OECD Seminar on Latin American Economies, Paris, 24 November 2010
Beyond the crisis - Returning to sustainable growth in Latin America
Remarks by Angel Gurría, OECD Secretary-General
Ladies and gentlemen,
Welcome to the OECD and to this seminar that highlights the growing importance that our Organisation attaches to its work in and with Latin America.
When Chile joined the OECD earlier this year, we knew that we were not only welcoming a new member, but embracing a whole continent: the northern-most country of Latin America, Mexico, has been a member of the OECD for 16 years; and now that we also have one of its two southern-most countries as a new member we can certainly say that we are giving a “gran abrazo” to the whole region.
But OECD’s engagement with Latin America goes beyond membership. We have been working with all of you in various formats within our committees and working groups: the OECD and Brazil work together in an enhanced engagement strategy launched in 2007 with our major emerging partners; Colombia is an active participant in our activities and has identified OECD membership as a strategic priority; Argentina has strengthened its ties with the OECD through the G20; and we work with many other countries in the region, particularly through the Development Centre, where Peru, Costa Rica and the Dominican Republic are also members. Strategically, the OECD is ready to play a substantive partnership role to improve Latin America’s development outlook.
Thus, we thought it was time to step up our collaboration. The purpose of today’s seminar is to explore what the OECD can offer Latin America to achieve sustainable long-run growth supported by solid public finances. But we also want to take this opportunity to hear about the best practices in your countries, from which the OECD has much to learn.
Latin America has made important progress
Latin America’s position in the global political arena is getting stronger. Brazil, Mexico and Argentina are members of the G20. Chile is a country of best practices when it comes to sustainable public finances or the pension system. And the region as a whole plays a key role in addressing some of the most pressing global challenges, like climate change.
Latin America has also come a long way in improving the living standards of its people. Most countries in the region were hit by the crisis. But now, every country around this table is recovering quickly. Short-term prospects are, in fact, better than in OECD countries. Inflation, fiscal positions and the financial sectors of Latin America have remained relatively stable throughout the crisis – in sharp contrast to the OECD economies.
I cannot stress enough what an important achievement this is after decades of macroeconomic instability, recurring currency and financial crises and episodes of hyperinflation. Thus, long-term growth and convergence towards higher living standards have started to pick up. In the years before the financial crisis, Latin America grew fast by its own past record – at an average of 4.7% annually between 2003 and 2008. The region has also pioneered some of the most innovative social policy programmes, including conditional cash transfers that help poor households invest in their human capacity.
But Latin American Countries have still much work to do
Although Latin America has come a long way, we still have a lot of homework. Growth still lags behind most emerging regions. Average GDP per capita in Latin America and the Caribbean grew 3 ½ % in the six years before the recession, compared to 9 % in developing countries in East Asia and the Pacific and 10 ½ % in China. And when it comes to inequality, Latin America still remains a leader, notwithstanding recent improvements. The continent also needs to do more to move towards a cleaner economy: high energy subsidies in many countries weigh on the environment on public finances and the distribution of income.
Increasing productivity and investments will be key for a return to sustainable growth. We also need to improve macroeconomic management, strengthen competition and enhance education and training. Although it is difficult to identify policy issues for the region as a whole, there are a number of challenges faced by all or virtually all Latin American countries. I won't give an exhaustive list, but I can mention two issues at the heart of any discussion of long-term growth and development strategies.
The first has to do with fiscal policy. At present, there is a lot of talk on fiscal consolidation, in many countries in the region. And certainly now is the right moment to institutionalise good practices developed in the last decade: Chile is reassessing its fiscal rule; Colombia just passed a law establishing a fiscal rule of its own. Mexico already has one.
But fiscal policy goes beyond macro stabilisation. Fiscal policy can help states access the resources needed to confront social and economic problems -- as Brazil has done with Bolsa Família and Mexico with Progresa/Oportunidades. More generally, reform of taxes and spending holds the promise of renewing the social contract between governments and their citizens, providing public services of reasonable quantity and quality in exchange for taxes that are fair, progressive and transparent. The flip side of improved tax systems is higher efficiency of budget expenditures. This is particularly important in a region with persistent high levels of poverty and inequality, where better allocation of public spending should yield high social returns.
A second challenge has to do with education -- which is the theme of this year's Ibero-American Summit next week in Mar del Plata. Education is a powerful lever for promoting social mobility and better opportunities for all young Latin Americans. But education also improves the capacity of economies to grow and to innovate, to absorb the best ideas the world can offer, and to generate and use excellent ideas of our own. Improving the coverage and quality of education addresses two deep-seated economic challenges: curbing inequality and spurring productivity growth. Latin America is particularly lagging behind in these areas, while the young population offers a window of demographic opportunity.
The OECD is there to help!
The OECD seeks a richer dialogue with Latin American countries precisely because we permanently grappled with fiscal reform, education and a host of other policy issues, particularly those that can strengthen productivity and improve the quality of public finances. We don’t have a silver bullet to solve all policy dilemmas: far from it. For example, in the case of education the three countries that have excelled in our PISA study –Finland, Korea, and Canada—have vastly different educational systems, histories and institutions.
What the OECD offers is a methodology -- peer learning, benchmarking and monitoring. We analyze experiences of policy making, good and bad, to avoid pitfalls and to see how good outcomes can be translated from one setting to another. And peer learning can only be enriched by widening the circle of discussion. Therefore, this dialogue with Latin America promises to be as useful to us as it is to you.
Against this background, some of our Member countries have launched a Latin American Initiative focusing on four pillars: sustainable public finances and taxation; investment; innovation; and public service delivery. Let me invite you to join and actively promote this initiative.
“Going structural” should be a core element of policy reform in Latin America. This goes hand in hand with the exploration of new sources of growth, through innovation and through green growth.
Joint public/private investments in infrastructure, in renewable energies, in information and communication technologies or in the service sector could yield outstanding returns in terms of growth and employment and support Latin-American countries in their efforts to diversify their economies, increase their productivity and thus enhance their competitiveness.
We at the OECD are happy to support Latin America with the analyses and policy recommendations from our Innovation Strategy, our Green Growth Strategy, our Latin America Initiative, our work on social policy, on education reform (through programmes like PISA, PIAAC, Talis, CERI and AHELO), on health reform and many other areas of public policy-making.
Ladies and gentlemen, dear friends and colleagues,
Without further delay, let me open the floor to our speakers. I am sure that you are looking forward to a very interesting and informative day.