Latin America’s Priorities for the Next Decade

Washington, October 12, 2015.- Latin American countries will need to develop new opportunities to boost growth, while preserving and even enhancing social gains, top economists said at an Annual Meetings seminar.

The “Growth and Inclusion in Latin America: The Next Decade” seminar explored the region’s social transformation and strategies for inclusive growth in the next decade. The October 8 seminar was held as part of the 2015 IMF-World Bank Annual Meetings in Lima, Peru.

Helped by strong growth, social transformation in Latin America over the past decade and a half has been impressive. The region sharply reduced its poverty rate, cut extreme poverty in half, and income inequality also fell. Going forward, the challenge is preserving and increasing gains in a more difficult environment for growth, especially for commodity exporting countries.

Mitsuhiro Furusawa, a Deputy Managing Director at the International Monetary Fund, mentioned three key factors behind these impressive social gains in Latin America—robust economic growth that enabled the creation of jobs, macroeconomic stability (low inflation and sustainable fiscal policies), and well-designed and innovative targeted social programs.

Panelists agreed, noting that social assistance programs in particular have contributed to the impressive social progress of the region. They pointed out that Latin America has become a global leader in the use of conditional cash transfers. Brazil and Mexico have two of the largest schemes, with transfers contingent on requirements such as school attendance or vaccination records.

“Peru’s social programs seek to build capacity,” added Alonso Segura, Minister of Economy and Finance of Peru. Peru’s very successful Juntos program, launched in 2005, has human capital development as its key goal.

Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean, explained that conditional transfer programs in Latin America cost, on average, about 0.4 percent of GDP. “It’s not that expensive to support 124 million people.”

But panelists stressed that over the next decade—marked in particular by less favorable global conditions and the end of the commodities boom—Latin America will need to develop new opportunities for social development.

Lifting all people

Panelists noted that labor market policies and programs should be targeted to disadvantaged groups, such as rural populations and women. “The master key to fighting poverty and inequality is employment,” said Bárcena. She noted that, while Latin America had met much success in reducing poverty, addressing inequality remained a major item in the policy agenda for governments in the region.

Santiago Levy, Vice President for Sectors and Knowledge at the Inter-America Development Bank, said that, with about 50 percent of their populations working in the informal sector on average, Latin American countries had “segmented societies.” “The child of an informal worker can attend the same public school as the child of a formal worker—there’s no discrimination there, but these two children go to different government health clinics.” Thus, a key challenge for growth with social inclusion is finding a way to give all workers access to the same social system and benefits, and not to rely on fickle commodity revenues to fund these systems.

Richard Webb, Director of Peru Institute, University of San Martin de Porres and former Governor of the Central Bank of Peru, acknowledged that long-forgotten populations, often living in rural areas, had in the last 15-20 years started receiving assistance from the state. But he noted as well that in addition to such assistance programs, these groups need help increasing their productivity so they can raise their income. “For excluded populations, infrastructure and basic services are essential,” he said. Bárcena agreed, adding that in several countries inclusion of indigenous populations represented a challenge in need of creative approaches.

Participants noted also that informality limits access to financial services. While agreeing, Bárcena noted that greater digital connectivity can accelerate financial inclusion.

Furusawa said that inequality can also be reduced by making tax systems more progressive—in other words, by reducing the tax burden of low-income earners.

Equal opportunity for women

Panelists said that discrimination and low labor force participation remain key challenges for advancing women’s social progress. Bárcena explained that if women had the same pay for the same type of work as men and equal access to jobs, poverty in Bolivia, for example, would be reduced by 15 percentage points.

Furusawa pointed out that gender equality improves the efficiency of the economy. “Eliminating the gender gap increases GDP by 5 percent in the United States and 9 percent in Japan.” He mentioned Japan’s example to illustrate how creative policies can support female participation in the labor force.

“Improving the participation of women in the labor market increases productivity and equity; it’s a win-win option,” said Levy. It was noted by several speakers that in Peru, female participation in the labor market was much higher than the average for the region. “In Peru, women work more than men do,” Finance Minister Segura quipped before summing up the session. “People ask: do we need to grow first to be more inclusive, or do we need inclusion to grow? This is a false dilemma: growth and inclusion need to go hand in hand.”