Latin American countries need to invest more public funds in health, education
services, infrastructure and innovation, but to afford this they will have to
make major changes in the way their tax systems operate, according to the OECD’s
newly published Latin American Economic Outlook.
The OECD urges Brazil and Mexico to improve the efficiency of public spending.
Both Brazil, which collects tax revenues equivalent to around 35% of its GDP,
and Mexico, where tax revenues amount to only 15% of GDP, score badly in such
areas as access to basic services like clean water and electricity.
Fairer systems of taxation could mean ending some of the special tax exemptions
that currently feature in many regimes, while increasing the share of revenue
from direct taxation, notes the Outlook.
At present, surveys show, fewer than one in four Latin Americans believes that
money from taxes is being well spent. With more than 200 million people –
nearly 40% of the population – living in poverty, the region has the highest
levels of inequality of any region in the world. Stronger economic growth is
likely to help raise fiscal revenues, but Latin American countries need to spend
these revenues in a more effective and fairer manner, in order to reduce poverty
and maintain citizens’ trust in democratic systems.
Presenting the report at a conference in Santiago de Chile, OECD Secretary-General
Angel Gurría noted that Latin America is becoming an increasingly important
player in the world economy. However, he stressed the need for further economic
reforms in order to underpin improved prosperity.
“Latin America has chosen democracy and the market economy, and the region
is benefiting from its progressive insertion into the global economy,”
Mr. Gurría commented. “However, there are still important challenges
to be overcome in order to consolidate economic growth, social justice and democratic
governance.”
Publication by OECD’s Development Centre of its first-ever report on
the economic outlook for the region follows a decision by OECD countries in
May to engage more closely with major emerging economies world wide. Mexico
is already a member of OECD, and Chile has been invited to open membership negotiations.
In parallel, OECD has launched a process of “enhanced engagement”
with Brazil and other major emerging economies such as China, India, Indonesia
and South Africa, with a view to strengthening mutual links and possible future
membership.
In addition to fiscal policy, the Latin American Economic Outlook reviews other
aspects of economic policy such as pension reform. Noting that Chile and several
other Latin American countries have been at the forefront of pension reform,
it observes that policy changes have so far failed to raise the region’s
relatively low levels of saving. In this context, it suggests that lifting restrictions
on the investments of pension fund administrators and strengthening governance
requirements could help to encourage longer-term investment in areas such as
housing, infrastructure and innovative technologies.
Reviewing the impact of the rapid rise of China and India in the global economy,
the Latin American Economic Outlook notes that many Latin American countries,
as exporters of raw materials, stand to gain considerably from growing Indian
and Chinese demand. The downside is that the region’s economies risk increasing
their dependence on a few commodities at the very moment when they should be
diversifying. Moreover, Latin American companies need to maintain their competitive
edge in major markets where they have a geographical advantage, as is the case
for Mexican and Central American enterprises in relation to the United States.
This will require investment in telecommunications and transport infrastructures
and measures to encourage innovation and promote a sounder business environment.
The Latin American Economic Outlook is available in English, French, Spanish
and Portuguese. For further information about the report see www.oecd.org/dev/publications/leo
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