Towards Inclusive Growth in Latin America The Latin American and the Caribbean Context OECD Latin America and the Caribbean Regional Programme 3rd Meeting of the Steering Group December 6, 2016 - Santiago de Chile

1. Angel Melguizo
Head of the Latin America and Caribbean Unit
OECD Development Centre
OECD Latin America and the Caribbean
Regional Programme
3rd Meeting of the Steering Group
December 6, 2016 - Santiago de Chile
Towards Inclusive Growth in Latin America
The Latin American and the Caribbean Context

2. 1 Latin American economic outlook
Towards higher growth, inclusion and better governance2
Latin America and the OECD3
Towards Inclusive Growth in Latin America:
a view from the OECD LAC Programme

3. Recovery in Latin America is taking long…
GDP growth in Latin America and the OECD (% annual)
Source: For OECD, OECD Economic Outlook 100 database. For Latin America and the Caribbean, IMF 2016 World Economic Outlook
Database, October.

4. … coupled with high financial volatility
Volatility index and risk aversion to Latin America
300
400
500
600
700
800
900
1000
Spread
(basis points)
Panel B. EMBI LATAM
Lehman max 2008
Tapering max 2013
EMBI Global
0
10
20
30
40
50
60
70
80
90
VIX
(Index)
Panel A. VIX
Tapering max 2013
Lehman max 2008
China 2015 BRA downgrade 2015 FED 2015 Impeachment 2016
Brexit 2016 Lehman max 2008Tapering max 2013US elections
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.

5. Price of commodities (100 = 2005)
Risk factors
I. (Even) Lower commodity prices
0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Brent crude oil price Minerals, ores and metals
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.

6. II. ‘New normal’ and (sharper) slowdown of China
GDP growth in Latin American economies with different scenarios for China (%)
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
2008 2009 2010 2011 2012 2013 2014 2015 2016p 2017p 2018p
Soft landing Hard landing
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.

7. III. (Faster) Tightening of monetary conditions
Monetary policy in advanced economies (Interest rates)
0
1
2
3
4
5
6
USA UK EURO
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.

8. Trade restrictions rising in G20 countries
(Number of trade restrictive measures in-force since the crisis)
IV. Rising protectionism
Source: WTO-OECD-UNCTAD (2016), G20 Trade Policy Monitoring Report.

9. Faced with limited demand policies: monetary…
Inflation rates in selected economies in LAC under different inflation regimes (%)
-5
0
5
10
15
20
25
30
Brazil
Chile
Colombia
Guatemala
Mexico
Paraguay
Peru
Uruguay
CostaRica
Argentina
Bolivia
DominicanRepublic
Guyana
Haiti
Honduras
Jamaica
Suriname
TrinidadandTobago
Venezuela
TheBahamas
Barbados
Belize
Ecuador
ElSalvador
Nicaragua
Panama
2015 2016 Inflation target upper bound
12233 37 482
Inflation target
regime
Intermediate
regimes
Fixed exchange
rate
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.

10. … and fiscal
Fiscal stimulus (Change in the structural primary fiscal balance, % GDP)
-9
-7
-5
-3
-1
1
3
5
Argentina Brazil Chile Colombia Costa Rica Mexico Peru Uruguay
2007-14
Fiscal stimulus
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.

11. ‘Américas Latinas’ are becoming even more evident…
GDP growth for selected Latin American countries (% annual)
Source: For Chile, Colombia, Costa Rica and Mexico the OECD Economic Outlook 99 database is used. For Brazil the OECD Interim
Economic Outlook (September 2016) is used. For the rest of the Latin America and Caribbean economies CEPALSTAT is used.
-10
-8
-6
-4
-2
0
2
4
6
8
2015 2016 2017

12. … within relately modest trend growth trajectories
Illustration of the position of selected Latin American economies in the
business cycle (2016-20, deviation from trend using HP filter)
Source: OECD Development Centre
ARGBRACHL
COL
CRI
MEX
PER
VEN
-0.04
-0.03
-0.02
-0.01
0.00
0.01
0.02
0.03
0.04

13. Productivity is not everything, but in the long run…
Labour productivity in selected countries in Latin America and Asia
(% productivity of the US, 5 year moving average, PPP)
0%
10%
20%
30%
40%
50%
60%
70%
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013
Korea Latin America Chile Colombia China Mexico
Source: OECD/ECLAC/CAF (2015), Latin American Economic Outlook 2016: Towards a New Partnership with China

14. The test on socio-economic progress
Poverty and inequality reduction
GDP growth and poverty rates in Latin America (%)
-2
-1
0
1
2
3
4
5
6
7
0
10
20
30
40
50
60
1980 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Poverty Growth (RHS)
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.

