Latin Americas Development Challenges Lessons from the OECD

Latin Americas Development Challenges Lessons from the OECD

Latin Americas Development Challenges Lessons from the OECD Latin American Economic Outlook www.oecd.org/dev/leo Jeff Dayton-Johnson Senior Economist and Head of the Latin America and Caribbean Desk OECD Development Centre Bertelsmann Stiftung Berlin, 5 June 2008 1 OECD & Latin America 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 2007 Economic Surveys: 1992, 1995, 1997, 1998, 1999 2000, 2002, 2003, 2005, 2007

2003, 2005, 2007 2000, 2005, 2006 Latin American Economic Outlook 2008 2 Development Centre Bridging OECD & emerging economies Membership of the Development Centre With 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 3 Latin America 20

15 1993 2003 change 10 5 0 Quintile annual growth in GDP per capita 7 6 5 4 3 2 1 0 -1 GDP per capita by quintile 25

GDP per capita by quintile Quintile annual growth in GDP per capita The Context Slower growth, not shared with the poor Quintile annual growth in GDP per capita Source: 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. GDP per capita by quintile GDP per capita by quintile Quintile annual growth in GDP per capita Q1 Q2 Q3 Q4 Q5 4

The Context Democratic consolidation Source: Latinobarmetro (2007), Bertelsmann Transformation Index (2007) 5 1 Pension Reform: What Benefits? 2 Telecommunications and Development 3 China and India: Threats and Opportunities 4 Fiscal Policy: A Critical Tool for Development 6 Pension Reform A mixed impact on national savings Source: OECD Development Centre (2007), based on World Bank Development Indicators.

7 Pension Reform Development /deepening of financial markets Pension Fund Assets as percentage of GDP, 2006 Source: OECD Development Centre (2007), based on Global Pension Statistics database. 8 1 Pension Reform: What Benefits? 2 Telecommunications and Development 3 China and India: Threats and Opportunities 4 Fiscal Policy: A Critical Tool for Development 9

Telecoms Latin America leads developing world in telecoms FDI FDI in telecommunications, by region 6% 4% 3% 7% 24% 56% 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

10 Investment in telecommunications has FDI-led increase in connectivity Telecoms The number of telephone lines has increased by a factor of 10 in Latin America, in part because of foreign investment Source: OECD Development Centre, based on SEDLAC (2007) and IADB (2007) data. 11 Telecoms Unequal distribution of benefits Inequality is high: a quarter of poor households have a telephone at home, 3 times less than high-income households Source: OECD Development Centre, based on SEDLAC surveys. 12 Telecoms Limited contestability of markets Index (Herfindahl-Hirschman) of concentration on the telephone market Telephone lines, by segment Costa Rica Nicaragua

Uruguay Paraguay Peru Mexico Guatemala Chile Argentina Brazil Bolivia Colombia Fixed Mobile 0 1000 2000 3000 4000 5000 6000 7000

8000 Perfect competition 9000 10000 Monopoly Source: OECD Development Centre, based on companies data. 13 1 Pension Reform: What Benefits? 2 Telecommunications and Development 3 China and India: Threats and Opportunities 4 Fiscal Policy: A Critical Tool for Development 14

China/India Opportunities for trade development Latin American countries competition* vs. Chinese main export products, 2005 60% % of exports 50% 40% 30% 20% 10% *Value of exports to US from China in same product categories as countrys exports, as % of countrys total exports to US :Source C.HJ.Kwan, Nomura Institute of Capital Markets Research *Arithmetic average of the following indexes: CC= a n it a njt

n n ( a itn ) 2 ( a njt ) 2 la ez ue Ve n Ch ile Pe r U ru gu ay a en

tin bi a Ar g m Co lo Br as il M x ic o 0% Ja pa n

la nd Ch in es e Ta ip In ei do ne si a M al ay si a Ph i li pp in So es ut h Ko re

a Si ng ap or e 70 60 50 40 30 20 10 0 Th ai % of exports * Asian economies competition vs. Chinese exports to US, % , 2005 and CS= 1 - 1 a itn - a njt 2

n n where ajt and ait equals the share of item n over total exports of countries j (China) and i in time t. Source: OECD Development Centre, 2006 Based on Working Paper by Blzquez, Rodrguez and Santiso, 2006 15 China/India Strong demand for Latin American exports Source: OECD Development Centre, based on WITS Database, 2007. 16 China/India Excessive specialisation in commodities exports? Source: OECD Development Centre, 2007. Based on WITS and Comtrade data. 17 1 Pension Reform: What Benefits?

2 Telecommunications and Development 3 China and India: Threats and Opportunities 4 Fiscal Policy: A Critical Tool for Development 18 Fiscal legitimacy Revenues are low and structurally regressive Source: OECD Development Centre (2008), OECD (2007), Revenue Statistics 1965-2006 for OECD countries 19 Fiscal legitimacy Spending constrained by low revenues Government Revenues/GDP Government Expenditures/GDP Source: OECD Development Centre (2008) 20

Fiscal legitimacy Little redistribution through taxes and transfers (% change in inequality) The effects of taxes and transfers Points of Gini change Gini coefficient Inequality before and after taxes and transfers Source: OECD Development Centre, 2007. Based on data by Goi, Lpez, and Servn (2006) 21 Fiscal legitimacy Quality as well as quantity Education Expenditures and Performance 600 (PISA 2003) Mathematics Score 550

500 Slovak Republic Poland Norway United States Spain 450 400 350 300 - Thailand Uruguay Indonesia Mexico Tunisia Brazil 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 Source: OECD Development Centre, 2007. Based on PISA (2003) and OECD Education at a Glance (2005) 22 Fiscal legitimacy is closely linked to democratic legitimacy 50 Costa Rica 45 Uruguay 40 Venezuela (% satisfied with democracy)

35 Democratic performance Honduras Nicaragua Argentina 30 25 20 Mexico Chile Brazil Bolivia Ecuador El Salvador Colombia Guatemala Panama

15 Peru 10 Paraguay 5 0 0 5 10 Fiscal legitimacy 15 20 25 (% who trust taxes are well spent) Source: OECD Development Centre, 2007. Based on Latinobarmetro (2003).

30 23 (% trust taxes well spent) Fiscal legitimacy Fiscal legitimacy Closely linked to inequality Inequality (Gini coefficient 2000s) Source: OECD Development Centre, 2007. Based on Latinobarmetro (2003, 2005) and ECLACs Panorama Social 24 Fiscal legitimacy The role of international capital markets Are international investors less spooked today by Latin American elections? Brazil: recommendations Presidential election date (1:overweight, 0:neutral, -1:underweight) 1.00 Investment banks' recommendations during presidential elections (Window:-9 months before and +9 months after the election) 0,5 0,4

before 2006 2006 0,3 0,2 0.50 0,1 0,0 0.00 -0,1 -0,2 -0.50 -0,3 -0,4 -1.00 J ul-97 -0,5 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 BRAZIL: Lulas story -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1

2 3 4 5 6 7 8 9 Source: The authors b ased on investments banks' publications , 2008 Investment banks recommendations regarding sovereign debt surrounding elections 25 LEO 2009 Fiscal Policy and Latin American Development

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 26 Latin American Economic Outlook 2008 www.oecd.org/dev/leo Vielen Dank! Thank you Merci Obrigado Gracias 27

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