Latin America must curb inequality or risk decline, IADB chief warns

Latin America must curb inequality or risk decline, IADB chief warns

Luis Alberto Moreno says region-wide protests show need for fundamental change

Latin America must tackle the world’s worst inequality, improve public service sand enlist private sector help to create a fairer society, or risk falling further be hindrival economies, the head of the region’s main development bank has warned.

Luis Alberto Moreno, the outgoing president of the Inter-American Development Bank, said the street protests that swept the region in 2019 after several years of economic stagnation pointed to the need for fundamental change.

“Before, there were presidents who said ‘this is what I’m going to do’, and everyone kind of obeyed,” he said in an interview with the Financial Times. “Today, huge societal change [means people are saying to leaders], ‘wait a minute, this is what I demand of you and I demand of you not just better public services but, more importantly, better opportunities’.

”Riots erupted in October in Chile, a country that had been seen as the region’s big economic success story, with protesters demanding better education, pensions and health care. Violent protests hit Ecuador and Bolivia, the parliament was dissolved in Peru and Mr Moreno’s native Colombia also saw mass demonstrations.

Analysing the reasons for the discontent, Mr Moreno — who is preparing to step down from the Washington-based institution after serving three five-year terms —said Latin America had made significant strides in lifting 60m people out of poverty and improving the provision of basic services such as sanitation, electricity and water. But there were still big questions about the quality of those services and access to good education.

“Levelling in all of these things, I think, is the biggest issue of our time in Latin America and is still the discussion that we have yet to see. It’s a new awakening to a reality that is very real and it’s in the street,” he said.

The private sector had a key role to play in improving productivity and realizing that “the role of business is one in which they have to be more a part of the solution than just sitting on the sidelines”, he added.

Growth in Latin America has been the world’s worst since the end of the commodities boom, averaging just 0.8 per cent a year since 2014. Economists predict that this year will be hardly any better, even before the coronavirus outbreak’s damping effect on global growth.

Few of the region’s economies have succeeded in developing sophisticated export industries that go beyond the traditional sale of raw materials. As a result, Asian countries such as South Korea, Malaysia and Taiwan have leapfrogged their Latin American rivals over the past 40 years.

Mr Moreno lamented that many of the policies he called for in a 2010 article for the Financial Times, such as better education, higher quality public services, improved infrastructure and cleaner energy, had not been put in place. “Somehow in Latin America, we have a hard time managing the good times and we forgot about our central challenges,” he said.

The picture is not all gloomy. Brazil succeeded in passing a landmark reform of its unaffordable state pension system last year. Uruguay has developed an advanced digital economy, in part thanks to a pioneering 2007 initiative that delivered a laptop to every schoolchild, and Costa Rica boasts a thriving business process outsourcing economy.

The IADB lends more than $12bn a year to the region, and Mr Moreno pointed to a$120m project to improve neonatal and reproductive health in southern Mexico a san example of what could be achieved by combining private sector philanthropy, bank expertise and a framework that pays according to outcomes in order to guarantee results.

In the private sector, the digital economy is starting to take shape, particularly in Brazil, where São Paulo boasts a thriving fin tech sector and an increasing venture capital presence.

But these remain isolated examples. Mr Moreno cited improved productivity, more redistributive fiscal policy, better education and embracing the digital revolution assome of the region’s key challenges.

There are also new challenges, he said. Venezuela’s economic implosion under the revolutionary socialist government of President Nicolás Maduro and the mass migration it has triggered to neigh bouring countries represented a “huge threat” to regional stability: “The capacity to destabilise the rest of the region is real.”

On Argentina, where the new Peronist  government is trying to pull the economy out of recession, bring down inflation of more than 50 per cent and renegotiate more than $100bn of foreign debt, Mr Moreno was diplomatic. “I think every body looks at Argentina as a special case,” he said. Overall, the region has a long way to go to guarantee future prosperity, as Mr Moreno prepares to hand over to a successor who will be chosen later this year. Leading candidates are said to include Brazil’s deputy economy minister Marcos Troyjo, Ecuador’s finance minister Richard Martínez, former Costa Rican president Laura Chinchilla and Gustavo Béliz, an Argentine presidential official. The vote of the US, the IDB’s main shareholder with a 30 per cent stake, will be crucial.

Mr Moreno says his successor will have to grapple with the increasing speed of change and deal with an unprecedented number of challenges at once ranging from climate change to the digital revolution, crime, fiscal issues and communication. “How can the bank be a partner in helping deliver all of this?” he asked.
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