latin america's development challenges

Latin America’s DevelopmentLatin America s Development Challenges

Lessons from the OECD Latin American Economic OutlookOECD Latin American Economic Outlook

www.oecd.org/dev/leowww.oecd.org/dev/leoJeff Dayton‐Johnson

Senior Economist and Head of the Latin America and Caribbean DeskOECD Development CentreOECD Development Centre

Bertelsmann StiftungBerlin, 5 June 2008

1

OECD & Latin OECD & Latin AmericaAmerica 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 2007p y

Economic Surveys:

1992, 1995, 1997, 1998, 1999

2000 2002 2003 2005 20072000, 2002, 2003, 2005, 2007

2003, 2005, 2007

Latin American Economic Outlook 2008

2000, 2005, 2006

2

Latin American Economic Outlook 2008

Development CentreDevelopment Centre Bridging OECD & emerging economies

• Membership of the Development CentreWith a Governing Board open to OECD non‐member countries, theDevelopment Centre provides a framework for dialogue andp p gexperience sharing with emerging regions all over the world.

• Four* Latin American countries are members of the Centre:– Mexico – Chile– Brazil

Colombia– Colombia

3

The The ContextContext Slower growth, not shared with the poor

2567

Sub-Saharan Africa20

25

67

Latin America

GD

P pby qui

GD

Pby qw

th

th

5

10

15

20

23456 Sub Saharan Africa

1994 2002 growth

5

10

15

20

123456 Latin America

1993 2003 change

per capita intile

P per capita uintile

ntile

ann

ual g

row

DP

per c

apita

le a

nnua

l gro

wP

per c

apita

0

5

01

Q1 Q2 Q3 Q4 Q5

0-101

Q1 Q2 Q3 Q4 Q5

Qui

nin

GD

Qui

nti

in G

DP

15

20

25

4567 Developing Asia

40

60

80

4567 OECD*

1990 2000 growthG

DP per cap

by quintile

GD

P per capby quintile

nnua

l gro

wth

r c

apita

ual g

row

th

apita

0

5

10

01234

1992 2002 change

0

20

40

0123

Q1 Q2 Q3 Q4 Q5

pita

pita Qui

ntile

an

in G

DP

pe

Qui

ntile

ann

uin

GD

P pe

r ca

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.

Q1 Q2 Q3 Q4 Q5 Q1 Q2 Q3 Q4 Q5

The The ContextContext Democratic consolidation

Uruguay

Venezuela60

70

man

ce

Argentina

Chile

Costa RicaDomincan Republic

MexicoPanama

Venezuela

40

50

ratic Pe

rform

BoliviaBrazil

Colombia

El Salvador

GuatemalaHonduras

Mexico

Nicaragua

Panama

Peru

30

40

with Dem

ocr

Ecuador

Paraguay

Peru

10

20

atisfaction w

0

4.00 5.00 6.00 7.00 8.00 9.00 10.00

Sa

BTI Democratic Quality Index

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

11 P i R f Wh t B fit ?P i R f Wh t B fit ?11 Pension Reform: What Benefits?Pension Reform: What Benefits?

Telecommunications and DevelopmentTelecommunications and Development22 pp

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

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

6

Pension Pension ReformReform A mixed impact on national savings

Argentina Chile Colombia Mexico Peru

28

32

P (%

)

Mexico

Chile

20

24

Sav

ing

/ GD

P

MexicoColombia

ArgentinaArgentina

Peru

8

12

16

Chile

Colombia

Argentina

Peru

8

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

Years since start of reform

7

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

Pension Pension ReformReform Development /deepening of financial markets

Pension Fund Assets as percentage of GDP, 2006

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ChileBrazil

ColombiaPeru

ArgentinaMexico

HungaryCzech Rep.

Latin America

pEstoniaLatvia

United StatesUK

Canada

Other Emerging Economies

Ca adaJaponSpain

France

Advanced Economies

8Source: OECD Development Centre (2007), based on Global Pension Statistics database.





