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Latin America to the world: lessons learned on austerity, growth, reforms

Hasan Tuluy's picture

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Made in Latin America

'Made in Latin America'. Wouldn't that be a great label? --one that would slowly work its way out of the realm of some imaginary Latin American products to become a real seal of approval for many endeavors and accomplishments by the region.

I'm in Miami for the Seventh Annual Latin America Conference to talk about the region's prospects to decision makers, and I can't think of a better place to come up with such label --'My-ami', I muse, the Latin American economic and social melting pot that has been called many times the region's business capital.

Latin America is indeed becoming a role model for many other regions in the world, especially in light of recent global troubles.

'Made in Latin America' is, for instance, striking the right balance between fiscal discipline, socially inclusive programs and robust growth –a difficult feat by all measures, as Euro-zone countries can attest.
Our region is living proof that can be achieved.

Experience shows there is no one-size fits all formula to produce such results.

But I can safely say few ingredients have been critical to the region's current state of affairs: namely, a mix of sound economic policies and key social investments, that have kept the momentum for growth alive and opportunities for Latin Americans on the rise.

I have seen the fruits of this powerful mix almost everywhere I have traveled regionally. In a 10-year span, (2002-2011) the region's GDP per capita grew across the board by almost 25 percent. Six countries -Panama, Dominican Republic, Peru, Uruguay, Argentina and Chile-- have been crowned top performers after achieving growth increases of more than 40 percent.

The global financial crisis of 2007-2009 ruffled Latin America but it did not dent its fundamentals as past crises have. Such resilience has been the direct result of sound policy, fiscal discipline and strong financial institutions.

In spite of recent global turmoil, the region is expected to grow between 3.5 and 4 percent in 2012-2013.

Here's is another accomplishment deserving the 'Made in Latin America' label: the region dramatically narrowing its equity gap in the past decade.

About 73 million people have been lifted from moderate poverty as a result of expanding social programs and economic opportunities for all. Safety nets, including pioneering Conditional Cash Transfer programs, have become models to other regions.

We have also made important gains in gender equality: 70 million more women are in the labor force since 1980; and today there are more girls than boys in higher education.

Productivity Battle

Now, there's the rub. Preserving stability, continue narrowing inequalities and widening opportunities, are already tall orders, especially in this volatile and complex world we are facing.

But if I had to pick the greatest challenge for the region going forward, I'd say it is winning what I call the "Productivity Battle".

Cranking up the region's productivity and competitiveness to sustain growth and secure current gains should top, in my view, the decision makers' wish list.

Here's why. Latin America's growth performance over the 20th century has been, to put it mildly, subpar. Per capita income remained largely steady at 30 percent of the U.S while East Asian countries' per capita income spiked from 15 percent to more than 70 percent in the last 50 years.

Efficient logistics are central to becoming more competitive. But Latin America still pays a steep price for it: the median regional tag price is 2 to 4 times more than OECD countries or Singapore.

The list goes on. Underfunding innovation is partially to blame for low productivity. Latin American countries, minus Brazil, invest much less than the recommended 1 percent of GDP in research and development. By contrast star performers such as Finland, Korea, Israel, or Sweden have been spending between 2 to 5 percent of GDP in innovation since the early nineties.

Education is a similar story. Latin America's percentage of population with tertiary education rose from 9.5 percent in 1990 to 14.2 percent in 2009. Meanwhile, Tiger countries have gone from 10 to 20 percent over the same period.

Fortunately, the region has already begun tackling many of these challenges, which I think, puts it squarely in the path of success.

Consider this. Globally, Latin America's clout has risen, leading to more prominent roles in key fora such as the G-20 and Rio+20. In big global issues, the region is no longer "a problem" but part of the solution, as the climate change and food price debates have demonstrated. Latin America is a world champion in green projects with low-carbon growth strategies adopted by many; it is also a granary to the world with great potential to develop long-term responses to one of the most pressing issues of our time --rising food prices. The region is also increasingly seen as a growth model, with countries in the Eurozone looking for guidance on prospering without jettisoning social and economic gains.

All these unique contributions -and many more to come, I'm sure- should deserve the 'Made in Latin America' label. We just need roll up our sleeves and get to work.

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