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
1
OECD & Latin America A growing 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 2007; Brazil:
enhanced cooperation since May 2007
Economic Surveys:
1992, 1995, 1997, 1998, 1999
2000, 2002, 2003, 2005, 2007
2003, 2005, 2007
2000, 2005, 2006
Latin American Economic Outlook 2008
2
Development Centre Bridging OECD & emerging economies
• 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
3
The Context Slower growth, not shared with the poor
by quintile
GDP per capita
25
by quintile
GDP per capita
Quintile annual growth
7 7 25
Quintile annual growth
6 Latin America 20 6 Sub-Saharan Africa
20
in GDP per capita
5
in GDP per capita
15 5
4 4 1994 2002 growth 15
3 1993 2003 change 10
3 10
2
5 2
1 5
0 0 1
-1 0 0
Q1 Q2 Q3 Q4 Q5 Q1 Q2 Q3 Q4 Q5
by quintile
GDP per capita
by quintile
GDP per capita
Quintile annual growth
7 80
7 Developing Asia 25 OECD*
Quintile annual growth
6
in GDP per capita
6 20 60
5
in GDP per capita
5 1990 2000 growth
15 4
4 40
3
3 1992 2002 change 10
2 20
2
5 1
1
0 0
0 0
Q1 Q2 Q3 Q4 Q5
Q1 Q2 Q3 Q4 Q5
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, 4
Sweden, UK, US.
The Context Democratic consolidation
70
Satisfaction with Democratic Performance
Uruguay
60
Venezuela
50 Argentina
Costa Rica
Domincan Republic
MexicoPanama Chile
40 Bolivia
Brazil
Colombia Honduras
30 Guatemala
Nicaragua El Salvador
Ecuador Peru
20
Paraguay
10
0
4.00 5.00 6.00 7.00 8.00 9.00 10.00
BTI Democratic Quality Index
Source: Latinobarómetro (2007), Bertelsmann Transformation Index (2007)
5
1 Pension Reform: What Benefits?
2 Telecommunications and Development
3 China and India: Threats and Opportunities
4 Fiscal Policy: A Critical Tool for Development
6
Pension Reform A mixed impact on national savings
Argentina Chile Colombia Mexico Peru
32
Chile
28
Saving / GDP (%)
Mexico
24
Mexico
20 Colombia
Peru
Argentina
Argentina
16
Peru
Colombia
Chile
12
8
-2 -1 0 1 2 3 4 5 6 7 8
Years since start of reform
Source: OECD Development Centre (2007), based on World Bank Development Indicators.
7
Pension Reform Development /deepening of financial markets
Pension Fund Assets as percentage of GDP, 2006
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Chile
Brazil
Colombia
Peru Latin America
Argentina
Mexico
Hungary
Czech Rep.
Estonia Other Emerging
Economies
Latvia
United States
UK
Canada
Japon Advanced Economies
Spain
France
Source: OECD Development Centre (2007), based on Global Pension Statistics database.
8
1 Pension Reform: What Benefits?
2 Telecommunications and Development
3 China and India: Threats and Opportunities
4 Fiscal Policy: A Critical Tool for Development
9
Telecoms Latin America leads developing world in telecoms FDI
FDI in telecommunications, by
region
4% 3%
6%
7%
Latin America and
56% Caribbean
24%
Central and Eastern
Europe
South East Asia
South Asia
Middle East and
Northern Africa
Sub-Saharan Africa
Source: OECD Development Centre, based on PPI Database, World Bank Source: Information and Communications for Development 2006,
World Bank
10
TelecomsInvestment in telecommunications has
FDI-led increase in connectivity
The number of telephone lines has increased by a factor of 10 in Latin America,
in part because of foreign investment
Foreign Investment in Telecommunications and connectivity
Cumulative Foreign Investment in Telecommunications (in USD billion)
Telephones per 100 inhabitants
120
100
80
60
40
20
0
1990 1995 2000 2005
11
Source: OECD Development Centre, based on SEDLAC (2007) and IADB (2007) data.
Telecoms Unequal distribution of benefits
Inequality is high: a quarter of poor households have a telephone at home, 3 times
less than high-income households
Proportion of the population with a telephone at home
Richest quintile Poorest quintile
1
0.8
0.6
0.4
0.2
0
Paraguay
Nicaragua
Chile
Argentina
Brasil
Costa Rica
Perú
Haití
Bolivia
México
Source: OECD Development Centre, based on SEDLAC surveys.
12
Telecoms Limited contestability of markets
Index (Herfindahl-Hirschman) of concentration on the telephone market
Telephone lines, by segment
Costa Rica
Nicaragua
Uruguay
Paraguay
Peru
Mexico
Guatemala
Chile
Argentina Fixed
Brazil
Bolivia Mobile
Colombia
0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000
Perfect competition
Monopoly
Source: OECD Development Centre, based on companies’ data.
13
1 Pension Reform: What Benefits?
2 Telecommunications and Development
3 China and India: Threats and Opportunities
4 Fiscal Policy: A Critical Tool for Development
14
China/India Opportunities for trade development
* Latin American countries competition* vs. Chinese
Asian economies competition vs. Chinese exports to
US, % , 2005 main export products, 2005
70 60%
60 50%
50 40%
% of exports
% of exports
40 30%
30
20 20%
10 10%
0 0%
åa n
it an
jt
1
*Value of exports to US from China in same product categories as *Arithmetic average of the following indexes: CC=
å
n
( a it ) 2 å ( a n ) 2
n
jt
and CS= 1 - å aitn - a njt
2 n
country´s exports, as % of country´s total exports to US n n
where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in
:Source C.HJ.Kwan, Nomura Institute of Capital Markets Research time t.
