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Succeeding in the present
         and losing the future?
                ETHOS International Conference 2012
                          June 12th 2012



                     Joseluis Samaniego
Chief, Sustainable Development and Human Settlements Division
The international economy is
    becoming increasingly fragile
• The euro zone is possibly facing a “lost decade” with
  a bleak economic outlook
• The crisis in the euro zone has contributed to the
  stagnating of global demand and to the increase of
  uncertainty in financial markets (1.6% to 0.5%
  between 2011 and 2012)
• The United States will grow 1.5%-2% in 2012
• China’s economic growth slows from 9.5% to 7.5% in
  2012.
• Developing countries increase their weight in the
  global economy but they still are not the engine of
  global growth.
• Global coordination (monetary and fiscal), which was
  crucial during the 2009-2009 crisis, is now weaker.
The global economy continues to show two-tier
   growth, with developed countries expanding more
           slowly than emerging economies

                                    World Economic Growth, 2009-2012
                                                       (Percentages)




Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of World Bank Data.
e Estimates.
P Projections.
The economic power is shifting from the Atlantic to
      Pacific and from North to South… with a
  realignment of political power at the global level

• In the last decade, economic ties with China and Asia-
  Pacific in general were strengthened and South-South links
  are growing
    •   Growth in developing countries is increasingly dependent on china
        and India
    •   South-South trade could surpass North-North trade in 2017
    •   South-South investments also continue to deploy quickly
    •   A growing number of trans-Latin and trans-Asian firms with
        operations at the global scale
• Two thirds of the world’s middle class will be in the BRICS
• Global Economy governance requires major adjustments in
  its main operating mechanisms
• Four years after the onset of the subprime crisis, financial
  normalcy can not be restored and the reformist momentum
  of the G-20 is diluting
Current global governance does not reflect the growing relative
         importance of emerging economies in the world economy


     RELATIVE SHARE OF ADVANCED AND EMERGING                                GLOBAL EXPORTS BY REGION, 1985-2020a
         ECONOMIES IN GLOBAL GDP, 1996-2016                                      (Percentages of world trade)
                    (Percentages)




                                                                  Source: Economic Commission for Latin America and the
Source: Economic Commission for Latin America and the Caribbean
                                                                  Caribbean (ECLAC), on the basis of official figures.
(ECLAC), on the basis of IMF (2011).                              a The figures for the period 2011-2020 are projections based on

                                                                  long-term linear trends.
The challenges of the new
         international scenario
• New global equilibrium: The changing role of China and
  the rest of Asia-Pacific in world production, trade and
  foreign direct investment
• Increased demand for competitiveness and innovation
  for participating in global value chains and the intensity of
  technological change
• New patterns of production and consumption with a low-
  carbon/ecological footprint are required to tackle climate
  change/environmental pressures.
• More selective conditions of access to external financing
  and possible restructuring of national and international
  financial architecture
• Need for new forms of governance and a redefinition of the
  State-market-society relationship to ensure sustainable
  development
GLOBAL CONTRASTS
In the 1990s, the world moved along two parallel tracks.

     A private economic track: a globalized economy, financial capitalism.
     speculative economy, high above the real economy. Trade and financial
     openness. Reduced role of the State.

     A global normative track: UN world summits towards a development
     decade: sustainable development, women, population, social development,
     education, and financing for development, and the Millennium Summit.

Results: two decades of light and shadows: commitments but without clear
financial support or effective transfer of technology.

 Principle 7 of the Rio Declaration relating to common but differentiated
responsibilities became watered down internationally within the framework of
trade negotiations and is now limited to non‐binding, environmental agreements.

 Twenty years later, we are more acutely aware but in a weaker and more
worrying position because time is reducing the margins.
Where is Latin America and the
         Caribbean today?
• Learning from the past
• More prudent in macroeconomic terms
• Progressive in social terms
• With economic growth in 2010 but decelerating in 2011 and
  2012
• Urgent to rethink a new development agenda centered in
  equality and contemplating environmental sustainability
   • This requires closing productive and social gaps
   • It involves facing the region’s historical and recent
      debts

       The regions is aiming at a structural change
The regional context: the situation today
is very different from what it was in 1992
  LATIN AMERICA AND THE CARIBBEAN: PER CAPITA GDP GROWTH,
   CURRENT ACCOUNT BALANCE AND OVERALL FISCAL BALANCE
            (Annual growth rates and percentages of GDP)                                   In 1992, the
                                                                                           region was
                                                                                           emerging from a
                                                                                           "lost decade" of
                                                                                           low growth, high
                                                                                           inflation and
                                                                                           external debt
                                                                                           constraints.
                                                                                           Currently, despite
                                                                                           the recent global
                                                                                           economic crisis,
                                                                                           the region has
                                                                                           enjoyed nearly a
                                                                                           decade of
                                                                                           relatively high
                                                                                           growth; inflation
                                                                                           is under control
                                                                                           in nearly all
                                                                                           countries and, in
Fuente: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of   general, stable
official figures.
                                                                                           economic
                                                                                           conditions
                                                                                           prevail.
Main gaps to be closed




   Inequality          Investment          Productivity         Taxation       International           Environ-
  For the first time   Investment, at          Closing the      Regressive       linkages               mental
  in recent history    23% of GDP, is      external gap (with       tax                 Risk of
                                                                                                      sustainabi-
  there have been       insufficient for   the technological     systems;        “reprimarization”        lity
    advances in          development        frontier) and the    weak non-          of the export     Move towards
     combating                                 internal gap     contributory   structure, with low      sustainable
      inequality                           (between sectors        pillar       value added and       production and
                                               and actors)                     little investment in    consumption
                                                                                     technology          patterns



• In order to move towards productive convergence, policymakers must look beyond the price
  boom: economic policies based on a relevant, long-term, sustainable vision at the
  macroeconomic, productive and territorial levels.
• To take advantage of the opportunities provided by the international context, exports must have a
  higher value added and knowledge content, with the focus on diversification of production,
  integration of sustainable production processes, re-evaluation of global and regional
  partnerships and strengthening open regionalism.
• Consensus on priorities and respective financing: a fiscal covenant with a redistributive impact –
  with access to innovation, job security and internalization of externalities.
• New equation: State-market-society.
Two factors that breed inequality: the skills
         gap and the productivity gap
 LATIN AMERICA AND THE CARIBBEAN (9 COUNTRIES) AND
OECD AVERAGE: DISTRIBUTION OF LEVELS OF PERFORMANCE
    IN THE PISA READING ASSESSMENT, BASED ON THE
HOUSEHOLD SOCIOECONOMIC AND CULTURAL INDEX, 2009                          LATIN AMERICA: PRODUCTIVITY BY SEGMENT,
                     (Percentages)                                                        1990-2008
                                                                                    (Dollars at 2000 prices)




 Source: Economic Commission for Latin America and the Caribbean     Source: Economic Commission for Latin America and the Caribbean
 (ECLAC), on the basis of special processing of microdata from the   (ECLAC), on the basis of official figures,.
 PISA Assessments, 2009.
Opportunities for Latin America and the
Caribbean: closing the infrastructure gap
     INVESTMENT NECESSARY TO CLOSE THE INFRASTRUCTURE GAP: 5.7% OF GDP

