After more than a decade of economic and social progress, many Latin Americans are worried about their future. Across the continent people have seen their lives improve in recent years. But now they want to know if the progress is there to stay.
The question is:
Can Latin America expand or at least maintain the social and economic gains of the last decade?
President Moreno, Secretary Lew, Minister Cardenas, Madame Lagarde, I am very honored to join you today when you are discussing this question.
With the commodity boom fading, China’s growth slowing, and change in the US monetary policy, the growth forecast for Latin America has dropped to 1.2 percent this year.
This is low, but it is not a collapse. And that is, in fact, what brings me to the good news – the many historic firsts -- about Latin America that we at the World Bank are so eager to celebrate.
As our research shows, for the first time in recent history, the region is no longer following a boom-bust cycles that used to set the economy back for years, hurting the poor the most.
In fact, in the past decade or so we have seen the region cut extreme poverty by half to 12 percent in 2012. At the same time the middle class has doubled to 34 percent. That means that for the first time in history the region has more people in middle class than among the poor.
What’s more, living conditions for the bottom 40 percent of the population improved dramatically.
Between 2005 and 2010 income growth of the bottom 40 percent relative to the total population was highest in Latin America than in any other region of the world.
In 2003, six out of 10 Latin Americans in the bottom 40 were among the extreme poor, by 2012, only three out of 10 were in this condition.
Even Haiti, the poorest country in the hemisphere, has been recovering. The Haiti I saw during a recent visit is very different from the one I witnessed right after the devastating earthquake.
This is an impressive transformation in a continent where opportunities have traditionally not benefited many citizens-- where race, gender or social background made a big difference in one’s potential future in life.
Today, the region’s macro-economic and financial fundamentals are solid. Reserves are strong, inflation is under control in most countries and there is –in several economies—fiscal space for countercyclical measures.
With some space to respond in the short-term, we must remember that in the longer term investments in productivity will be critical to boost growth back to the levels that brought about so many social gains.
And those investments will take time to bear fruit. It is not an effort that shows instant success.
It can be difficult to explain changes in societies that have become accustomed to quicker gains, particularly ahead of elections. But it can be done.
We just need to look at Mexico, which has put in place broadly supported reforms that are only slowly showing their benefits.
Moving into a highly productive economy takes a combination of factors: from quality education and improved logistics, infrastructure, and innovation, to an efficient State, and a modern business environment.
Let’s look at infrastructure a bit closer: The last time that Latin America made a big-push to invest in public infrastructure was in the 1960s. Yet connecting markets, both within and across borders is necessary to boost productivity.
And I am not only talking about roads or airports. “Soft” infrastructure, including transparency, customs efficiency, and institutional reforms will be just as crucial to facilitate access of regional products to foreign markets.
Or consider education: Latin America has expanded access to education, with secondary-school coverage approaching 100%.
But the challenge now is to improve the quality of public education in order to continue broadening opportunities for all. It will take better teaching and a tertiary education that produces the skills needed by the economy.
To be honest, we might need more engineers and fewer economists.
Another key issue is integration. The challenge is not so much whether to become more open, which has been achieved in the region with a few exceptions.
Rather, it is about the quality of trade connections within the region and with the rest of the world. An upcoming World Bank analysis highlights that economic development in today’s world is inherently linked to participation within global value chains.
In this process of searching for productivity gains, each country will need to find its own path in accordance with its own circumstances.
This July I had the opportunity to see firsthand how Nicaragua is building water-resistant roads by employing local residents. Aside from providing jobs, this project is helping address an important void in the country’s productivity.
Because in this Central American country road infrastructure deficiencies translate into high costs of transport, and diminished competitive advantage.
As a former finance minister myself, I fully understand that there is only so much you can control. You cannot change commodity prices or the growth trends in China, but I am sure that you must be thinking how to make public expenditures more efficient so that the social gains can be maintained with low growth.
At the World Bank Group we are focusing our actions on helping countries to share prosperity. Our lending in the region supports public and private initiatives in a variety of sectors. All aimed to help countries achieve their next goals in development.
Dear Ministers, Colleagues
This is a unique setting. It is not often we see all the ministers of finance from Latin America, the Caribbean and North America discussing their challenges together. It is also a reminder of the potential of this hemisphere in terms of building cooperative economic and trade relations that can benefit all and eventually link the Americas with the Pacific, uniting two powerful growth poles.