latin america’s development challenges

1

Latin America’s Development Challenges

Lessons from the OECD Latin American Economic Outlook

www.oecd.org/dev/leo

Jeff Dayton-JohnsonSenior Economist and Head of the Latin America and Caribbean Desk

OECD Development Centre

Bertelsmann StiftungBerlin, 5 June 2008

2

• 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:

Latin American Economic Outlook 2008

1992, 1995, 1997, 1998, 19992000, 2002, 2003, 2005, 2007

2003, 2005, 2007

2000, 2005, 2006

OECD & Latin AmericaOECD & Latin America A growing commitment

3

• Membership of the Development CentreWith 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

Development CentreDevelopment Centre Bridging OECD & emerging economies

4Source: 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,

Sweden, UK, US.

0

5

10

15

20

25

-101234567

Q1 Q2 Q3 Q4 Q5

Latin America

1993 2003 change

GD

P p

er ca

pita

b

y qu

intile

GD

P p

er ca

pita

b

y qu

intile

GD

P p

er ca

pita

b

y qu

intile

GD

P p

er ca

pita

b

y qu

intile

Qu

intil

e a

nn

ua

l gro

wth

in

GD

P p

er

cap

itaQ

uin

tile

an

nu

al g

row

th

in G

DP

pe

r ca

pita

Qu

intil

e a

nn

ua

l gro

wth

in

GD

P p

er

cap

itaQ

uin

tile

an

nu

al g

row

th

in G

DP

pe

r ca

pita

The ContextThe Context Slower growth, not shared with the poor

5Source: Latinobarómetro (2007), Bertelsmann Transformation Index (2007)

The ContextThe Context Democratic consolidation

6

11 Pension Reform: What Benefits?Pension Reform: What Benefits?

44 Fiscal Policy: A Critical Tool for DevelopmentFiscal Policy: A Critical Tool for Development

Telecommunications and DevelopmentTelecommunications and Development22

33 China and India: Threats and OpportunitiesChina and India: Threats and Opportunities

7

Source: OECD Development Centre (2007), based on World Bank Development Indicators.

Pension ReformPension Reform A mixed impact on national savings

8

Pension Fund Assets as percentage of GDP, 2006

Source: OECD Development Centre (2007), based on Global Pension Statistics database.

Pension ReformPension Reform Development /deepening of financial markets

9





10

56%24%

7%

6%4% 3%

FDI in telecommunications, by region

Latin America and Caribbean

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

TelecomsTelecoms Latin America leads developing world in telecoms FDI

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Investment in telecommunications has

Source: OECD Development Centre, based on SEDLAC (2007) and IADB (2007) data.

The number of telephone lines has increased by a factor of 10 in Latin America, in part because of foreign investment

TelecomsTelecoms FDI-led increase in connectivity

12Source: OECD Development Centre, based on SEDLAC surveys.

Inequality is high: a quarter of poor households have a telephone at home, 3 times less than high-income households

TelecomsTelecoms Unequal distribution of benefits

13

0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

Colombia

Bolivia

Brazil

Argentina

Chile

Guatemala

Mexico

Peru

Paraguay

Uruguay

Nicaragua

Costa Rica

Index (Herfindahl-Hirschman) of concentration on the telephone marketTelephone lines, by segment

Fixed

Mobile

Source: OECD Development Centre, based on companies’ data.Monopoly

Perfect competition

TelecomsTelecoms Limited contestability of markets

14





15

::SourceSource C.HJ.Kwan, Nomura Institute of Capital Markets Research C.HJ.Kwan, Nomura Institute of Capital Markets Research

Source: Source: OECD Development Centre, 2006OECD Development Centre, 2006

Based on Working Paper by Blázquez, Rodríguez and Santiso, 2006Based on Working Paper by Blázquez, Rodríguez and Santiso, 2006

*Value of exports to US from China in same product categories as country´s exports, as % of country´s total exports to US

*Arithmetic average of the following indexes: CC= and CS=

where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in time t.