             Water and sanitation 4%




                                           Energy 33%
                  Transport 22%




                          Communications 41%




            … But to reach the levels of
Southeast Asian, it is necessary to invest 8.1% of GDP
Productivity growth and structural
                        change
          LATIN AMERICA (SELECTED COUNTRIES) AND THE REPUBLIC OF KOREA: PRODUCTIVITY AND BREAKDOWN
                                              OF INDUSTRIAL VALUE ADDED
                      (Percentages of industrial GDP in United States dollars at constant 1985 prices)




Source: Economic Commission for Latin America and the Caribbean (ECLAC), Industrial Performance Analysis Program (PADI) on the basis of official
figures.
Innovation: Latin America and the Caribbean invests less in
    R&D, with a small participation of the private sector

                                      INVESTMENT IN RESEARCH AND INVESTMENT (R&D) BY THE PRIVATE SECTOR
                                                              (Percentages of GDP)


                                           Latin America and Caribbean       OECD       Other emerging economies


                              5
 R&D investment ( % of GDP)




                              4


                                                                                                                      Ko rea
                              3



                              2

                                                                                                                   China
                                                      Federació n Rusa
                              1
                                                      India                         So uth A frica



                              0
                                  0   10         20            30          40            50          60       70           80   90

                                                              R&D investment financed by private sector (%)
Serious public finance challenges
                 persist
•    The tax system delivers low level of revenue and is poorly
     designed
      • The tax structure is regressive
      • Most countries have a low tax burden
      • High level of evasion
      • Widespread exemptions
      • No environmental friendly incentives
•    Social spending with little redistributive impact
      • A weak non contributory pillar
      • In terms of production, minimum support to SMEs and segmented
          access to financing
•    Insufficient investment for development:
      • In infrastructure
      • In research, science and innovation
      • In development banking institutions: inclusive financing
      • In cleaner environmental matrices
The average tax burden of the Latin American countries is almost half
 that of the OECD countries and the tax structure is angled towards
                 non-progressive, indirect taxation


                     INTERNATIONAL COMPARISON OF THE LEVEL AND STRUCTURE OF THE TAX BURDEN
                                              (Percentages of GDP)




Source: CEPALSTAT for Latin American countries; IMF for Sub-Saharan African countries and developing Asia; OECDStat for OECD
countries.
Subsidies on fossil fuels, high correlation between
        economic growth and energy use, and low price-
       elasticities prevent a low carbon structural change


               LATIN AMERICA (SELECTED COUNTRIES): SUBSIDIES ON FOSSIL FUELS
                       AND PUBLIC SPENDING ON HEALTH CARE, 2008-2010
                              (Billions of dollars and percentages of GDP)
                                                                                                         Public spending
                                                      Subsidies on fossil fuels
                                                                                                             on health
                                     (billions of dollars)                (percentages of GDP)         (percentages of GDP)
                                2008        2009         2010          2008       2009      2010
Argentina                       18.1         5.9          6.5           5.5        1.9       1.8           5.3      (2008)
Colombia                         1.0         0.3          0.5           0.4        0.1       0.2           1.9      (2009)
Ecuador                          4.6         1.6          3.7           8.4        3.1       6.7           1.3      (2006)
El Salvador                      0.0         0.0          1.2           0.0        0.0       5.6           3.4      (2007)
Mexico                          22.5         3.4          9.5           2.1        0.4       0.9           2.8      (2008)
Peru                             0.6         0.0          0.0           0.5        0.0       0.0           1.2      (2008)
Venezuela
(Bolivarian Republic of)         24.2        14.1            20.0       7.8        4.3       5.1           1.8      (2006)

Source: Prepared by author on the basis of the subsidies on fossil fuels published in International Energy Agency (IEA), World
        Energy Outlook 2011 [online] http://www.iea.org/subsidy/index.html; Economic Commission for Latin America and
        the Caribbean (ECLAC), Official figures of GDP and social expenditure database for public health-care spending.
Unlike Asia, the region’s participation in value chains, even
          at the intraregional level, is very limited

               LATIN AMERICA AND THE CARIBBEAN: INTRAREGIONAL EXPORTS OF PARTS AND COMPONENTS a

                      A. Regional total, 2000-2009                                                    B. Selected groupings, 2009
       (Millions of dollars and percentages of intraregional total)                                (Percentages of intraregional total)


                                                                                                       Grouping                Percentage

                                                                                             Latin America and the
                                                                                                                                  8.1
                                                                                             Caribbean

                                                                                             ASEAN+3 b                            27.9

                                                                                             North American Free
                                                                                             Trade Agreement                      17.4
                                                                                             (NAFTA)

                                                                                             European Union                       14,7




Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from the United Nations
Commodity Trade Statistics Database (COMTRADE).
a Relates to subcategories 42 and 53 of the Classification by Broad Economic Category.
b Includes the 10 members of ASEAN plus China, Japan and the Republic of Korea.
Intra-subregional trade remains below its historical
   peaks, with the highest rate in the Central American Common Market




LATIN AMERICA AND THE CARIBBEAN: EXPORTS BETWEEN MEMBERS OF                                     LATIN AMERICA AND THE CARIBBEAN:
                 REGIONAL GROUPINGS, 1986-2010                                                      VOLUME OF INTRAREGIONAL
          (Percentages of the total exports of each grouping)                                     MANUFACTURING EXPORTS, 2010
                                                                                                 (Percentages of total manufactures)


                                                                                                        Grouping                   Percentage

                                                                                             Andean Community                               13.5

                                                                                             CARICOM a                                      23.0

                                                                                             Central American
                                                                                                                                            34.7
                                                                                             Common Market

                                                                                             MERCOSUR                                       23.0

                                                                                             Source: ECLAC, on the basis of United Nations
                                                                                             Commodity Trade Database (COMTRADE).
                                                                                             a Data for Barbados, Dominica, Grenada, Saint Kitts

                                                                                             and Nevis, Saint Lucia, Suriname, and Trinidad and
                                                                                             Tobago correspond to 2009.



