Latin America’s 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
1993
2003
change
10
5
0
15
1992
2002
change
10
5
0
Q1
Q2
Q3
Q4
Q5
Quintile annual growth
in GDP per capita
20
Thousands
Quintile annual growth
in GDP per capita
25
7
6
5
4
3
2
1
0
2002
20
growth
15
10
5
0
Q2
Q3
Q4
Q5
GDP per capita
by quintile
Developing Asia
GDP per capita
by quintile
7
6
5
4
3
2
1
0
1994
Q1
Q1 Q2 Q3 Q4 Q5
25
Sub-Saharan Africa
Thousands
15
7
6
5
4
3
2
1
0
80
OECD*
60
1990
2000
growth
40
Thousands
20
Quintile annual growth
in GDP per capita
Latin America
GDP per capita
by quintile
25
7
6
5
4
3
2
1
0
-1
GDP per capita
by quintile
Quintile annual growth
in GDP per capita
The Context Slower growth, not shared with the poor
20
0
Q1
Q2
Q3
Q4
Q5
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.
4
The Context Democratic consolidation
Satisfaction with Democratic Performance
70
Uruguay
60
Venezuela
50
Argentina
Domincan Republic
40
30
Honduras
Brazil
Nicaragua El Salvador
Peru
Ecuador
20
Paraguay
10
0
4.00
Chile
MexicoPanama
Bolivia
Colombia
Guatemala
Costa Rica
5.00
6.00
7.00
8.00
9.00
10.00
BTI Democratic Quality Index
Source: Latinobarómetro (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
A mixed impact on national savings
Pension Reform
Argentina
Chile
Colombia
Mexico
Peru
32
Saving / GDP (%)
Chile
28
Mexico
24
Mexico
Colombia
20
Peru
Argentina
Argentina
16
Peru
Colombia
Chile
12
8
-2
-1
0
1
2
3
4
5
6
7
8
Years since start of reform
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
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Chile
Brazil
Colombia
Peru
Latin America
Argentina
Mexico
Hungary
Czech Rep.
Estonia
Latvia
Other Emerging
Economies
United States
UK
Canada
Japon
Advanced Economies
Spain
France
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
Foreign Investment in Telecommunications and connectivity
Cumulative Foreign Investment in Telecommunications (in USD billion)
Telephones per 100 inhabitants
120
100
80
60
40
20
0
1990
1995
2000
Source: OECD Development Centre, based on SEDLAC (2007) and IADB (2007) data.
2005
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
Proportion of the population with a telephone at home
Richest quintile
Poorest quintile
1
0.8
0.6
0.4
0.2
Haití
Nicaragua
Perú
Bolivia
Paraguay
México
Costa Rica
Brasil
Argentina
Chile
0
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
*
70
60
50
40
30
20
10
0
60%
Latin American countries competition* vs. Chinese
main export products, 2005
50%
% of exports
% of exports
Asian economies competition vs. Chinese exports to
US, % , 2005
40%
30%
20%
10%
0%
åa
*Value of exports to US from China in same product categories as
country´s exports, as % of country´s total exports to US
:Source C.HJ.Kwan, Nomura Institute of Capital Markets Research
*Arithmetic average of the following indexes: CC=
n
it
a njt
n
å
( a itn ) 2 å ( a njt ) 2
n
n
and CS= 1 -
1
å aitn - a njt
2 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 Blázquez, Rodríguez and Santiso, 2006
15
China/India Strong demand for Latin American exports
Increasing commodities prices
(1900-2005)
Agricultural Raw Materials
1 200
Food
1 000
Ores & Metals
800
600
400
2000
Coffee
Copper
Petroleum
1600
1200
800
400
200
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
0
2001
2003
2005
Rise in mineral exports from Latin America
(1998-2005)
Rise in Indian imports from Latin America
(1997-2005)
Sugar/mollasses/honey
1000
120 000
Copper ores/concentrates
800
$ millions
.
Fixed veg oil/fat, soft
600
400
100 000
Petroleum and products (left)
Copper ores/concentrates (right)
Nickel ores/concs/etc (right)
80 000
6 000
4 000
2 000
20 000
0
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
8 000
60 000
40 000
200
10 000
.
1998
$ millions
Aluminium
$ millions
$ millions
Price index (1970=100)
China’s and India’s rising demand for Latin American
commodities (1998-2005)
0
1998 1999 2000 2001 2002 2003 2004 2005
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
16
% of GDP (2005)
14
12
10
8
6
4
2
-
Taxes on goods
Taxes on
Social security
and services
income, profits
contributions
and capital gains
LAC
Taxes on
property
Others
OECD
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
50.0
42.6
42.3
42.6
42.1
40.0
30.0
26.9
28.2
26.5
25.6
20.0
10.0
0.0
1990-2006
1990-1994
Latin America
1995-1999
2000-2006
OECD
Government Expenditures/GDP
50.0
46.3
43.8
44.2
42.4
40.0
30.0
27.8
26.4
27.1
29.3
20.0
10.0
0.0
1990-2006
1990-1994
1995-1999
Source: OECD Development Centre (2008)
2000-2006
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 Goñi, López, and Servén (2006)
21
Fiscal legitimacy Quality as well as quantity
Education Expenditures and Performance
600
500
(PISA 2003)
Mathematics Score
550
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
(% satisfied with democracy)
Democratic performance
Uruguay
40
Venezuela
Honduras
Nicaragua
35
Argentina
30
El Salvador
Chile
Brazil
Bolivia
25
Panama
Ecuador
Colombia
Guatemala
20
Mexico
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 Latinobarómetro (2003).
30
23
Fiscal legitimacy Closely linked to inequality
35
Chile
Uruguay
30
(% trust taxes well spent)
Fiscal legitimacy
Venezuela
El Salvador
Dominican
Republic
25
20
Honduras
Argentina
Colombia
Nicaragua
Brazil
Paraguay
Costa Rica
Panama
Bolivia
Mexico
Guatemala
15
10
Peru
Ecuador
5
0
0.4
0.45
0.5
0.55
0.6
0.65
0.7
Inequality (Gini coefficient 2000s)
Source: OECD Development Centre, 2007. Based on Latinobarómetro (2003, 2005) and ECLAC’s 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
Jul-97
-0,5
Jul-98
Jul-99 Jul-00
Jul-01 Jul-02 Jul-03
Jul-04 Jul-05
Source:The authors from investment banks' publications, 2007
BRAZIL: Lula’s story
Jul-06
-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
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
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