Latin America and the Caribbean: Challenges and Opportunities in a Time of Crisis Alicia Bárcena Executive Secretary of ECLAC Woodrow Wilson International Center for Scholars Washington D.C., 11 September 2009

Dilemmas and uncertainties after the crisis Old and new forms of protectionism A new international financial architecture or just cosmetic changes? Will there be more regulation? What will be the combination of public policies? Bilateralism (chinamerica) as opposed to multilateralism (open regionalism) Uncertainty concerning climate change Unemployment, informality and poverty Fragile democracies

MANAGING FIVE TRANSITIONS From market supremacy to a new role for the State From traditional to new geopolitical and economic alliances From social exclusion to an inclusive development From exclusive R&D to extensive innovation for all From oil-based to a carbon-free sustainable economy

SHORT HISTORY OF THE CRISIS The known links: subprime crisis- investment banks-financial systems-crisis in confidence The reconfirmed link: transfer to the real economy. No decoupling The proven effects: lower economic activity, negative growth, drop in international trade and FDI, reduction in remittances.

Estimates for a prompt recovery are negative for 2009 in the 4 main channels Foreign direct investment Remittances and tourism External demand Commodity prices Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official data.

Inflows of FDI are expected to fall, after peaking historically in 2008 LATIN AMERICA AND THE CARIBBEAN: FOREIGN DIRECT INVESTMENT (Millions of dollars) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. 51% 13%

Exports of LAC fell by 31% and imports fell by 29% in value in the first half of 2009 LATIN AMERICA AND THE CARIBBEAN: MERCHANDISE EXPORT AND IMPORT GROWTH IN THE FIRST HALF OF 2008 AND 2009 (Growth rates relative to the year-earlier period) In volume exports fell by 15.3% Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official data. In volume imports fell by 25.3% EXPORTSIMPORTS All export destinations were affected but those to China have dropped the least

Remittances have fallen significantly LATIN AMERICA AND THE CARIBBEAN: MIGRANTS QUARTERLY REMITTANCES (Annual growth rates with respect to the same period of the previous year) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

Will the future be different: Will the future be different: New Normality with lower potential GDP in developed countries PIB potencial Post-crisis Pre-crisis Años Fuente: Sobre la base de la OCDE (2009) y el FMI (2009). Tasa de crecimiento 2.4% Tasa de crecimiento 1.5%

Simultaneous economic contraction in so many countries since the Great Depression (nearly 80% of the worlds economies and GDP) NUMBER OF COUNTRIES IN RECESSION IN THE SAME YEAR a (Percentages of total number of countries) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from Maddison and IMF estimates for the most recent periods (2009). a Covers 29 economies. Growth rates are expressed in constant internationally comparable currency.

mundo pre-crisis mundo post-crisis …much less aggregate demand from US Fuente: EIU (2009)

… less trade (%) Fuente: OCDE (2009) Crisis Mundo pre-crisis

FRUSTRATION IN THE REGION AFTER BOOM YEARS ( ) Solid fiscal policies and improved levels of public debt profile Increased exchange rate flexibility and unprecedented international reserves (+150% between 2003 and 2008) Surplus in the regional current account coupled with economic growth Ready access to external financing Increased trade (I + X) (value: 138%; volume: 49%) Terms of trade improved by 25% in the region Per capita GDP grew by more than 3% per year for five consecutive years Unemployment diminished from 11% to 7.5% coupled with the creation of more quality jobs Poverty rates fell by 10 percentage points (from 44% to 34%)

Past experience shows…. Comparison between GDP-percapita with poverty rates (Dlls and percentages)

LONG HISTORY OF THE CRISIS Development model based on deregulation Model based on the segmentation and increased predominance of the financial sector over the productive Production patterns that are jeopardizing the future habitability of the planet Globalization patterns with high concentrations of wealth Paradigms such as the invisible hand and trickle down theory are no longer credible

MAJOR GAPS INEQUALITY AND POVERTY RATES INCOME DISTRIBUTION AND SOCIAL PROTECTION EDUCATION PRODUCTIVITY

Gini Coefficient in comparison with other regions THE MOST UNEQUAL REGION OF THE WORLD

LATIN AMERICA AND THE CARIBBEAN: POVERTY, EXTREME POVERTY AND UNEMPLOYMENT RATES a (Percentages) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted in the respective countries. a Figures for poverty and extreme poverty rates are based on estimates for 19 countries of the region, including Haiti. The figures appearing above the bars are percentages of the population. Figures for 2008 and 2009 are forecasts. Frustration in terms of labor market and poverty rates: Regional unemployment rate could exceed 9% in 2009

Vicious circle in the life cycle Education, Deficits in education translate in unemployment, informality and low proctivity Salary gaps, lack of social protection in increasing ageing population

20 EXCLUSION IN EDUCATION 18 COUNTRIES: EDUCATION LEVELS BY ( ) Fuente: CEPAL (2007). Panorama Social de Am é rica Latina /a. El porcentaje de conclusión de la primaria se estimó sobre la población de 15 a 19 años, en la secundaria se consideró como universo la población de 20 a 24 años y en la terciaria a la población de 25 a 29 años.