Source: ECLAC, on the basis of official information from the regional integration schemes.
a Does not include Bolivarian Republic of Venezuela.
b Does not include Bahamas or Haiti.
Energy intensity has been declining much
  more slowly in Latin America and the
    Caribbean than in other regions
                             ENERGY INTENSITY OF THE ECONOMY
          (Kg of petroleum equivalent per US$ 1,000 of GDP at constant 2005 PPP prices)




                                                                                                         This is attributable
                                                                                                         to the region’s
                                                                                                         production
                                                                                                         patterns, the fact
                                                                                                         that environmental
                                                                                                         and health costs
                                                                                                         are not factored
                                                                                                         into policy
                                                                                                         decisions, the use
                                                                                                         of hydrocarbon
                                                                                                         consumption and
                                                                                                         production
                                                                                                         subsidies, and the
                                                                                                         low priority that
                                                                                                         policymakers have
                                                                                                         assigned to
                                                                                                         energy efficiency,
                                                                                                         among other
                                                                                                         factors.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Bank, World Development
Indicators [online] http://data.worldbank.org/data-catalog/world-development-indicators [date of reference: December 2011].
Strong correlation among GDP per capita, energy use
                  and CO2 emissions




Note: The size of the circles is related to the per capita emissions of each country. The colors refer to the region:
Blue, South America; Red, Central America; and Orange, The Caribbean.
Source: ECLAC on the basis of World Bank (World Develoment Indicators).
In summary…

• Current patterns of economic growth in LAC are not
  consistent with a sustainable development
• Green technology and taxes are two key elements to
  change BAU scenario
• However, they are not enough in LAC under the present
  framework
• The magnitude of the effort implies significant modifications
  in the current patterns of production, consumption,
  distribution, the technological paradigm and the existing
  relative price structure
• Cooperation is crucial to accelerate that transition
• Natural resource governance is key to achieve sustainable
  development in the LAC region
Why talk about governance of natural
             resources?
• The “governance” of natural resources refers to all
  countries sovereign policies on the ownership of natural
  resources and the appropriation and distribution of profits
  from the exploitation of these resources to maximize their
  contribution to sustainable development.
• The mechanisms and strategies for such governance
  require public policies involving institutional, regulatory, tax,
  strategic planning, management and environmental
  conflicts management.
• In addition, this governance demands long-term institutional
  innovation that provides maximum social benefits to both
  present and future generations.
• Some instruments that are of use to States include: public
  funds for savings, special purpose investment (education,
  innovation) or macro-stabilization funds that are counter-
  cyclical.
The region has remarkable assets,
             but also weaknesses

Assets
•    Abundant natural resources:
    – One third of the world’s freshwater reserves and 12% of the arable land
    – A third of world production of ethanol, around 25% of the production of
       biofuels and 13% of oil production
    – Reserves: 65% of lithium, 49% of silver, 44% of copper, 33% of tin, 32% of
       molybdenum, 26% of bauxite, 23% of nickel, 22% of iron and 22% of zinc
    – 48% of world output of soybean
    – 21% of the global area of ​natural forest and rich biodiversity

Weaknesses
•    Productive and export structure based on static comparative advantages:
    • In many cases (South America): linked to natural resources
    • In others, linked to low-wage, labour-intensive manufacturing or services
    • Still very few dynamic competitive advantages
•    Low investment and lags in innovation, science and technology, education and
     infrastructure
•    Labour market informality
•   High cost of violence (7.7% of GDP in Central America )
•   Asymmetric vulnerability to climate change
Trends and developments of the decade

• Thirteen countries in the region are among the 15 largest world
  producers
• Chile and Peru are at the top
• Chile, since 1982 is the largest producer of copper
  Brazil, until 2006 was the largest producer of iron, displaced by
  China in 2007 and Australia in 2008
• Brazil is among the three largest producers of iron
• Mexico is the largest producer of silver and fifth in molybdenum
  and lead in mine
• Bolivia is the fourth largest producer of tin and the sixth for silver
• Colombia is the seventh largest producer of refined nickel and
  Cuba is the eight for nickel mine
• Jamaica is the seventh largest producer of bauxite
The rise in prices of metals and hydrocarbons began in
     2003 and continued in 2010-11 after correction for the
                       global financial crisis

                                           PRICE INDEX OF RAW MATERIALS , 2003-2011
                                                     (Index January 2003=1)
  500


  450


  400


  350


  300


  250


  200


  150


  100


    50


     0




                                                  Petróleo, gas natural y carbón                  Metales


     This rapid recuperation and persistence points to the importance of structural
                   factors (Asian demand) in the actual price cycles
Source: Econoic Commissions for Latin America and the Caribbean (ECLAC), on the basis of information from the International Monetary Fund.
The price increase also leads to an increase in economic
    profit of the mining sector worldwide, and particularly in
                               LAC

                         PROFIT FROM MINING SECTOR BY MAJOR MINING REGIONS, 1980-2009
                                           (In millions of US$ from 2005)
90.000


80.000


70.000


60.000


50.000


40.000


30.000


20.000


10.000


     0
             1970           1975            1980           1985           1990           1995           2000            2004          2009
               Norteamerica     Asia del Sur    Europa y Asia central     Asia del Este y el Pacifico   América Latina y el Caribe

 Source: Econoic Commissions for Latin America and the Caribbean (ECLAC), on the basis of World Bank, World Development Indicators.
 Note: *The data for 2009 for East Asia and the Pacific corresponds to the year 2006.
The profitability of mining in LAC
      reached historically unprecedented levels
    LATIN AMERICA & THE CARIBBEAN: RETURN ON ASSETS FORT HE 500 LARGEST BUSINESSES IN THE
                                         REGION, 2010
                                        (In percentages)
          30.0




          25.0




          20.0




          15.0




          10.0




           5.0




           0.0




      Economic rent in the mining sector in LAC, estimated by the World
              Bank, exceeded 75,000 million dollars in 2009
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of statistical information from América Economía, December 2011
(http://www.americaeconomia.com/).
In relation to the world total, regional participation in the consumption
of hydrocarbons and oil reserves has grown, but the importance of gas
                reserves and oil production has decreased


                   RESERVES, PRODUCTION AND CONSUMPTION OF HYDROCARBONS:
         LATIN AMERICA AND THE CARIBBEAN PARTICIPATION IN THE WORLD TOTAL (In Percentage)

                                                                                                                          14,9%
        Reservas de petróleo                                                                       9,9%
                                                                                                             12,0%
                                                                                                                 13,0%
                                                                 4,7%
    Reservas de gas natural                                      4,7%
                                                                    5,2%
                                                                       6,0%
                                                                                                            12,0%
      Producción de petróleo                                                                                     13,0%
                                                                                                                     14,0%
                                                                                                            12,0%
                                                                                7,0%
  Producción de gas natural                                            6,0%
                                                                    5,3%
                                                                 4,8%
                                                                                              9,2%
       Consumo de petróleo                                                                8,5%
                                                                                             9,0%
                                                                                       8,0%
                                                                                7,0%
    Consumo de gas natural                                             6,0%
                                                                    5,3%
                                                                 4,8%
                               0,0%         2,0%         4,0%         6,0%        8,0%        10,0%       12,0%   14,0%    16,0%
                                           2006-2010              2001-2005               1996-2000           1991-95

Source: Econoimc Commission for Latin America and the Caribbean (ECLAC), on the basis of BP2011.
Worrying decline in the reserve / production ratio of hydrocarbons, with
        the exception of the Bolivarian Republic of Venezuela



                      RATIO OF RESERVES/PRODUCTION OF LATIN AMERICA & THE CARIBBEAN (years)
 80


 70                                                                         4 veces en GN
 60                          VEN
                                                VEN
 50                                                                                              2.5 veces en PE                         1995
                                                                                                                                         2000
 40                                                                                                                                      2005
                                                                                                                                         2009
 30                                                                                                                                      2010


 20


 10


   0
               Gas Natural




                                                                             Gas Natural
                                  Petróleo




                                                                                                    Petróleo
                                                      Petroleo&GasNatural