15. Socio-economic challenges are faced with limited political capital…
Trust in elections in Latin America (% population, 2014)
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
%
Youth (15-29) Adult (30-64)

16. … in a shifting wealth world
Source: OECD/ECLAC/CAF (2015), Latin American Economic Outlook 2016. Towards a new partnership with China
Contribution to global growth by regions (%)
0
10
20
30
40
50
60
1991-95 1996-2000 2001-05 2006-10 2011-15 2016-21
Economías avanzadas China América Latina India

17. 1 Latin American economic outlook
Towards higher growth, inclusion and better governance2
Latin America and the OECD3
Towards Inclusive Growth in Latin America:
a view from the OECD LAC Programme
Overcoming the middle-income trap
Strengthening the emerging middle class
Improving governance to re-build trust

18. Latin America and OECD, diverging paths
Latin America and the OCDE in the middle-income range
(GDP per capita constant 1990 PPP dollars)
1800
2800
3800
4800
5800
6800
7800
8800
9800
10800
11800
GDPpercapitaconstant1990PPPdollars
OECD avg LAC avg
HIGH
MIDDLE
LOW
Source: OECD Development Centre, Overcoming the middle income trap in Latin America: an empirical approach. Forthcoming

19. Latin America has been trapped in the middle-income range for
decades
The middle income trap in Latin America and the OECD
(GDP per capita constant 1990 PPP dollars)
Source: OECD/ECLAC/CAF (2015), Latin American Economic Outlook 2016: Towards a New Partnership with China

20. Latin America and recent middle-income trap evaders…
1800
2800
3800
4800
5800
6800
7800
8800
9800
10800
11800
GDPpercapitaconstant1990PPPdollars
Ireland Israel Poland Singapore Spain Portugal
Greece Malaysia South Korea China LAC avg
HIGH
MIDDLE
LOW
Source: OECD Development Centre, Overcoming the middle income trap in Latin America: an empirical approach. Forthcoming
Latin America and the OECD in the middle-income range
(GDP per capita constant 1990 PPP dollars)

21. … learning from OECD experiences to spur productivity?
• Tax revenue
• Investment
• Public revenues
Macroeconomic Indicators
• Quality of education
• Domestic credit
• Exports diversification
• Capabilities
Productive Structure
• Rule of law
• Democracy stabilityInstitutional
Source: OECD Development Centre, Overcoming the middle income trap in Latin America: an empirical approach. Forthcoming

22. 1 Latin American economic outlook
Towards higher growth, inclusion and better governance2
Latin America and the OECD3
Towards Inclusive Growth in Latin America:
a view from the OECD LAC Programme
Overcoming the middle-income trap
Strengthening the emerging middle class
Improving governance to re-build trust

23. A Latin American middle class in the making…
Source: World Bank Equity Lab and OECD Development Centre
LAC population distribution by per capita income level (%)
43
23
34
39
21
35
15
20
25
30
35
40
45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Poor (under $4) Vulnerable ($4-$10) Middle class ($10-$50)

24. … with new (higher) aspirations; still vulnerable due to informality
Source: OECD Development Centre and Tulane University (forthcoming), Fiscal policy and the emerging middle class in Latin America
An analysis based on the Commitment to Equity.
Informality among the emerging middle class
(% of households without a contributor to pensions/health)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
URY CRI BRA MEX COL PER BOL SLV GTM
Vulnerables (4-10 USD/dia) Clase media (10-50 USD/dia)

25. Vulnerability is being transmitted to Latin American youth
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Extreme poor
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Moderate poor
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Vulnerable
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Middle class
NEET Informal StudentFormal
From school to work transitions in Latin America (%; LAC-16)
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.

26. Weak social contract - Fiscal policy’s impact on inequality
is very limited…
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Denmark
Iceland
Germany
France
Korea
OECD
Canada
Italy
Spain
Greece
US
Argentina
ElSalvador
Mexico
Ecuador
Uruguay
Chile
LAC
CostaRica
Bolivia
Peru
Guatemala
Brazil
Honduras
Colombia
Gini Index
Market income Disposable income
Impact of direct taxes and transfers on income inequality (Gini before/after)
Source: For Latin American economies Lustig et al. (2016), “The impact of taxes and social spending on inequality and poverty in
Argentina (2011), Bolivia (2009), Brazil (2009), Chile (2013), Colombia (2010), Costa Rica (2010), Ecuador (2011), El Salvador
(2011), Guatemala (2011), Honduras (2011), Mexico (2010), Peru (2009) and Uruguay (2009): An overview”, CEQ Working Paper,
No. 47, CEQ. For OECD economies The OECD Income Distribution database (IDD), download date 25/04/2016 OECD.stat.

