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OECD Secretary-General

The challenges of the global economic situation for Latin America

 

Speech by Ángel Gurría 

OECD Secretary-General

11 October, 2019 - Montevideo, Uruguay

(As prepared for delivery)

 

 

 

Dear Enrique, Secretary-General Grynspan, Ladies and Gentlemen,


I am honoured to be taking part in the tenth anniversary celebrations of the Astur Foundation through my dear friend Enrique V. Iglesias.

 

Latin America, a region vulnerable to the current international climate

This event is taking place at a key moment, in that the socio-economic and political climate is increasingly uncertain. The world economy has been weakening and, like other international organisations, we have revised downwards this year's macroeconomic forecasts. For 2019, the OECD expects global GDP growth of just 2.9%, six-tenths of a percentage point lower than in 2018 (3.5%).


World trade has also been affected by tensions between the USA and China and the growing uncertainty in Europe surrounding Brexit. Global trade fell in the second quarter of 2019 and trade growth between now and the end of the year is expected to fall well below the 3.9% observed in 2018.


Investment flows to and from OECD countries have also declined significantly since 2015, while volatility in the financial markets has increased.
This international deterioration is affecting the economies of Latin America, many of which are very open to global trade and investment flows. In fact, ECLAC estimates that the global slowdown will have negative repercussions on 21 of the 33 countries in the region in 2019.


The decline in the economic outlook for the region is plain to see. After a good regional performance lasting several years, economic activity in Latin America has been growing below the OECD average since 2014, and average regional GDP growth currently remains on a downward trend, from 1.3% in 2017 to 0.9% in 2018, and, according to ECLAC estimates, to 0.5% in 2019.

 

Some progress must be acknowledged

Despite this complex regional picture, we should not lose sight of the progress achieved by the region. In recent years, some Latin American countries have made advances in terms of macroeconomic stability, per capita income levels, the well-being of their inhabitants, the consolidation of the "middle classes", and the strengthening of institutional capacities.


Between 2007 and 2016, life expectancy at birth increased by an average of 1.9 years in Latin American and Caribbean countries, compared to an OECD average of 1.4 years. Countries like Colombia, Mexico and Peru have introduced reforms of their judicial systems to combat impunity. Likewise, the fight against corruption has been placed at the heart of the political agendas of countries in the region, and reinforced with concrete initiatives such as the Lima Commitment.


The connectivity of Latin Americans has also improved. Between 2014 and 2017, mobile broadband access in the region increased from 50 to 70 subscribers per 100 people. And citizens are getting closer to their governments thanks to numerous e-Government initiatives.


In addition, some countries are establishing their own roadmaps for structural reforms, with the aim of strengthening productivity and improving social cohesion.


Uruguay is one of the countries to have made the most progress. Overall, the Uruguayan economy has solid foundations thanks to the diversification of its markets, products and services, and from a solid macroeconomic policy, ample liquidity and prudent fiscal management, which results in better resilience to external shocks. Uruguay has managed to maintain inclusive growth despite a complicated regional and international backdrop. In addition, it is currently not only the country with the highest per capita income in Latin America, but it is also the least unequal.


Despite these advances, most of the countries in the region continue to face structural challenges that are not allowing them to get off the ground.

 

The major challenges facing Latin America

Firstly, labour productivity in the region remains at a standstill. In 2017, it represented only 40% of labour productivity in the European Union, although in Uruguay it reached 56% of the European level. These low levels are related to the absence of structural changes geared towards innovation and more knowledge-intensive production, but also to the low levels of higher education and the lack of the skills and abilities required by the markets. This is further compounded by the precariousness of the logistics systems and the regional infrastructure.


Secondly, the fight against poverty has been ineffective. Over half of the population of Latin America either lives in poverty or is at risk of poverty. The vulnerable middle class represents 40% of the population of Latin America, and the majority of its members work in informal jobs and have no social protection.


It should be noted that Uruguay is one of the countries in the region where growth has been truly inclusive, as can be seen in the impressive reduction in poverty and inequality in recent years. Between 2007 and 2017, the Gini index improved from 46.4% to 39.5%, while poverty went from almost 30% of the population in 2007 to only 8% in 2018, making it the LAC country with the least poverty.


Thirdly, challenges at the institutional level persist. Citizens today have higher aspirations, but these remain unsatisfied. In fact, the satisfaction of LAC citizens with core public services such as the health and education systems fell between 2006 and 2017. There are, however, substantial disparities in the region. For example, 66% of Uruguayans are satisfied with their country's health system, while this is the case for only 33% of Chileans. 


The inability to meet citizens' demands causes a deterioration in attitudes to taxation, which contributes to the fact that one in two Latin Americans think that it is justifiable not to pay taxes. This, in turn, eats away at the public resources needed to finance quality public services. 


Lastly, one of the greatest challenges facing the LAC region is the environment. This challenge has been highlighted by the great losses in the Amazon. Latin America is home to 40% of the world’s biodiversity; however, a very significant proportion of its economic activity promotes the use of energies and systems that threaten or destroy this biodiversity. We have to be more creative in developing economic activities which make the most of this biodiversity, but in a sustainable manner, without damaging it. And we need to be stricter about protecting this important heritage.


To meet these and other challenges, the countries in the region should continue their efforts to reform so as to further promote stronger, more inclusive and more sustainable growth. To this end, the OECD, based on the analysis of the Development Centre and the latest Latin American Economic Outlook, recommends making progress in four priority areas of action.

 

Four areas of action for Latin America

  1. Firstly, improve the process for making development policies, which requires improving policy design, implementation and monitoring processes. To achieve this, the OECD recommends: building the capacities of key actors in the policy making process to develop long-term strategic plans; improving statistical capacity; using digital technologies; and increase and improve public spending for development.

  2. Secondly, although in the last decade we have seen improvements in several areas affecting well-being, the region must continue to promote the quality of education for all and to encourage the competencies, skills and abilities necessary for the future of work. It must also promote active policies that foster the creation of formal jobs and guarantee a minimum level of health and pension conditions for the most disadvantaged. Finally, better digital and transport connectivity are essential for entrepreneurship and the well-being of citizens. 

  3. Thirdly, improve national development funding. To do so, it is essential to improve the structure of the tax system in most countries, through reforms that improve the progressivity of the system; reduce distortions, tax avoidance and evasion; and eliminate tax expenditures that are significantly reducing tax collection in some countries.

  4. Lastly, it is necessary to rethink international co-operation as a facilitator of sustainable development. For this, it will be crucial to involve countries at all levels of development to encourage their participation in multilateral partnerships; as well as to expand instruments such as knowledge sharing, policy dialogue, capacity building, technology transfer and R&D co-operation. Putting these tools in the hands of more actors could also create more enriching interactions.

 

Uruguay’s International Cooperation Policy for Sustainable Development by 2030 has already taken inspiration from some of the suggestions in the search for new forms of co-operation.


Ladies and Gentlemen,


Latin America is a region of vital importance to the OECD. For this reason, we have strengthened our collaboration, supporting and accompanying the region in its reform agenda and in the exchange of best practices through, for example, the work of the OECD Development Centre, the Regional Programme for Latin America, and the OECD country programmes.


We shall continue to support the region so that these countries achieve resilient, inclusive and sustainable growth and their citizens are not forced to emigrate; so that their children and young people grow up with the best possible education; and so that their cultures continue to flourish and bring wealth and wisdom to the world.


The OECD is ready to further support this great effort. Thank you.

 

 

 

See also:

OECD work on Economy 

 

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