                                                                                                                   Petroleo&GasNatural
                             Total ALC                                                     Total ALC s/Venezuela

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of BP2011.
Risk of “reprimarization”,
                    especially in South America

 LATIN AMERICA AND THE CARIBBEAN: CHANGES IN THE STRUCTURE OF EXPORTS TO THE WORLD SINCE THE EARLY 1980S
                                       (Percentages of regional total)




Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from United Nations
Commodity Trade Statistics Database (COMTRADE).
-2%
                                                                                                                                                            2%
                                                                                                                                                                 4%
                                                                                                                                                                      6%
                                                                                                                                                                           8%




                                                                                                                                                       0%
                                                                                                                                                                                10%
                                                                                                                                                                                      12%
                                                                                                                                                                                            14%
                                                                                                                                       Enero
                                                                                                                                    Febrero
                                                                                                                                      Marzo
                                                                                                                                         Abril
                                                                                                                                       Mayo
                                                                                                                                        Junio
                                                                                                                                         Julio




                                                                                                                         2007
                                                                                                                                     Agosto
                                                                                                                                Septiembre
                                                                                                                                    Octubre
                                                                                                                                Noviembre
                                                                                                                                 Diciembre
                                                                                                                                       Enero
                                                                                                                                    Febrero
                                                                                                                                      Marzo




                                                                                                            Alimentos
                                                                                                                                         Abril
                                                                                                                                       Mayo
                                                                                                                                        Junio
                                                                                                                                         Julio




                                                                                                                         2008
                                                                                                                                     Agosto
                                                                                                                                Septiembre
                                                                                                                                    octubre
                                                                                                                                 noviembre
                                                                                                                                  diciembre
                                                                                                                                       Enero
                                                                                                                                    Febrero
                                                                                                                                      Marzo
                                                                                                                                         Abril
                                                                                                                                       Mayo
                                                                                                                                        Junio
                                                                                                                                         Julio




                                                                                                                         2009
                                                                                                                                     Agosto
                                                                                                                                Septiembre
                                                                                                                                    Octubre




                                                                                                            Subyacente
                                                                                                                                 noviembre
                                                                                                                                  diciembre
                                                                                                                                       Enero
                                                                                                                                    Febrero
                                                                                                                                      Marzo
                                                                                                                                         Abril
                                                                                                                                       Mayo
                                                                                                                                        Junio
                                                                                                                                                                                                                   (Inflation during 12 months, simple average)




                                                                                                                                         Julio
                                                                                                                         2010



                                                                                                                                     Agosto
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of oficial figures.
                                                                                                                                Septiembre
                                                                                                                                    Octubre
                                                                                                                                 noviembre
                                                                                                                                  diciembre
                                                                                                                                       Enero
                                                                                                                                    Febrero
                                                                                                            Otros




                                                                                                                                      Marzo
                                                                                                                                         Abril
                                                                                                                                       Mayo
                                                                                                                                                                                                  LATIN AMERICA: CONTRIBUTIONS TO INFLATION, JANUARY 2007-FEBRUARY 2012




                                                                                                                                        Junio
                                                                                                                                         Julio
                                                                                                                         2011




                                                                                                                                     Agosto
                                                                                                                                Septiembre
                                                                                                                                    Octubre
                                                                                                                                 noviembre
                                                                                                                                                                                                                                                                             has impacted inflation in countries in the region




                                                                                                                                  diciembre
                                                                                                                                       Enero
                                                                                                                                    Febrero
                                                                                                                         2012
                                                                                                                                                                                                                                                                          The increase in international prices for energy and food
This increase has resulted in almost continuous appreciation,
 jeopardizing the competitiveness of other tradable goods outside the
                      natural resources sector

 LATIN AMERICA & THE CARIBBEAN: REAL EFFECTIVE                           LATIN AMERICA & THE CARIBBEAN: REAL EFFECTIVE EXCHANGE
EXCHANGE RATE TOTAL, FEBRUARY 2012 VS AVERAGE                               RATE EXTRA-REGIONAL, JANUARY 2008 – JANUARY 2012
                   1990-2009                                                       (Indexes, Average from 1990-2009 = 100)
                 (Percentages)
                                                                  100


                                                                    96


                                                                    92


                                                                    88
                                                                                                     América Latina y el Caribe

                                                                                                     América del Sur
                                                                    84
                                                                                                     Centroamérica, México y
                                                                                                     Caribe
                                                                    80




                                                                                                                                juLio09
                                                                          ene-08




                                                                                                              ene-09




                                                                                                                                                   ene-10




                                                                                                                                                                                                                           ene-12
                                                                                                                                                                                                abr-11
                                                                                                     oct-08




                                                                                                                                          oct-09




                                                                                                                                                                              oct-10
                                                                                                                                                                                       ene-11



                                                                                                                                                                                                                  oct-11
                                                                                            jul-08




                                                                                                                                                                     jul-10
                                                                                   abr-08




                                                                                                                       abr-09




                                                                                                                                                            abr-10




                                                                                                                                                                                                         jul-11
  Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of oficial figures.
El aumento del precio internacional por sobre los costos de
   producción, determina un aumento importante de las rentas del
                   sector minero a partir de 2004

Precio del cobre refinado en la Bolsa de Metales de Londres y costos de producción
promedio de cátodos de cobre en América Latina* (En centavos de dólar por libra)


400


350


300


250


200


150


100


 50


   0
       1990         1992        1994         1996         1998        2000         2002         2004         2006        2008         2010

                              Precio Cu (BML)               Costo de producción (promedio América Latina)**


Fuente: Elaboración propia sobre la base de datos de COCHILCO.
Notas: * Se refiere a los costos totales, C3 de acuerdo a la terminología de Brook Hunt. ** Los costos para el período 1992-1996 son sólo de Chile.
Enforcement mechanisms
                                                   Key Fiscal Instruments

Mechanism                             Advantages                                                     Disadvantages

Royalty         Fixed payment per unit of production or a percentage of      Can distort investment and production decisions, as they
                the production or gross income. Provide an early and         are insensitive to costs. Are regressive.
                fiscally stable minimum payment for the resources used
                and are relatively easy to administer.
Taxes based     They are less distorting because are based on revenue        Are relatively complexes to administer. Revenues also are
on revenue      less costs. Foreign investors appreciate the fact that       delayed: since depend on the depreciation of capital, which
                foreign tax credits can be applied.                          are often generous to attract investment (i.e., provide a
                                                                             faster return on investment).


Taxes based     They are neutral because the payment is only required        They are more effective but are also the most difficult to
on profit       when the investor generate returns.                          manage. The risk balance is biased towards the
                                                                             government.


State assets    Allows the government to increase their participation and    Capital "paid" requires the government to contribute to the
                thus increases the sense of national belonging.              cost of initial capital, and often leads to conflicts of interest
                                                                             derived from the government's role as a regulator.


Export          They are not very common. Export duties are relatively       Distort the decision to sell crude oil in the foreign country
duties          easy to administer.                                          and are insensitive to costs.


