Remarks by Angel Gurría, OECD Secretary-General, delivered at the Economic Commission for Latin America and the Caribbean
Santiago, 11 January 2010
Executive Secretary Bárcena,
Ladies and Gentlemen,
It is a great pleasure to be here at ECLAC to address this distinguished audience.
First, the good news: a recovery is now underway, and most OECD and emerging economies are growing again. Financial market conditions are slowly continuing to return to normal and world trade is showing signs of a rebound. According to our latest OECD Economic Outlook, real GDP growth in the OECD has been positive for the last two quarters of 2009. Yet, in spite of these encouraging numbers, the overall figures for the year 2009 are mixed. OECD economies will shrink by 3.5%. Growth, though positive, will remain modest in 2010 and 2011, at 1.9% and 2.5% respectively.
An unprecedented combination of macroeconomic measures and massive stimulus packages has helped us avoid the worst consequences of the crisis; and emerging markets, particularly China and India, have now become important engines of growth for OECD countries.
Nonetheless, we’re not out of the woods yet. Economic growth in OECD countries is likely to be relatively modest for some time to come; the international financial system is still suffering from a lack of confidence; and global flows of trade, investment and tourism will take time to recover. Our latest analysis show that recent crises are generally followed by lower levels of potential output in many countries and rising structural unemployment rates.
Indeed, unemployment rates are still at record levels in many countries. This crisis has cost many, many people their livelihood. In the OECD area alone, more than 16 million jobs disappeared between the start of 2008 and the end of 2009, and jobs will continue to be lost well into 2010. Unemployment in Europe has already hit 10%, while the United States continues to shed jobs (85 000 last December), with its unemployment rate also stuck at 10%.
Another worry is that fiscal balances will remain heavily negative throughout the OECD for several years. Gross debt could exceed 100% of GDP on average in OECD countries by 2011. Good policy-makers are already crafting their exit strategies and indicating to markets how they will wind down the exceptional measures and implement fiscal consolidation.
Latin America has not escaped the global crisis. As a region with strong trade, investment, migration and financial links with the rest of the world, it is naturally sensitive to external shocks. In spite of its improved macroeconomic fundamentals, better economic governance, and healthier financial systems, the region’s GDP is expected to contract between 1.5% and 2% in 2009. Of course, there are some major contrasts: while Mexico may experience a dramatic drop in GDP of around 7%, Brazil is expected to experience zero or slightly positive growth in 2009.
While Chile has also been hit hard by the collapse of world trade and falling commodity prices, it has weathered the crisis better than other small open economies. Its economy bounced back in mid-2009, and growth is estimated to have been positive during the second half of 2009. Our latest growth forecasts from November envisage -1.8% in 2009 and + 4.1 % in 2010. Going forward, activity is set to gain pace gradually in 2010, and actual growth should exceed potential in 2011.
Nevertheless, job markets in Latin America have been hard hit by the crisis. Both the ILO and ECLAC forecast that the unemployment rate in Latin America could reach 8.5% in 2009, raising the number of unemployed in the region to 18.4 million people.
In less advanced economies, with fewer resources for social protection, the consequences of unemployment are immediate and dramatic: as many as 9 million Latin Americans may have fallen below the poverty line as a result of this crisis. This puts a serious dent in the impressive poverty reduction achieved during the economic boom of 2003 to 2007.
Against this backdrop it is important not only to provide targeted assistance and support for the most vulnerable, but also to look at new sources of growth for a sustainable recovery. If Latin American countries want to be more competitive and productive in the future, their economies will have to diversify from their dependence on commodities.
This is true for oil in Mexico as well as for copper in Chile. Joint public/private investments 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 and increase their productivity.
The crisis has opened up unique opportunities to pursue pending reforms in key sectors such as education, health, finance, labour, competition and the environment. The OECD will now be better able to support Chile, sharing experience on policies that have worked in other countries, and on those that have worked less well.
The way each country is facing the challenges posed by the crisis reflects its fiscal and institutional capacity; but, beyond the short-term response, I would like to highlight three priorities for Chile: first, promoting productivity growth through competition and innovation; second, fostering new sources of growth, in particular through new types of “green growth”, by promoting innovation and renewable energies; and third, tackling the issue of unequal opportunities, through sound education and social protection policies.
Let’s take these one at a time: Firstly, the economic growth model in coming decades has to be smart. By “smart” I mean a growth model that is based on innovation, which is crucial for tackling Chile’s challenges in terms of productivity, improved competitiveness and long-term growth. In the past few decades, new technologies, new industries and new business models have secured impressive gains in productivity and growth across the world. At our Ministerial Meeting next May, we shall present the final version of our innovation strategy, on which we have been working for two years, thus enabling Chile to share and benefit from its conclusions and recommendations.
Our forthcoming economic survey on Chile shows that reforms to strengthen competition, entrepreneurship and innovation would go a long way toward enhancing productivity. Entrepreneurship could also be strengthened by reducing regulatory “red tape” for start-ups and by simplifying bankruptcy procedures.
Second: we must make our growth model cleaner and greener. “Green growth” will require a shift in both public and private investments; and the limited public funds available need to be carefully targeted and accompanied by the right policy frameworks to help leverage private financing. We will work with Chile in the context of preparing our Green Growth Strategy, as commissioned by our Council of Ministers last June, for delivery in 2011.
Third, education and social protection: Chile’s scores in the Program for International Student Assessment (PISA), in which some 70 countries participate, have improved recently, but they still fall short of OECD standards even after account is taken of the country’s lower income level. The fact that its scores are also more heavily dependent on students’ socio-economic background than in any OECD country shows that equity is a major education policy challenge in Chile. Income inequality is very high by OECD standards (Chile’s GINI index is the highest in the OECD), and this poses challenges for building an integrated society.
In the longer term, Chile will need to increase its public programmes in the education and social protection areas. Higher education spending will need to be accompanied by a comprehensive education reform.
These are some of the areas in which we could support Chilean policy-makers with our 50 years’ experience, together with our analyses and public policy recommendations. But it will be the Chilean authorities themselves who decide how best to take advantage of OECD expertise.
Let me end by mentioning that just a few hours ago we formalised Chile's accession to the OECD. As the Organisation’s first South American member, its accession will make the OECD more inclusive and more global.
Greater cooperation and more inclusiveness is exactly what we need after the worst economic crisis in our lifetime. The crisis has also shown us that we need new mechanisms for international dialogue, cooperation and concerted action.
This is one of the many reasons why we are so glad to have Chile “on board”. The “OECD and Chile” will work together on these issues, to make both the world and the Chilean economies even stronger, cleaner and fairer.
Thank you very much.