9

TelecomsTelecoms Latin America leads developing world in telecoms FDI

FDI in telecommunications, by region

7%

6%4% 3%

56%24%

7%

Latin America and CaribbeanCentral and Eastern EEuropeSouth East Asia

South Asia

Middle East and Northern AfricaSub-Saharan Africa

Source: OECD Development Centre, based on PPI Database, World Bank Source: Information and Communications for Development 2006,

10

Source: OECD Development Centre, based on PPI Database, World BankWorld Bank

Investment in telecommunications hasTelecomsTelecoms 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)

100

120

Telephones per 100 inhabitants

40

60

80

0

20

4

1990 1995 2000 2005

11

99 995 5

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

TelecomsTelecoms Unequal distribution of benefits

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

1

Proportion of the population with a telephone at home

Richest quintile Poorest quintile

0.6

0.8

1

0

0.2

0.4

0

Chi

le

Arg

entin

a

Bra

sil

Cos

ta

Ric

a

Méx

ico

Par

agua

y

Bol

ivia

Per

ú

Nic

arag

ua

Hai

tí

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

TelecomsTelecoms Limited contestability of markets

C t Ri

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

ParaguayUruguay

NicaraguaCosta Rica

ChileGuatemala

MexicoPeru

ColombiaBoliviaBrazil

Argentina Fixed

Mobile

0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

Colombia

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

Perfect competition

13





14

China/China/IndiaIndia Opportunities for trade development

s

Asian economies competition* vs. Chinese exports to US, % , 2005

506070

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

40%

50%60%

% o

f exp

orts

% o

f exp

orts

010203040

0%

10%20%

30%40%

*Value of exports to US from China in same product categories as *Arithmetic average of the following indexes: CC= and CS= ∑ nn aa11∑

n

njt

nit aa

0%

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

Source: Source: OECD Development Centre, OECD Development Centre, 20062006

Based on Working Paper byBased on Working Paper by BlázquezBlázquez,, RodríguezRodríguez and Santiso,and Santiso, 20062006

*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 .

∑ −−n

jtit aa2

1∑∑

n

njt

n

nit aa 22 )()(

15

Based on Working Paper by Based on Working Paper by BlázquezBlázquez, , RodríguezRodríguez and Santiso, and Santiso, 20062006

China/China/IndiaIndia Strong demand for Latin American exports

1 200

China’s and India’s rising demand for Latin American commodities (1998-2005)

Agricultural Raw Materials 2000=10

0)

Increasing commodities prices(1900-2005)

Aluminium Coffee

Copper Petroleum

400

600

800

1 000

1 200

$ m

illio

ns

Food

Ores & Metals

400

800

1200

1600

2000

Pric

e in

dex

(197

0=

Copper Petroleum

0

200

1998 2001 2003 2005

0

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Ri i i l t f L ti A i

800

1000

s

Rise in Indian imports from Latin America (1997-2005)

Sugar/mollasses/honey

Copper ores/concentrates

Fixed veg oil/fat, soft 8 000

10 000

100 000

120 000

ons

.

ns

Rise in mineral exports from Latin America (1998-2005)

Petroleum and products (left)Copper ores/concentrates (right)Nickel ores/concs/etc (right)

0

200

400

600

$ m

illio

ns d g o / a , o

0

2 000

4 000

6 000

0

20 000

40 000

60 000

80 000

$ m

illio

$ m

illio .

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

0

1997 1998 1999 2000 2001 2002 2003 2004 2005

00

1998 1999 2000 2001 2002 2003 2004 2005

China/China/IndiaIndia Excessive specialisation in commodities exports?