Import duties   Provides income (even before royalties) during the project   Full or partial exemptions for are often provided to mitigate
                development due to import requirements.                      the negative impact on investors.


Others          Include: Company and production bonuses, land lease
                payments, withholding taxes on interest, dividends and
                services, and the value added tax (VAT)
Institutional strengthening to achieve…
• More progressiveness in state participation in the rent-
   seeking by exploitation of natural resources during
   boom cycles, particularly given the magnitude and
   persistence of the current cycle of international prices of
   primary goods ...
• ... while preserving the dynamics of investment in the
   present natural resource sectors and avoiding tax
   competition between countries.
• Efficient public investment income from natural resources
   in education, health, infrastructure, innovation and
   technological development, and equitable distribution
   among levels of government and social groups.
• Institutionalize countercyclical macroeconomic
   management against volatility of international price cycles
   and capital flows.
Innovation and productive
                 convergence
•   Ties must be forged between low-productivity sectors and
    those already at the technological frontier
•   Co-evolution of macroeconomic and productive development
    policies
•   Reforming the long term institutional architecture for
    development:
     • An explicit and integrated productive development policy
     • Higher priority for science and technology
     • Strengthening educational and health infrastructure
     • Development banking for building production capacity and
        promoting innovation and internal convergence
     • Integrated strategy to provide financial support to SMEs
        and link them to more dynamic sectors (+certification,
        traceability, carbon footprint)
Some economies have been able to make virtuous structural changes that
          combine high rates of productivity growth and employment.
      Lessons for countries seeking to accelerate their development are :


•     Economic development means changing comparative
      advantage and the allocation of resources to technology-intensive
      sectors with strong growth in demand.
•     A country that is moving toward a structure dominated by dynamic
      efficiency over time reduces the external constraint on growth
      by allowing higher rates of export growth thug allowing the
      expansion of imports.
•     The desirable structural change is defined and evaluated based
      on their aggregate effects on the economic system, including
      employment.
•     The structural change requires industrial policies combined with
      macroeconomic policy (high exchange rate, low interest rates
      and low volatility) to produce the necessary incentives.

    At the center of this proposal is the State action. The question is no
        longer to have more State or more market, but to opt ​for a better
                 State and more efficient and equitable market.
Guidelines for achieving sustainability

Create synergies between inclusion, social protection, human
security, empowerment of people, disaster risk reduction and
environmental protection
     • Public transport
     • Treatment of wastewater

Measure the sustainability of development
   • Adoption of green net domestic product and/or the United
     Nations System of Integrated Environmental and Economic
     Accounting (SEEA)

Internalize the environmental and social costs and benefits of public
and private economic decisions
    • Pricing of activities that pollute or cause environmental
       degradation
    • Eliminate direct or indirect subsidies for activities that damage
       the environment
    • Apply mechanisms such as royalties to channel resources into
       human capital to facilitate transformation of production structure
Rio + 20 expected outcomes

 Improve international governance for sustainable development
(consistency, coherence, efficiency and effectiveness), particularly
around natural resources: Strengthen the Economic and Social
Council to ensure that the three pillars are integrated

 Comply with ODA commitments

 SDGs on production and consumption patterns: subsidies, and
pricing of externalities.

 Improve international cooperation to allow access to new
technologies (technological weaknesses and the world intellectual
property system limit such transfers)

Process to adopt national wealth indicators beyond GDP to properly
count human and natural patrimonies.
Joseluis Samaniego
Chief, Sustainable Development and Human
            Settlements Division

