on deregulation
• Model based on the segmentation and increased
  predominance of the financial sector over the
  productive
• Production patterns that are jeopardizing the
  future habitability of the planet
• Globalization patterns with high concentrations
  of wealth
• Paradigms such as the invisible hand and
  trickle down theory are no longer credible

11
Simultaneous economic contraction in so many
countries since the Great Depression (nearly 80
of the worlds economies and GDP)
NUMBER OF COUNTRIES IN RECESSION IN THE SAME YEAR
a (Percentages of total number of countries)
Source Economic Commission for Latin America and
the Caribbean (ECLAC), on the basis of data from
Maddison and IMF estimates for the most recent
periods (2009). a Covers 29 economies. Growth
rates are expressed in constant internationally
comparable currency.
12
Will the future be differentNew Normality with
lower potential GDP in developed countries
Pre-crisis
Post-crisis
PIB potencial

Tasa de crecimiento 1.5
Tasa de crecimiento 2.4
Años
Fuente Sobre la base de la OCDE (2009) y el FMI
(2009).
13
much less aggregate demand from US
Fuente EIU (2009)
14
less trade ()
Fuente OCDE (2009)
15
Past experience shows.
Comparison between GDP-percapita with poverty
rates (Dlls and percentages)
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MAJOR GAPS

• INEQUALITY AND POVERTY RATES
• INCOME DISTRIBUTION AND SOCIAL PROTECTION
• EDUCATION
• PRODUCTIVITY
• INVESTMENT

17
THE MOST UNEQUAL REGION OF THE WORLD
Gini Coefficient in comparison with other regions
18
Frustration in terms of labor market and poverty
rates Regional unemployment rate could exceed
9 in 2009
LATIN AMERICA AND THE CARIBBEAN POVERTY, EXTREME
POVERTY AND UNEMPLOYMENT RATES a (Percentages)
Source Economic Commission for Latin America and
the Caribbean (ECLAC), on the basis of special
tabulations of household surveys conducted in the
respective countries. a Figures for poverty and
extreme poverty rates are based on estimates for
19 countries of the region, including Haiti. The
figures appearing above the bars are percentages
of the population. Figures for 2008 and 2009 are
forecasts.
19
Vicious circle in the life cycle

• Education,
• Deficits in education translate in unemployment,
  informality and low proctivity
• Salary gaps, lack of social protection in
  increasing ageing population

20
EXPORT-LED MODEL NEED TO CHANGE Comparison
between productivity and exports
Fuente División de Desarrollo Productivo y
Empresarial, CEPAL
21
PRODUCTIVITY GAP ADDS TO THE ENERGY CONSUMPTION
GAP
Índices de brecha energética y productividad
relativa, 1996-2006
Fuente División de Desarrollo Productivo y
Empresarial, CEPAL
22
ENERGY INTENSITY (BEP/1OOO US a precios de
2000) Indice 1980100
Fuente Elaboración propia con base en SIEE de
OLADE, y base de datos de la AIE
23
Technological frontier patents in 2006
Biotecnología Biotecnología
EEUU 41,5
Japón 11,9
UE27 27,4
Alemania 7
Reino Unido 4,5
Francia 3,6
España 1,3
Canadá 3,2
Korea 3
China 1,9
India 0,9
Brasil 0,3
Fuente OECD, 2008 Fuente OECD, 2008
Nanotecnología Nanotecnología
EEUU 40,3
Japón 19,0
UE27 26,7
Korea 2,7
Canadá 2,0
Australia 1,1
China 1,0
India 0,2
América Latina 0,3
Fuente Cepal (2008), sobre datos de OCDE Patent Database, 2008 Fuente Cepal (2008), sobre datos de OCDE Patent Database, 2008
24
INVESTMENT GAP
Inversión como del PIB en dólares del 2000
25
But the crisis also put in evidence important gaps

• Weakness of domestic productive structures
• Strong presence of industries extracting natural
  resources without value added
• Little or no innovation
• Wider productivity gap in the face of the
  emergence of new technological demands
• The international competitiveness of the
  countries of the region remains limited to either
  maquila or sectors intensive in natural
  resources

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EXCLUSION IN EDUCATION
18 COUNTRIES EDUCATION LEVELS BY (1990-2005)
Fuente CEPAL (2007). Panorama Social de América
Latina 2007. /a. El porcentaje de conclusión de
la primaria se estimó sobre la población de 15 a
19 años, en la secundaria se consideró como
universo la población de 20 a 24 años y en la
terciaria a la población de 25 a 29 años.
26
27
The capacity to respond to the crisis is
different among countries
LATIN AMERICA AND THE CARIBBEAN SCOPE OF THE
MEASURES ADOPTED TO 31-05-09 IN ORDER TO DEAL
WITH THE CRISIS (Number of countries that have
adopted the measure)
Source Economic Commission for Latin America and
the Caribbean (ECLAC) on the basis of official
information.
28
But the space to finance counter-cyclical
policies is shrinking
LATIN AMERICA AND THE CARIBBEAN CURRENT ACOUNT
AND FISCAL BALANCE, 2000-2009 a (Percentage of
GDP)
Source Economic Commission for Latin America and
the Caribbean (ECLAC), on the basis of official
figures. a The 2009 figures are forecasts.
29
A new role for the State

• Define a long term vision a pre-analytical
  framework
• A new fiscal policy with a new social covenant
• Chose the right mix of public policies
• Search a more proactive relation with the market
• Protect the most vulnerable sectors
• Ensure inclusive development through spreading of
  technology and innovation
• Fostering a green economy

30
The crisis highlights the need for a new fiscal
covenant

• Main objective to foster equality
• From assistance-based to universality based on
  rights
• Tax reform based on efficiency and progressiveness

31
Tax revenues are low and constrains public
expenditure
LATIN AMERICA AND THE CARIBBEAN FISCAL REVENUE
AND SOCIAL SPENDING (Percentage of GDP)
Source Economic Commission for Latin America and
the Caribbean (ECLAC), on the basis of official
figures.
32
Tax policies are regressive in the majority of
Latin American countries
LATIN AMERICA AND THE CARIBBEAN GINI COEFFICIENT
BEFORE AND AFTER TAXES (Coefficients)
Source Economic Commission for Latin America and
the Caribbean (ECLAC), on the basis of Gómez
Sabaini, Repensar lo social en tiempos de
crisis, May 2009.
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POLITICS IS BACK

• Provision of public goods
• Universal social protection
• Innovation and knowledge
• Productive convergence
• Energy efficiency and security
• Cut back carbon emissions
• Regional and subregional integration beyond trade