å --n

njt

nit aa

2

11

åå

å

n

njt

n

nit

n

njt

nit

aa

aa

22 )()(

% o

f exp

orts

% o

f exp

orts

Asian economies competition*

vs. Chinese exports to US, % , 2005

010203040506070

Thailand

Chine

se T

aipe

i

Indo

nesia

Malay

sia

Philipp

ines

Sout

h Ko

rea

Sing

apor

e

Japa

n

Latin American countries competition* vs. Chinese main export products, 2005

0%

10%

20%

30%

40%

50%

60%

Méx

ico

Brasil

Colom

bia

Argen

tina

Perú

Urugu

ayChi

le

Venez

uela

China/IndiaChina/India Opportunities for trade development

16Source: OECD Development Centre, based on WITS Database, 2007.

China/IndiaChina/India Strong demand for Latin American exports

17

Source: OECD Development Centre, 2007. Based on WITS and Comtrade data.

China/IndiaChina/India Excessive specialisation in commodities exports?

18





19

Source: OECD Development Centre (2008), OECD (2007), Revenue Statistics 1965-2006 for OECD countries

Fiscal legitimacyFiscal legitimacy Revenues are low and structurally regressive

20

Government Revenues/GDP

Government Expenditures/GDP

Source: OECD Development Centre (2008)

Fiscal Fiscal legitimacylegitimacy Spending constrained by low revenues

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Source: OECD Development Centre, 2007. Based on data by Goñi, López, and Servén (2006)

Gin

i coe

ffic

ient

Inequality before and after taxes and transfers

Po

ints

of

Gin

i ch

an

ge

(% c

ha

ng

e in

ine

qu

alit

y)

The effects of taxes and transfers

Fiscal legitimacyFiscal legitimacy Little redistribution through taxes and transfers

22Source: OECD Development Centre, 2007. Based on PISA (2003) and OECD Education at a Glance (2005)

Education Expenditures and Performance

Mexico

NorwayPolandSlovak Republic

Spain United States

Brazil

Indonesia

Thailand

Tunisia

Uruguay

300

350

400

450

500

550

600

- 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

Mat

hem

atic

s S

core

(P

ISA

200

3)

Fiscal legitimacyFiscal legitimacy Quality as well as quantity

23Source: OECD Development Centre, 2007. Based on Latinobarómetro (2003).

Argentina

Bolivia Brazil

Chile

Colombia

Costa Rica

Ecuador

El Salvador

Guatemala

Honduras

Mexico

Nicaragua

Panama

ParaguayPeru

Uruguay

Venezuela

0

5

10

15

20

25

30

35

40

45

50

0 5 10 15 20 25 30

Fiscal legitimacy (% who trust taxes are well spent)

Dem

ocra

tic p

erf

orm

ance

(%

sat

isfie

d w

ith d

emoc

racy

)

Fiscal legitimacyFiscal legitimacy … is closely linked to democratic legitimacy

24Source: OECD Development Centre, 2007. Based on Latinobarómetro (2003, 2005) and ECLAC’s Panorama Social

Inequality (Gini coefficient 2000s)

Fis

cal l

eg

itim

acy

(%

tru

st t

axes

wel

l spe

nt)

Fiscal legitimacyFiscal legitimacy Closely linked to inequality

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Fiscal legitimacyFiscal legitimacy The role of international capital markets

Brazil: recommendations(1:overweight, 0:neutral, -1:underweight)

-1.00

-0.50

0.00

0.50

1.00

J ul-97 J ul-98 J ul-99 J ul-00 J ul-01 J ul-02 J ul-03 J ul-04 J ul-05 J ul-06

Source:The authors from investment banks' publications, 2007

Presidential election date

Investment banks' recommendations during presidential elections(Window:-9 months before and +9 months after the election)

-0,5

-0,4

-0,3

-0,2

-0,1

0,0

0,1

0,2

0,3

0,4

0,5

-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9

Source: The authors based on investments banks' publications , 2008

before 2006 2006

Are international investors less spooked today by Latin American elections?

BRAZIL: Lula’s story Investment banks’ recommendations regarding sovereign debt surrounding

elections

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• 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

LEO 2009LEO 2009 Fiscal Policy and Latin American Development

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Latin American Economic Outlook 2008www.oecd.org/dev/leo

Vielen Dank!

Thank youMerciObrigadoGracias

latin america’s development challenges

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