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World Bank: end of boom doesn’t have to mean a bust for the poor in Latin America

Wednesday, October 8th 2014 - 04:05 UTC
Full article 2 comments
During the golden years Latam was able to cut extreme poverty by half to 12%,  and double the ranks of the middle class to 34% of the population in 2012 During the golden years Latam was able to cut extreme poverty by half to 12%, and double the ranks of the middle class to 34% of the population in 2012
Governments in the region will understandably want to focus on maintaining the levels of employment that contributed to those equity gains Governments in the region will understandably want to focus on maintaining the levels of employment that contributed to those equity gains

During the recent commodity boom, Latin America and the Caribbean proved that growth could be pro-poor and help fuel tremendous social progress. Now as growth slows regionally and beyond, it is critical to consider what will shore up economic activity while ensuring the poor won't stay behind.

In its latest semiannual report, Inequality in a Lower Growth Latin America, the World Bank´s Office of the Chief Economist for Latin America and the Caribbean forecasts an average 1.2% rate of growth for 2014 with a rebound to 2.2% in 2015. This deceleration comes with a difference.

“In terms of equity, the simple fact that Latin America today is not the Latin America of the 1980s or 1990s, is already a good news story,” said Augusto de la Torre, World Bank Chief Economist for Latin America and the Caribbean. “For the first time in recent history, the region is no longer following a boom-bust cycle of the type that used to set the economy back for many years, hurting the poor the most.”

The report, issued ahead of the IMF-World Bank Group annual meetings, finds a great deal of heterogeneity within the region. Panama leads with an impressive 6.6% growth for the year and Bolivia, Colombia, Dominican Republic, Ecuador, Guyana, Nicaragua, Paraguay, and Surinam are expected to grow more than 4%, well above the regional average. Meanwhile big economies such as Venezuela and Argentina are going into negative territory, at -2.9 and -1.5% respectively, and the regional giant, Brazil, is expected to growth by only 0.5%.

With this level of growth, countries may find it challenging to keep the social gains from the last decade. During those golden years the region was able to cut extreme poverty by half to 12% in 2012, and double the ranks of the middle class to 34% of the population in 2012. That year, Gini index of income inequality was 7 points lower than in 2003, largely due to a narrowing of wage gaps in the region.

Now in a more stable, albeit slower growth environment, governments in the region will understandably want to focus on maintaining the levels of employment that contributed to those equity gains and thus meet the expectations raised during the boom. Some countries in the region will have at their disposal the types of tools --such as countercyclical monetary policy with flexible exchange rates as well as ample space to borrow-- that will help them maintain jobs without compromising the longer term priority of boosting productivity in order to grow more.

“Other countries, however, with high levels of indebtedness or facing inflation pressures despite the slowdown, may find it more difficult to respond,” said de la Torre. “The temptation for these countries would be to take the path of least resistance, keeping aggregate consumption and government spending high and borrowing to finance the associated fiscal and external deficits. This path might be encouraged by highly liquid international markets seeking higher yields. The short-run gains, however, would carry a high price: lower long-run growth due to a more vulnerable balance of payments or an uncompetitive real exchange rate.”

To maintain the path of pro-poor growth of the past decade, productivity oriented reforms need to be complemented by policies that increase the quality and coverage of education in line with growing demand for skilled labor. The report thus concludes that advances in the quality of primary, secondary, and tertiary education that benefit all Latin Americans will be crucial to ensure that the dividends of productivity gains are fairly distributed so that the prosperity is truly shared.
 

Categories: Economy, Politics, Latin America.

Top Comments

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  • ChrisR

    Whoever wrote this article doesn't get the definition of 'poor' insofar as Uruguay in particular is concerned.

    If, by being given state money (which in reality is the taxes of working people), the poor became more self-sufficient and encouraged to find employment that would be a win.

    But, like in the UK, that doesn't happen. The smoking, beer guzzling 'poor' of both countries spend their newly found wealth on LED TV's and such. They do not work.

    As the reduction in wealth starts to bite the FIRST thing to go should be 'free' handouts as the poor see them, not as the result of taxing the workers who DO work for a living and due to the increased taxes to pay for this scum, barely have more money than the so called poor.

    It doesn't really matter to me, I am wealthy and couldn't give a shit about this scum who never worked at school and hve never worked all their life, BUT I am concerned for my friends who work for a living and had their net wealth REDUCED when this “brilliant” scheme of the cretin 'No Money Pepe', soon to be the gone No Money Pepe, came in.

    Oct 08th, 2014 - 12:08 pm 0
  • yankeeboy

    Yeah the definition of poor has been altered so lo and behold the % of poor decreased.
    LIke in China/Brazil etc being Poor was under U$1/day but wait middle class is u$4/day? So if you give someone $90/mo extra they're now middle class. Makes sense right?
    Idiots, when will they ever learn?
    No work no food.
    Very simple
    Work or Starve
    You can't just give people money and declare them middle class.

    Oct 08th, 2014 - 01:58 pm 0
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