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Joseluis samaniego

  • 1. Succeeding in the present and losing the future? ETHOS International Conference 2012 June 12th 2012 Joseluis Samaniego Chief, Sustainable Development and Human Settlements Division
  • 2. The international economy is becoming increasingly fragile • The euro zone is possibly facing a “lost decade” with a bleak economic outlook • The crisis in the euro zone has contributed to the stagnating of global demand and to the increase of uncertainty in financial markets (1.6% to 0.5% between 2011 and 2012) • The United States will grow 1.5%-2% in 2012 • China’s economic growth slows from 9.5% to 7.5% in 2012. • Developing countries increase their weight in the global economy but they still are not the engine of global growth. • Global coordination (monetary and fiscal), which was crucial during the 2009-2009 crisis, is now weaker.
  • 3. The global economy continues to show two-tier growth, with developed countries expanding more slowly than emerging economies World Economic Growth, 2009-2012 (Percentages) Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of World Bank Data. e Estimates. P Projections.
  • 4. The economic power is shifting from the Atlantic to Pacific and from North to South… with a realignment of political power at the global level • In the last decade, economic ties with China and Asia- Pacific in general were strengthened and South-South links are growing • Growth in developing countries is increasingly dependent on china and India • South-South trade could surpass North-North trade in 2017 • South-South investments also continue to deploy quickly • A growing number of trans-Latin and trans-Asian firms with operations at the global scale • Two thirds of the world’s middle class will be in the BRICS • Global Economy governance requires major adjustments in its main operating mechanisms • Four years after the onset of the subprime crisis, financial normalcy can not be restored and the reformist momentum of the G-20 is diluting
  • 5. Current global governance does not reflect the growing relative importance of emerging economies in the world economy RELATIVE SHARE OF ADVANCED AND EMERGING GLOBAL EXPORTS BY REGION, 1985-2020a ECONOMIES IN GLOBAL GDP, 1996-2016 (Percentages of world trade) (Percentages) Source: Economic Commission for Latin America and the Source: Economic Commission for Latin America and the Caribbean Caribbean (ECLAC), on the basis of official figures. (ECLAC), on the basis of IMF (2011). a The figures for the period 2011-2020 are projections based on long-term linear trends.
  • 6. The challenges of the new international scenario • New global equilibrium: The changing role of China and the rest of Asia-Pacific in world production, trade and foreign direct investment • Increased demand for competitiveness and innovation for participating in global value chains and the intensity of technological change • New patterns of production and consumption with a low- carbon/ecological footprint are required to tackle climate change/environmental pressures. • More selective conditions of access to external financing and possible restructuring of national and international financial architecture • Need for new forms of governance and a redefinition of the State-market-society relationship to ensure sustainable development
  • 7. GLOBAL CONTRASTS In the 1990s, the world moved along two parallel tracks. A private economic track: a globalized economy, financial capitalism. speculative economy, high above the real economy. Trade and financial openness. Reduced role of the State. A global normative track: UN world summits towards a development decade: sustainable development, women, population, social development, education, and financing for development, and the Millennium Summit. Results: two decades of light and shadows: commitments but without clear financial support or effective transfer of technology.  Principle 7 of the Rio Declaration relating to common but differentiated responsibilities became watered down internationally within the framework of trade negotiations and is now limited to non‐binding, environmental agreements.  Twenty years later, we are more acutely aware but in a weaker and more worrying position because time is reducing the margins.
  • 8. Where is Latin America and the Caribbean today? • Learning from the past • More prudent in macroeconomic terms • Progressive in social terms • With economic growth in 2010 but decelerating in 2011 and 2012 • Urgent to rethink a new development agenda centered in equality and contemplating environmental sustainability • This requires closing productive and social gaps • It involves facing the region’s historical and recent debts The regions is aiming at a structural change
  • 9. The regional context: the situation today is very different from what it was in 1992 LATIN AMERICA AND THE CARIBBEAN: PER CAPITA GDP GROWTH, CURRENT ACCOUNT BALANCE AND OVERALL FISCAL BALANCE (Annual growth rates and percentages of GDP) In 1992, the region was emerging from a "lost decade" of low growth, high inflation and external debt constraints. Currently, despite the recent global economic crisis, the region has enjoyed nearly a decade of relatively high growth; inflation is under control in nearly all countries and, in Fuente: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of general, stable official figures. economic conditions prevail.
  • 10. Main gaps to be closed Inequality Investment Productivity Taxation International Environ- For the first time Investment, at Closing the Regressive linkages mental in recent history 23% of GDP, is external gap (with tax Risk of sustainabi- there have been insufficient for the technological systems; “reprimarization” lity advances in development frontier) and the weak non- of the export Move towards combating internal gap contributory structure, with low sustainable inequality (between sectors pillar value added and production and and actors) little investment in consumption technology patterns • In order to move towards productive convergence, policymakers must look beyond the price boom: economic policies based on a relevant, long-term, sustainable vision at the macroeconomic, productive and territorial levels. • To take advantage of the opportunities provided by the international context, exports must have a higher value added and knowledge content, with the focus on diversification of production, integration of sustainable production processes, re-evaluation of global and regional partnerships and strengthening open regionalism. • Consensus on priorities and respective financing: a fiscal covenant with a redistributive impact – with access to innovation, job security and internalization of externalities. • New equation: State-market-society.
  • 11. Two factors that breed inequality: the skills gap and the productivity gap LATIN AMERICA AND THE CARIBBEAN (9 COUNTRIES) AND OECD AVERAGE: DISTRIBUTION OF LEVELS OF PERFORMANCE IN THE PISA READING ASSESSMENT, BASED ON THE HOUSEHOLD SOCIOECONOMIC AND CULTURAL INDEX, 2009 LATIN AMERICA: PRODUCTIVITY BY SEGMENT, (Percentages) 1990-2008 (Dollars at 2000 prices) Source: Economic Commission for Latin America and the Caribbean Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special processing of microdata from the (ECLAC), on the basis of official figures,. PISA Assessments, 2009.
  • 12. Opportunities for Latin America and the Caribbean: closing the infrastructure gap INVESTMENT NECESSARY TO CLOSE THE INFRASTRUCTURE GAP: 5.7% OF GDP Water and sanitation 4% Energy 33% Transport 22% Communications 41% … But to reach the levels of Southeast Asian, it is necessary to invest 8.1% of GDP
  • 13. Productivity growth and structural change LATIN AMERICA (SELECTED COUNTRIES) AND THE REPUBLIC OF KOREA: PRODUCTIVITY AND BREAKDOWN OF INDUSTRIAL VALUE ADDED (Percentages of industrial GDP in United States dollars at constant 1985 prices) Source: Economic Commission for Latin America and the Caribbean (ECLAC), Industrial Performance Analysis Program (PADI) on the basis of official figures.
  • 14. Innovation: Latin America and the Caribbean invests less in R&D, with a small participation of the private sector INVESTMENT IN RESEARCH AND INVESTMENT (R&D) BY THE PRIVATE SECTOR (Percentages of GDP) Latin America and Caribbean OECD Other emerging economies 5 R&D investment ( % of GDP) 4 Ko rea 3 2 China Federació n Rusa 1 India So uth A frica 0 0 10 20 30 40 50 60 70 80 90 R&D investment financed by private sector (%)
  • 15. Serious public finance challenges persist • The tax system delivers low level of revenue and is poorly designed • The tax structure is regressive • Most countries have a low tax burden • High level of evasion • Widespread exemptions • No environmental friendly incentives • Social spending with little redistributive impact • A weak non contributory pillar • In terms of production, minimum support to SMEs and segmented access to financing • Insufficient investment for development: • In infrastructure • In research, science and innovation • In development banking institutions: inclusive financing • In cleaner environmental matrices