17

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





18

Fiscal Fiscal legitimacylegitimacy Revenues are low and structurally regressive

% of GDP (2005)

12

14

16 % of GDP (2005)

6

8

10

-

2

4

Taxes on goods Taxes on Social security Taxes on OthersTaxes on goods and services

Taxes on income, profits

and capital gains

Social security contributions

Taxes on property

Others

LAC OECDSource: OECD Development Centre (2008) OECD (2007) Revenue Statistics 1965‐2006 for OECD countries

19

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

Fiscal Fiscal legitimacylegitimacy Spending constrained by low revenues

42.3 42.6 42.6 42.140.0

50.0

Government Revenues/GDP

26.9 25.6 26.5 28.2

0.0

10.0

20.0

30.0

1990-2006 1990-1994 1995-1999 2000-2006

Latin America OECD

G t E dit /GDP

27.8 26.4 27.1 29.3

43.8 46.3 44.2 42.4

30.0

40.0

50.0

Government Expenditures/GDP

0.0

10.0

20.0

3

1990-2006 1990-1994 1995-1999 2000-2006

20

1990-2006 1990-1994 1995-1999 2000-2006

Source: OECD Development Centre (2008)

Fiscal Fiscal legitimacylegitimacy Little redistribution through taxes and transfers

Inequality before and after taxes and transfers

e ity)

The effects of taxes and transfers

coe

ffici

ent

of G

ini c

hang

e

ange

in in

equa

li

Gin

i

Poi

nts

(% c

ha

S O C l C 200 d d b G ñi Ló d S é (2006)

21

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

Fiscal Fiscal legitimacylegitimacy Quality as well as quantity

Education Expenditures and Performance

550

600

NorwayPolandSlovak Republic

Spain United States450

500

ics

Scor

e A

2003

)

MexicoIndonesia

Thailand

Tunisia

Uruguay

350

400

450

Mat

hem

at(P

ISA

Brazil

300

350

- 5,000 10,000 15,000 20,000 25,000 30,000

Annual expenditure on educational institutions per student (2001)

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

in equivalent US dollars converted using PPPs, by level of education, based on full-time equivalents

Fiscal Fiscal legitimacylegitimacy … is closely linked to democratic legitimacy

Costa Rica

Uruguay

V l40

45

50

)

Argentina

Bolivia Brazil

ChileEl Salvador

HondurasNicaragua

Venezuela

30

35

rform

ance

h de

moc

racy

ColombiaEcuadorGuatemala

Mexico

Panama

15

20

25

moc

ratic

pe

satis

fied

with

ParaguayPeru

0

5

10Dem (%

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

00 5 10 15 20 25 30

Fiscal legitimacy (% who trust taxes are well spent)

Fiscal Fiscal legitimacylegitimacy Closely linked to inequality

35

Chile

Dominican El Salvador

Honduras

Uruguay

Venezuela

25

30

y nt)

Argentina

B li iBrazil

Colombia

Costa Rica

Republic Honduras

Nicaragua

PanamaParaguay15

20

egiti

mac

yxe

s w

ell s

pen

BoliviaCosta Rica

EcuadorGuatemalaMexico

Panama

Peru

5

10

Fisc

al le

(% tr

ust t

ax

00.4 0.45 0.5 0.55 0.6 0.65 0.7

Inequality (Gi i ffi i t 2000 )

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

Inequality (Gini coefficient 2000s)

Fiscal Fiscal legitimacylegitimacy The role of international capital markets

Are international investors less spooked today by Latin American elections?

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

1.00

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

0 3

0,4

0,5

before 2006 2006

0.00

0.50

0 1

0,0

0,1

0,2

0,3

100

-0.50

0 5

-0,4

-0,3

-0,2

-0,1

-1.00Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06

Source:The authors from investment banks' publications, 2007

-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

BRAZIL: Lula’s story Investment banks’ recommendations d d b d

25

regarding sovereign debt surrounding elections

LEO LEO 20092009 Fiscal Policy and Latin American Development

• Fiscal policy, growth and development

• The quality of public spending: the case of educationeducation

• The structure of tax systems in Latin America y

• Public debt and international capital markets

• Fiscal policy and the informal economy

26

L i A i E iLatin American Economic Outlook 2008

www.oecd.org/dev/leo

Vielen Dank!

Thank youMerciOb i dObrigadoGracias

27

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