1 Latin Americas Development Challenges Lessons from the OECD Latin American Economic Outlook Jeff Dayton-Johnson Senior Economist and Head of the Latin America and Caribbean Desk OECD Development Centre Bertelsmann Stiftung Berlin, 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 , 1995, 1997, 1998, , 2002, 2003, 2005, , 2005, , 2005, 2006 OECD & Latin America A growing commitment

3 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 Development Centre Bridging OECD & emerging economies

4 Source: OECD Development Centre, Based on IMF, Globalization and Inequality, OECD* includes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Netherlands, Norway, Singapore, Spain, Sweden, UK, US Q1Q2Q3Q4 Q5 Latin America change GDP per capita by quintile Quintile annual growth in GDP per capita The Context Slower growth, not shared with the poor

5 Source: Latinobarómetro (2007), Bertelsmann Transformation Index (2007) The Context Democratic consolidation

6 1 Pension Reform: What Benefits? 4 Fiscal Policy: A Critical Tool for Development Telecommunications and Development 2 3 China and India: Threats and Opportunities

7 Source: OECD Development Centre (2007), based on World Bank Development Indicators. Pension 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 Reform Development /deepening of financial markets

9 1 Pension Reform: What Benefits? 4 Fiscal Policy: A Critical Tool for Development Telecommunications and Development 2 3 China and India: Threats and Opportunities

10 Source: OECD Development Centre, based on PPI Database, World Bank Source: Information and Communications for Development 2006, World Bank Telecoms Latin America leads developing world in telecoms FDI

11 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 Telecoms FDI-led increase in connectivity

12 Source: 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 Telecoms Unequal distribution of benefits

13 Source: OECD Development Centre, based on companies data. Monopoly Perfect competition Telecoms Limited contestability of markets

14 1 Pension Reform: What Benefits? 4 Fiscal Policy: A Critical Tool for Development Telecommunications and Development 2 3 China and India: Threats and Opportunities

15 : Source C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: OECD Development Centre, 2006 Based on Working Paper by Blázquez, Rodríguez and Santiso, 2006 % of exports China/India Opportunities for trade development

16 Source: OECD Development Centre, based on WITS Database, China/India Strong demand for Latin American exports

17 Source: OECD Development Centre, Based on WITS and Comtrade data. China/India Excessive specialisation in commodities exports?

18 1 Pension Reform: What Benefits? 4 Fiscal Policy: A Critical Tool for Development Telecommunications and Development 2 3 China and India: Threats and Opportunities

19 Source: OECD Development Centre (2008), OECD (2007), Revenue Statistics for OECD countries Fiscal legitimacy Revenues are low and structurally regressive

20 Government Revenues/GDP Government Expenditures/GDP Source: OECD Development Centre (2008) Fiscal legitimacy Spending constrained by low revenues

21 Source: OECD Development Centre, Based on data by Goñi, López, and Servén (2006) Gini coefficient Inequality before and after taxes and transfers Points of Gini change (% change in inequality) The effects of taxes and transfers Fiscal legitimacy Little redistribution through taxes and transfers

22 Source: OECD Development Centre, Based on PISA (2003) and OECD Education at a Glance (2005) Education Expenditures and Performance Mexico Norway Poland Slovak Republic Spain United States Brazil Indonesia Thailand Tunisia Uruguay ,00010,00015,00020,00025,00030,000 Annual expenditure on educational institutions per student (2001) in equivalent US dollars converted using PPPs, by level of education, based on full-time equivalents Mathematics Score (PISA 2003) Fiscal legitimacy Quality as well as quantity

23 Source: OECD Development Centre, Based on Latinobarómetro (2003). Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela Fiscal legitimacy (% who trust taxes are well spent) Democratic performance (% satisfied with democracy) Fiscal legitimacy … is closely linked to democratic legitimacy

24 Source: OECD Development Centre, Based on Latinobarómetro (2003, 2005) and ECLACs Panorama Social Inequality (Gini coefficient 2000s) Fiscal legitimacy (% trust taxes well spent) Fiscal legitimacy Closely linked to inequality

25 Fiscal legitimacy The role of international capital markets Are international investors less spooked today by Latin American elections? BRAZIL: Lulas story Investment banks recommendations regarding sovereign debt surrounding elections

26 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 2009 Fiscal Policy and Latin American Development

27 Latin American Economic Outlook Vielen Dank! Thank you Merci Obrigado Gracias