  • 16. The average tax burden of the Latin American countries is almost half that of the OECD countries and the tax structure is angled towards non-progressive, indirect taxation INTERNATIONAL COMPARISON OF THE LEVEL AND STRUCTURE OF THE TAX BURDEN (Percentages of GDP) Source: CEPALSTAT for Latin American countries; IMF for Sub-Saharan African countries and developing Asia; OECDStat for OECD countries.
  • 17. Subsidies on fossil fuels, high correlation between economic growth and energy use, and low price- elasticities prevent a low carbon structural change LATIN AMERICA (SELECTED COUNTRIES): SUBSIDIES ON FOSSIL FUELS AND PUBLIC SPENDING ON HEALTH CARE, 2008-2010 (Billions of dollars and percentages of GDP) Public spending Subsidies on fossil fuels on health (billions of dollars) (percentages of GDP) (percentages of GDP) 2008 2009 2010 2008 2009 2010 Argentina 18.1 5.9 6.5 5.5 1.9 1.8 5.3 (2008) Colombia 1.0 0.3 0.5 0.4 0.1 0.2 1.9 (2009) Ecuador 4.6 1.6 3.7 8.4 3.1 6.7 1.3 (2006) El Salvador 0.0 0.0 1.2 0.0 0.0 5.6 3.4 (2007) Mexico 22.5 3.4 9.5 2.1 0.4 0.9 2.8 (2008) Peru 0.6 0.0 0.0 0.5 0.0 0.0 1.2 (2008) Venezuela (Bolivarian Republic of) 24.2 14.1 20.0 7.8 4.3 5.1 1.8 (2006) Source: Prepared by author on the basis of the subsidies on fossil fuels published in International Energy Agency (IEA), World Energy Outlook 2011 [online] http://www.iea.org/subsidy/index.html; Economic Commission for Latin America and the Caribbean (ECLAC), Official figures of GDP and social expenditure database for public health-care spending.
  • 18. Unlike Asia, the region’s participation in value chains, even at the intraregional level, is very limited LATIN AMERICA AND THE CARIBBEAN: INTRAREGIONAL EXPORTS OF PARTS AND COMPONENTS a A. Regional total, 2000-2009 B. Selected groupings, 2009 (Millions of dollars and percentages of intraregional total) (Percentages of intraregional total) Grouping Percentage Latin America and the 8.1 Caribbean ASEAN+3 b 27.9 North American Free Trade Agreement 17.4 (NAFTA) European Union 14,7 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of information from the United Nations Commodity Trade Statistics Database (COMTRADE). a Relates to subcategories 42 and 53 of the Classification by Broad Economic Category. b Includes the 10 members of ASEAN plus China, Japan and the Republic of Korea.
  • 19. Intra-subregional trade remains below its historical peaks, with the highest rate in the Central American Common Market LATIN AMERICA AND THE CARIBBEAN: EXPORTS BETWEEN MEMBERS OF LATIN AMERICA AND THE CARIBBEAN: REGIONAL GROUPINGS, 1986-2010 VOLUME OF INTRAREGIONAL (Percentages of the total exports of each grouping) MANUFACTURING EXPORTS, 2010 (Percentages of total manufactures) Grouping Percentage Andean Community 13.5 CARICOM a 23.0 Central American 34.7 Common Market MERCOSUR 23.0 Source: ECLAC, on the basis of United Nations Commodity Trade Database (COMTRADE). a Data for Barbados, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, Suriname, and Trinidad and Tobago correspond to 2009. Source: ECLAC, on the basis of official information from the regional integration schemes. a Does not include Bolivarian Republic of Venezuela. b Does not include Bahamas or Haiti.
  • 20. Energy intensity has been declining much more slowly in Latin America and the Caribbean than in other regions ENERGY INTENSITY OF THE ECONOMY (Kg of petroleum equivalent per US$ 1,000 of GDP at constant 2005 PPP prices) This is attributable to the region’s production patterns, the fact that environmental and health costs are not factored into policy decisions, the use of hydrocarbon consumption and production subsidies, and the low priority that policymakers have assigned to energy efficiency, among other factors. Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Bank, World Development Indicators [online] http://data.worldbank.org/data-catalog/world-development-indicators [date of reference: December 2011].
  • 21. Strong correlation among GDP per capita, energy use and CO2 emissions Note: The size of the circles is related to the per capita emissions of each country. The colors refer to the region: Blue, South America; Red, Central America; and Orange, The Caribbean. Source: ECLAC on the basis of World Bank (World Develoment Indicators).
  • 22. In summary… • Current patterns of economic growth in LAC are not consistent with a sustainable development • Green technology and taxes are two key elements to change BAU scenario • However, they are not enough in LAC under the present framework • The magnitude of the effort implies significant modifications in the current patterns of production, consumption, distribution, the technological paradigm and the existing relative price structure • Cooperation is crucial to accelerate that transition • Natural resource governance is key to achieve sustainable development in the LAC region
  • 23. Why talk about governance of natural resources? • The “governance” of natural resources refers to all countries sovereign policies on the ownership of natural resources and the appropriation and distribution of profits from the exploitation of these resources to maximize their contribution to sustainable development. • The mechanisms and strategies for such governance require public policies involving institutional, regulatory, tax, strategic planning, management and environmental conflicts management. • In addition, this governance demands long-term institutional innovation that provides maximum social benefits to both present and future generations. • Some instruments that are of use to States include: public funds for savings, special purpose investment (education, innovation) or macro-stabilization funds that are counter- cyclical.
  • 24. The region has remarkable assets, but also weaknesses Assets • Abundant natural resources: – One third of the world’s freshwater reserves and 12% of the arable land – A third of world production of ethanol, around 25% of the production of biofuels and 13% of oil production – Reserves: 65% of lithium, 49% of silver, 44% of copper, 33% of tin, 32% of molybdenum, 26% of bauxite, 23% of nickel, 22% of iron and 22% of zinc – 48% of world output of soybean – 21% of the global area of ​natural forest and rich biodiversity Weaknesses • Productive and export structure based on static comparative advantages: • In many cases (South America): linked to natural resources • In others, linked to low-wage, labour-intensive manufacturing or services • Still very few dynamic competitive advantages • Low investment and lags in innovation, science and technology, education and infrastructure • Labour market informality • High cost of violence (7.7% of GDP in Central America ) • Asymmetric vulnerability to climate change
  • 25. Trends and developments of the decade • Thirteen countries in the region are among the 15 largest world producers • Chile and Peru are at the top • Chile, since 1982 is the largest producer of copper Brazil, until 2006 was the largest producer of iron, displaced by China in 2007 and Australia in 2008 • Brazil is among the three largest producers of iron • Mexico is the largest producer of silver and fifth in molybdenum and lead in mine • Bolivia is the fourth largest producer of tin and the sixth for silver • Colombia is the seventh largest producer of refined nickel and Cuba is the eight for nickel mine • Jamaica is the seventh largest producer of bauxite
  • 26. The rise in prices of metals and hydrocarbons began in 2003 and continued in 2010-11 after correction for the global financial crisis PRICE INDEX OF RAW MATERIALS , 2003-2011 (Index January 2003=1) 500 450 400 350 300 250 200 150 100 50 0 Petróleo, gas natural y carbón Metales This rapid recuperation and persistence points to the importance of structural factors (Asian demand) in the actual price cycles Source: Econoic Commissions for Latin America and the Caribbean (ECLAC), on the basis of information from the International Monetary Fund.
  • 27. The price increase also leads to an increase in economic profit of the mining sector worldwide, and particularly in LAC PROFIT FROM MINING SECTOR BY MAJOR MINING REGIONS, 1980-2009 (In millions of US$ from 2005) 90.000 80.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000 0 1970 1975 1980 1985 1990 1995 2000 2004 2009 Norteamerica Asia del Sur Europa y Asia central Asia del Este y el Pacifico América Latina y el Caribe Source: Econoic Commissions for Latin America and the Caribbean (ECLAC), on the basis of World Bank, World Development Indicators. Note: *The data for 2009 for East Asia and the Pacific corresponds to the year 2006.
  • 28. The profitability of mining in LAC reached historically unprecedented levels LATIN AMERICA & THE CARIBBEAN: RETURN ON ASSETS FORT HE 500 LARGEST BUSINESSES IN THE REGION, 2010 (In percentages) 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Economic rent in the mining sector in LAC, estimated by the World Bank, exceeded 75,000 million dollars in 2009 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of statistical information from América Economía, December 2011 (http://www.americaeconomia.com/).
