ECLAC Proposes Compacts for Equality and Sustainable Development in Latin America and the Caribbean

Lima, May 5.- Latin America and the Caribbean must bet on social compacts that promote development with equality and environmental sustainability, the Economic Commission for Latin America and the Caribbean (ECLAC) says in the document Compacts for Equality: Towards a Sustainable Future, presented at its Thirty-fifth session, which began today in Lima.

Given the limitations the region faces in sustaining the economic and social improvements achieved in the last decade, ECLAC proposes reorienting development on the basis of equality and environmental sustainability. This must be manifested in compacts that ensure-among other objectives-a redistributive tax structure, an increase in productivity, improved public goods and services, better governance of natural resources, and the growth and diversification of investment.

The Commission is presenting the position paper, which contains its strategic proposal on development for the coming years, to representatives from its 44 member States and 12 associate members who are attending its Thirty-fifth session-the event convened by the regional organization every two years-which will be held until Friday, May 9.

The document warns that the region faces a crossroad that combines external restrictions, such as the stagnation of demand and the loss of international trade dynamism, with endogenous problems that limit future development. Among the latter, high rates of labor informality, low levels of investment with little incorporation of technical progress, a deficit of public services, and pressure on the environment can be pointed out.

In light of this situation, ECLAC proposes several axis of transformation that must be reflected in social pacts within different spheres, with a medium and long-term vision.

The proposed agreements include a fiscal compact to strike a better balance between public and private goods in providing for the general welfare, a pact to universalize social safety nets and improve public services, a compact for environmental sustainability, and a pact on the governance of natural resources.

ECLAC's blueprint also contemplates a compact on investment, industrial policy and inclusive financing; a pact promoting equality in the world of work; and a covenant among members of the international community on development and cooperation beyond 2015.

This proposal completes the so-called "equality trilogy," which includes the main documents from the last two sessions: Time for Equality: Closing Gaps, Opening Trails, unveiled in 2010 in Brazil, and Structural Change for Equality: An Integrated Approach to Development, released in 2012 in El Salvador.

The Commission contends that it is not necessary to give up equality to be more efficient, that institutions play a key role in the distribution of wealth, and distribution policies must go hand in hand with productivity policies-meaning that a structural change is needed. As ECLAC has said before, equality is the goal, structural change is the path, and policy is the instrument.

Structural change demands that we look for synergies between productivity increases, social inclusion and the green economy on a local and global scale through knowledge-intensive and high demand activities, so that more and better jobs can be created.

The Commission stresses that in the last decade the region has achieved a significant reduction in poverty, unemployment and income inequality; broader educational and social safety net coverage; a deepening of democracy; and the consolidation of economic stability.

In 2013, Latin America's poverty rate was estimated at 27.9 % of the population, compared with 43.9 % in 2002. Meanwhile, the unemployment rate was 6.4 % in 2012 versus 11.2 % in 2002. In fact, employment has been the main factor in reducing poverty and it is, for ECLAC, the master key for achieving equality.

The United Nations regional organization warns that after a period of economic bonanza in 2010-2011, the region's economies decelerated in 2012 and 2013, which seems to anticipate future scenarios of lower growth and less dynamism in the labor market, which in turn could affect the pace of poverty and inequality reduction.

According to new projections from ECLAC, Latin American and Caribbean countries will grow an average of 2.7 % in 2014 due to limited dynamism of the region's principal economies. The 2014 regional growth rate would be slightly higher than 2013 (2.5 %), but lower than the rate forecast in December (3.2 %).

In this context, ECLAC advocates for fiscal compacts that enshrine tax reforms to increase public resources, building stronger and more efficient public institutions and achieving a greater redistributive impact. These pacts must be the mechanism that makes the other social compacts viable.

The Commission explains that in recent years, growth has been led by consumption and not by investment. In recent years, an increase in household income has resulted in a striking rise in consumption, which has in turn improved well-being in sectors traditionally deprived of access to some goods and services. However, the consumption pattern is strongly procyclical and volatile, with a bias towards private consumption based on income brackets.

Private consumption per capita in Latin America and the Caribbean grew at an annual rate of 2.4 % on average between 1990 and 2012, above the 1.7 % registered by countries grouped in the Organization for Economic Cooperation and Development (OECD) in the 1990-2010 period.

In the OECD, the government's spending on consumption as a proportion of GDP between 2000 and 2012 reached an average of 18.6 %, above Latin America and the Caribbean's figure of 14.8 %. That indicator includes all current expenditures for acquiring goods and services, including wages for employees. Household spending on consumption, in contrast, was similar in both groups of countries at 62.4 % and 63.5 %, respectively.

ECLAC warns about the need to strike a better balance between private and public consumption in the region, and encourages the State-on the basis of compacts for universalizing social safety nets and improving the general welfare-to provide quality public services in terms of health, education, transportation, security and the environment.

The private consumption of imported goods brings with it high-intensity energy consumption and environmental pollution, while a public solution that emphasizes shared alternatives would generate fewer emissions and consume less non-renewable energy.

To promote this transformation, ECLAC proposes a compact for environmental sustainability that shows solidarity with future generations by taxing pollution and excessive energy consumption-for example, with levies on fossil fuels-and includes compensatory policies for low-income citizens to alleviate the impact of higher prices for those fuels.

The pattern of intensive consumption of imported, finished goods also combines with a pattern of intensive commodities production, in a region that has been unable to transform the riches of its natural resources into long-term sustainable development.

In the case of mining, fiscal revenue from that sector in Latin America and the Caribbean tripled as a percentage of GDP during the period of price increases from 2004 to 2009 (1.98 %) when compared with 2000-2003 (0.6 %). Between 2010 and 2012, mining sector revenue continued to grow and reached an average 2.65 % of regional GDP.

To maximize their contribution to development, the Commission proposes a compact for the governance of natural resources to ensure the State's progressive participation in the income derived from their exploitation and the creation of institutional mechanisms that allow for that revenue to be saved for future generations and for efficient public investment.

ECLAC also advocates for balancing out the expansion of consumption with greater investment. Up to now, it has shown low rates of growth and been concentrated in non-tradable sectors or in natural resources.

The regional organization proposes a compact that could achieve, through industrial policy incentives, greater and more diversified investment with the aim of creating a productive structure that promotes technical progress, reduces productivity gaps, encourages broader social inclusion, and provides greater resilience in the face of external shocks.

This must be coupled with a compact for equality in the labor world that includes a support program for reducing those gaps in productivity, labor income and quality of employment, and corrects gender distribution imbalances in paid and unpaid work.

Finally, ECLAC calls on the international community to forge compacts that respect the principle of shared but differentiated responsibilities to close asymmetries on a global level and avoid that the most vulnerable people or countries end up assuming the greatest cost of living in a more uncertain scenario and with fewer natural resources.