Source: OECD Development Centre, 2006
Based on Working Paper by Blázquez, Rodríguez and Santiso, 2006
15
China/India Strong demand for Latin American exports
China’s and India’s rising demand for Latin American Increasing commodities prices
commodities (1998-2005) (1900-2005)
Aluminium Coffee
Price index (1970=100)
Agricultural Raw Materials 2000
1 200 Copper Petroleum
Food
1 000 Ores & Metals 1600
$ millions
800 1200
600 800
400
400
200
0
0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
1998 2001 2003 2005
Rise in mineral exports from Latin America
Rise in Indian imports from Latin America
(1998-2005)
(1997-2005)
Petroleum and products (left)
1000 Sugar/mollasses/honey 120 000 10 000
Copper ores/concentrates (right)
.
Copper ores/concentrates Nickel ores/concs/etc (right)
800 100 000 8 000
$ millions
Fixed veg oil/fat, soft $ millions
$ millions
. 80 000
600 6 000
60 000
400 4 000
40 000
200 20 000 2 000
0 0 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 1998 1999 2000 2001 2002 2003 2004 2005
16
Source: OECD Development Centre, based on WITS Database, 2007.
China/India Excessive specialisation in commodities exports?
Source: OECD Development Centre, 2007. Based on WITS and Comtrade data.
17
1 Pension Reform: What Benefits?
2 Telecommunications and Development
3 China and India: Threats and Opportunities
4 Fiscal Policy: A Critical Tool for Development
18
Fiscal legitimacy Revenues are low and structurally regressive
% of GDP (2005)
16
14
12
10
8
6
4
2
-
Taxes on goods Taxes on Social security Taxes on Others
and services income, profits contributions property
and capital gains
LAC OECD
Source: OECD Development Centre (2008), OECD (2007), Revenue Statistics 1965-2006 for OECD countries
19
Fiscal legitimacy Spending constrained by low revenues
Government Revenues/GDP
50.0
42.3 42.6 42.6 42.1
40.0
26.9 26.5 28.2
30.0 25.6
20.0
10.0
0.0
1990-2006 1990-1994 1995-1999 2000-2006
Latin America OECD
Government Expenditures/GDP
50.0 46.3 44.2
43.8 42.4
40.0
27.8 29.3
30.0 26.4 27.1
20.0
10.0
0.0
1990-2006 1990-1994 1995-1999 2000-2006
Source: OECD Development Centre (2008)
20
Fiscal legitimacy Little redistribution through taxes and transfers
Inequality before and after taxes and transfers The effects of taxes and transfers
(% change in inequality)
Points of Gini change
Gini coefficient
Source: OECD Development Centre, 2007. Based on data by Goñi, López, and Servén (2006)
21
Fiscal legitimacy Quality as well as quantity
Education Expenditures and Performance
600
550
Mathematics Score
500 Slovak Republic
Poland
(PISA 2003)
Norway
Spain United States
450
Thailand
Uruguay
400
Indonesia Mexico
350
Tunisia
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)
22
Fiscal legitimacy … is closely linked to democratic legitimacy
50
Costa Rica
45
Uruguay
40
(% satisfied with democracy)
Venezuela
Democratic performance
Honduras
35 Nicaragua
Argentina Chile
El Salvador
30
Bolivia Brazil
25
Panama
Ecuador
Colombia
20 Guatemala
Mexico
15
10
Peru
Paraguay
5
0
0 5 10 15 20 25 30
Fiscal legitimacy (% who trust taxes are well spent) 23
Source: OECD Development Centre, 2007. Based on Latinobarómetro (2003).
Fiscal legitimacy Closely linked to inequality
35
Uruguay Chile
30
Venezuela
El Salvador
25
(% trust taxes well spent)
Dominican
Fiscal legitimacy
Honduras
Republic
20
Argentina
Nicaragua Colombia
15 Paraguay Brazil
Costa Rica Panama Bolivia
Mexico Guatemala
10 Peru Ecuador
5
0
0.4 0.45 0.5 0.55 0.6 0.65 0.7
Inequality (Gini coefficient 2000s)
Source: OECD Development Centre, 2007. Based on Latinobarómetro (2003, 2005) and ECLAC’s Panorama 24
Social
Fiscal legitimacy The role of international capital markets
Are international investors less spooked today by Latin
American elections?
Investment banks' recommendations during presidential elections
(Window:-9 months before and +9 months after the election)
Brazil: recommendations Presidential election date
0,5
(1:overweight, 0:neutral, -1:underweight)
1.00 0,4
before 2006 2006
0,3
0,2
0.50
0,1
0,0
0.00
-0,1
-0,2
-0.50 -0,3
-0,4
-1.00 -0,5
Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9
Source:The authors from investment banks' publications, 2007 Source: The authors based on investments banks' publications , 2008
BRAZIL: Lula’s story Investment banks’ recommendations
regarding sovereign debt surrounding
elections
25
LEO 2009 Fiscal Policy and Latin American Development
• 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
26
Latin American Economic
Outlook 2008
www.oecd.org/dev/leo
Vielen Dank!
Thank you
Merci
Obrigado
Gracias
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