Fuente: División de Desarrollo Productivo y Empresarial, CEPAL EXPORT-LED MODEL NEED TO CHANGE Comparison between productivity and exports

Fuente: División de Desarrollo Productivo y Empresarial, CEPAL Índices de brecha energética y productividad relativa, PRODUCTIVITY GAP ADDS TO THE ENERGY CONSUMPTION GAP

ENERGY INTENSITY (BEP/1OOO US$ a precios de 2000) Indice 1980=100 Fuente: Elaboración propia con base en SIEE de OLADE, y base de datos de la AIE

Technological frontier: patents in 2006 Biotecnología EEUU 41,5 % Japón 11,9 % UE27 27,4 % Alemania 7 % Reino Unido 4,5 % Francia 3,6 % España 1,3 % Canadá 3,2 % Korea 3 % China 1,9 % India 0,9 % Brasil 0,3 % Fuente: OECD, 2008 Nanotecnología EEUU 40,3 % Japón 19,0 % UE27 26,7 % Korea 2,7 % Canadá 2,0 % Australia 1,1 % China 1,0 % India 0,2 % América Latina 0,3 % Fuente: Cepal (2008), sobre datos de OCDE Patent Database, 2008

INVESTMENT GAP Inversión como % del PIB en dólares del 2000

But the crisis also put in evidence important gaps Weakness of domestic productive structures: Strong presence of industries extracting natural resources without value added Little or no innovation Wider productivity gap in the face of the emergence of new technological demands The international competitiveness of the countries of the region remains limited to either maquila or sectors intensive in natural resources

Provisión de servicios por el mercado para quienes pueden pagar y por el Estado para quienes no pueden Gasto social como gasto y de carácter pro-cíclico Papel central del mercado en la asignación de precios y calidades de bienes servicios. Enfoque de consumidores de servicios (mercado) o de beneficiarios de subsidios (estado) Protección social basada en bread- winner y régimen contributivo vía empleo Provisión de bienes públicos de alta calidad para todos y de responsabilidad estatal en el diseño, regulación, fiscalización, y evaluación Gasto social como inversión y neutral a los ciclos de la economía Rol regulador y activo del Estado para garantizar acceso y calidad de bienes públicos Enfoque de Derechos (progresivo y convergente en calidad de prestaciones y oportunidad de accesos: ciudadanos y sentido de pertenencia) Complementariedad entre pilar contributivo y solidario y con economía del cuidado Modelo heredado Modelo hacia el futuro CAMBIO DE LAS POLÍTICAS SOCIALES ( avanzando hacia un modelo centrado en la igualdad )

The capacity to respond to the crisis is different among countries LATIN AMERICA AND THE CARIBBEAN: SCOPE OF THE MEASURES ADOPTED TO IN ORDER TO DEAL WITH THE CRISIS (Number of countries that have adopted the measure) Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of official information.

But the space to finance counter-cyclical policies is shrinking LATIN AMERICA AND THE CARIBBEAN: CURRENT ACOUNT AND FISCAL BALANCE, a (Percentage of GDP) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a The 2009 figures are forecasts.

Enfoques macroeconómicos Estabilidad nominal Los ejes son la tasa de inflación y el equilibrio fiscal Las claves: apertura y desregulación Equilibrio real se logra automáticamente dejando actuar a los mercados Política fiscal termina siendo pro cíclica Énfasis en la independencia y la división de tareas e instrumentos Estabilidad nominal y real Un baja tasa de inflación y cuentas públicas solventes son una condición necesaria pero no suficiente; El nivel de actividad y el empleo son objetivos de la mayor importancia Orientación contra cíclica El tipo de cambio no puede ser una variable residual Énfasis en la coordinación de tareas e instrumentos HeredadoFuturo

Define a long term vision: a pre-analytical framework A new fiscal policy with a new social covenant Chose the right mix of public policies Search a more proactive relation with the market Protect the most vulnerable sectors Ensure inclusive development through spreading of technology and innovation Fostering a green economy A new role for the State

The crisis highlights the need for a new fiscal covenant Main objective: to foster equality From assistance-based to universality based on rights Tax reform based on efficiency and progressiveness

Tax revenues are low and constrains public expenditure LATIN AMERICA AND THE CARIBBEAN: FISCAL REVENUE AND SOCIAL SPENDING (Percentage of GDP) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

Tax policies are regressive in the majority of Latin American countries Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Gómez Sabaini, Repensar lo social en tiempos de crisis, May LATIN AMERICA AND THE CARIBBEAN: GINI COEFFICIENT BEFORE AND AFTER TAXES (Coefficients)

POLITICS IS BACK Provision of public goods Universal social protection Innovation and knowledge Productive convergence Energy efficiency and security Cut back carbon emissions Regional and subregional integration beyond trade