  • 29. In relation to the world total, regional participation in the consumption of hydrocarbons and oil reserves has grown, but the importance of gas reserves and oil production has decreased RESERVES, PRODUCTION AND CONSUMPTION OF HYDROCARBONS: LATIN AMERICA AND THE CARIBBEAN PARTICIPATION IN THE WORLD TOTAL (In Percentage) 14,9% Reservas de petróleo 9,9% 12,0% 13,0% 4,7% Reservas de gas natural 4,7% 5,2% 6,0% 12,0% Producción de petróleo 13,0% 14,0% 12,0% 7,0% Producción de gas natural 6,0% 5,3% 4,8% 9,2% Consumo de petróleo 8,5% 9,0% 8,0% 7,0% Consumo de gas natural 6,0% 5,3% 4,8% 0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0% 14,0% 16,0% 2006-2010 2001-2005 1996-2000 1991-95 Source: Econoimc Commission for Latin America and the Caribbean (ECLAC), on the basis of BP2011.
  • 30. Worrying decline in the reserve / production ratio of hydrocarbons, with the exception of the Bolivarian Republic of Venezuela RATIO OF RESERVES/PRODUCTION OF LATIN AMERICA & THE CARIBBEAN (years) 80 70 4 veces en GN 60 VEN VEN 50 2.5 veces en PE 1995 2000 40 2005 2009 30 2010 20 10 0 Gas Natural Gas Natural Petróleo Petróleo Petroleo&GasNatural Petroleo&GasNatural Total ALC Total ALC s/Venezuela Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of BP2011.
  • 31. Risk of “reprimarization”, especially in South America LATIN AMERICA AND THE CARIBBEAN: CHANGES IN THE STRUCTURE OF EXPORTS TO THE WORLD SINCE THE EARLY 1980S (Percentages of regional total) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from United Nations Commodity Trade Statistics Database (COMTRADE).
  • 32. -2% 2% 4% 6% 8% 0% 10% 12% 14% Enero Febrero Marzo Abril Mayo Junio Julio 2007 Agosto Septiembre Octubre Noviembre Diciembre Enero Febrero Marzo Alimentos Abril Mayo Junio Julio 2008 Agosto Septiembre octubre noviembre diciembre Enero Febrero Marzo Abril Mayo Junio Julio 2009 Agosto Septiembre Octubre Subyacente noviembre diciembre Enero Febrero Marzo Abril Mayo Junio (Inflation during 12 months, simple average) Julio 2010 Agosto Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of oficial figures. Septiembre Octubre noviembre diciembre Enero Febrero Otros Marzo Abril Mayo LATIN AMERICA: CONTRIBUTIONS TO INFLATION, JANUARY 2007-FEBRUARY 2012 Junio Julio 2011 Agosto Septiembre Octubre noviembre has impacted inflation in countries in the region diciembre Enero Febrero 2012 The increase in international prices for energy and food
  • 33. This increase has resulted in almost continuous appreciation, jeopardizing the competitiveness of other tradable goods outside the natural resources sector LATIN AMERICA & THE CARIBBEAN: REAL EFFECTIVE LATIN AMERICA & THE CARIBBEAN: REAL EFFECTIVE EXCHANGE EXCHANGE RATE TOTAL, FEBRUARY 2012 VS AVERAGE RATE EXTRA-REGIONAL, JANUARY 2008 – JANUARY 2012 1990-2009 (Indexes, Average from 1990-2009 = 100) (Percentages) 100 96 92 88 América Latina y el Caribe América del Sur 84 Centroamérica, México y Caribe 80 juLio09 ene-08 ene-09 ene-10 ene-12 abr-11 oct-08 oct-09 oct-10 ene-11 oct-11 jul-08 jul-10 abr-08 abr-09 abr-10 jul-11 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of oficial figures.
  • 34. El aumento del precio internacional por sobre los costos de producción, determina un aumento importante de las rentas del sector minero a partir de 2004 Precio del cobre refinado en la Bolsa de Metales de Londres y costos de producción promedio de cátodos de cobre en América Latina* (En centavos de dólar por libra) 400 350 300 250 200 150 100 50 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Precio Cu (BML) Costo de producción (promedio América Latina)** Fuente: Elaboración propia sobre la base de datos de COCHILCO. Notas: * Se refiere a los costos totales, C3 de acuerdo a la terminología de Brook Hunt. ** Los costos para el período 1992-1996 son sólo de Chile.
  • 35. Enforcement mechanisms Key Fiscal Instruments Mechanism Advantages Disadvantages Royalty Fixed payment per unit of production or a percentage of Can distort investment and production decisions, as they the production or gross income. Provide an early and are insensitive to costs. Are regressive. fiscally stable minimum payment for the resources used and are relatively easy to administer. Taxes based They are less distorting because are based on revenue Are relatively complexes to administer. Revenues also are on revenue less costs. Foreign investors appreciate the fact that delayed: since depend on the depreciation of capital, which foreign tax credits can be applied. are often generous to attract investment (i.e., provide a faster return on investment). Taxes based They are neutral because the payment is only required They are more effective but are also the most difficult to on profit when the investor generate returns. manage. The risk balance is biased towards the government. State assets Allows the government to increase their participation and Capital "paid" requires the government to contribute to the thus increases the sense of national belonging. cost of initial capital, and often leads to conflicts of interest derived from the government's role as a regulator. Export They are not very common. Export duties are relatively Distort the decision to sell crude oil in the foreign country duties easy to administer. and are insensitive to costs. Import duties Provides income (even before royalties) during the project Full or partial exemptions for are often provided to mitigate development due to import requirements. the negative impact on investors. Others Include: Company and production bonuses, land lease payments, withholding taxes on interest, dividends and services, and the value added tax (VAT)
  • 36. Institutional strengthening to achieve… • More progressiveness in state participation in the rent- seeking by exploitation of natural resources during boom cycles, particularly given the magnitude and persistence of the current cycle of international prices of primary goods ... • ... while preserving the dynamics of investment in the present natural resource sectors and avoiding tax competition between countries. • Efficient public investment income from natural resources in education, health, infrastructure, innovation and technological development, and equitable distribution among levels of government and social groups. • Institutionalize countercyclical macroeconomic management against volatility of international price cycles and capital flows.
  • 37. Innovation and productive convergence • Ties must be forged between low-productivity sectors and those already at the technological frontier • Co-evolution of macroeconomic and productive development policies • Reforming the long term institutional architecture for development: • An explicit and integrated productive development policy • Higher priority for science and technology • Strengthening educational and health infrastructure • Development banking for building production capacity and promoting innovation and internal convergence • Integrated strategy to provide financial support to SMEs and link them to more dynamic sectors (+certification, traceability, carbon footprint)
  • 38. Some economies have been able to make virtuous structural changes that combine high rates of productivity growth and employment. Lessons for countries seeking to accelerate their development are : • Economic development means changing comparative advantage and the allocation of resources to technology-intensive sectors with strong growth in demand. • A country that is moving toward a structure dominated by dynamic efficiency over time reduces the external constraint on growth by allowing higher rates of export growth thug allowing the expansion of imports. • The desirable structural change is defined and evaluated based on their aggregate effects on the economic system, including employment. • The structural change requires industrial policies combined with macroeconomic policy (high exchange rate, low interest rates and low volatility) to produce the necessary incentives. At the center of this proposal is the State action. The question is no longer to have more State or more market, but to opt ​for a better State and more efficient and equitable market.
  • 39. Guidelines for achieving sustainability Create synergies between inclusion, social protection, human security, empowerment of people, disaster risk reduction and environmental protection • Public transport • Treatment of wastewater Measure the sustainability of development • Adoption of green net domestic product and/or the United Nations System of Integrated Environmental and Economic Accounting (SEEA) Internalize the environmental and social costs and benefits of public and private economic decisions • Pricing of activities that pollute or cause environmental degradation • Eliminate direct or indirect subsidies for activities that damage the environment • Apply mechanisms such as royalties to channel resources into human capital to facilitate transformation of production structure
  • 40. Rio + 20 expected outcomes  Improve international governance for sustainable development (consistency, coherence, efficiency and effectiveness), particularly around natural resources: Strengthen the Economic and Social Council to ensure that the three pillars are integrated  Comply with ODA commitments  SDGs on production and consumption patterns: subsidies, and pricing of externalities.  Improve international cooperation to allow access to new technologies (technological weaknesses and the world intellectual property system limit such transfers) Process to adopt national wealth indicators beyond GDP to properly count human and natural patrimonies.
  • 41. Joseluis Samaniego Chief, Sustainable Development and Human Settlements Division