27. Source: OECD/IDB/ECLAC/CIAT (2016), Revenue Statistics for OECD countries and Latin America and the Caribbean
… partially explained by Latin American limited fiscal muscle
Total tax revenues in Latin America and OECD countries (% GDP, 2014)
0
10
20
30
40
OCDE(34)
ALC(22)³
Guatemala
Rep.Dominicana
ElSalvador
Paraguay²
Bahamas
Panamá
Venezuela²
Perú
Ecuador
México²
Honduras
Chile
Colombia
Nicaragua
CostaRica
Jamaica²
Uruguay
TrinidadyTobago
Bolivia²
Barbados²
Argentina
Brasil

28. 1 Latin American economic outlook
Towards higher growth, inclusion and better governance2
Latin America and the OECD3
Towards Inclusive Growth in Latin America:
a view from the OECD LAC Programme
Overcoming the middle-income trap
Strengthening the emerging middle class
Improving governance to re-build trust

29. Regional governance challenge
Time for integration (at last)?
Intra and extra-regional participation in GVCs (% of gross exports)
Backward participation Forward participation
62% 49%
5% 9%
30% 22%
46%
40%
0
5
10
15
20
25
30
35
1995 2011 1995 2011 1995 2011 1995 2011
European Union Latin America North America SouthEast Asia
Intra - regional backward participation Extra - regional backward participation
69% 62%
7% 9%
24% 16%
50%
58%
0
5
10
15
20
25
1995 2011 1995 2011 1995 2011 1995 2011
European Union Latin America North America SouthEast Asia
Intra - regional forward participation Extra - regional forward participation
Source: Kowlaski et al. (2015), based on OECD Trade in Value Added Database

30. Domestic governance challenge
Low trust is impacting views on the political system (2016-18 wave)
0
10
20
30
40
50
60
70
80
90
100
Venezuela
Argentina
Ecuador
Uruguay
Bolivia
Peru
Colombia
CostaRica
Chile
Nicaragua
Brazil
Paraguay
Guatemala
Panama
Honduras
ElSalvador
Mexico
16-29 years 30 years and over
Support for democracy as the best form of government in Latin America
(% population, 2014)
Source: OECD/ECLAC/CAF (2016), Latin American Economic Outlook 2017. Youth, Skills and Entrepreneurship.

31. 1 Latin American economic outlook
Towards higher growth, inclusion and better governance2
OECD Latin American Programme3
Towards Inclusive Growth in Latin America:
a view from the OECD LAC Programme
Pillars: Productivity, Inclusion, Governance
Principles: Strategic, Mutual, Collaborative
Building blocks: Data, Policy Dialogue, Analysis/Advice

32. OECD Latin American Regional Programme: 3 connected pillars
(plus 9 policy areas)
• Education and skills
• Innovation and the digital
economy
• GVCs and SMEs
• Women and youth, migration
• Formality and social protection
• Tax revenues and expenditure
efficiency
• Integrity, transparency and
accountability
• Public governance and regional
development
• Regulation

33. • Strategic (improving supply + demand-driven)
Productivity, Inclusion and Governance
• Mutual learning (OECD-LAC region)
Good practices in Latin American countries
(PPPs,Fiscal rules, CCTs, Pensions …)
• Collaborative (never alone)
ECLAC, CAF, IDB, SEGIB, CIAT, WB, …
+ the private sector
OECD Latin American Regional Programme: 3 principles

34. • Policy assessment: comparable indicators
Education (PISA, PIAAC), Taxes (REVStats), Trade
(TiVA), Red tape (PMR), Well-being …
• Policy dialogue
Networks – Policy makers; Private sector
• Analysis and advice
Flagship reports (Latin American Economic Outlook),
Country reviews (Surveys, MDCRs), Targeted (Skills
Strategy; Getting it right; Better Policies), …
OECD Latin American Regional Programme: 3 building blocks…

35. • High Level Meetings and regional publication
Productivity (with IDB)/Inclusion/Governance
• International Economic Forum on Latin America and the
Caribbean (with IDB, Ministry of Finance and Economy
France)
• Latin American Economic Outlook (with ECLAC, CAF)
• Comparable indicators
e.g. How’s Life Initiative for Latin America (with ECLAC)
OECD Latin American Regional Programme: … set on a core

36. • The economic slowdown and modest global growth
asks for action towards inclusive growth
• Structural reforms (competition & integration) and
productive investment (skills, infrastructures) are key
• Fiscal policy – sufficient, transparent, efficient and
progressive – and governance will be central
Towards Inclusive Growth in Latin America:
a view from the OECD LAC Programme

37. Towards Inclusive Growth in Latin America
In search of an innovative narrative for action
Source: América invertida,
dibujo de Joaquín Torres García, 1943