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Growth and Poverty Reduction: Latin American Experience with Economy-wide Policies. Alberto Valdés Taking Action for the World’s Poor and Hungry People IFPRI and The State Council Leading Group, China Beijing, October 17-19, 2007.

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Growth and poverty reduction latin american experience with economy wide policies l.jpg

Growth and Poverty Reduction:Latin American Experience with Economy-wide Policies

Alberto Valdés

Taking Action for the World’s Poor and Hungry People

IFPRI and The State Council Leading Group, China

Beijing, October 17-19, 2007


Why look at latin america lesson for other developing countries l.jpg
Why look at Latin America? Lesson for other developing countries.

  • Economic reforms in Latin America beginning in the 1980s were deep and wide. Explicit goal: stability for growth.

  • Initially poverty goal not explicit, in part due to lack of diagnosis. With macro stability attained, in mid-1990s poverty goal explicit.

  • Introduced during major macroeconomic disequilibria, limiting government fiscal policy.

  • Fiscal belt-tightening, central bank discipline for macroeconomic stability.

  • Trade liberalization, deregulation, privatization for improving the investment environment and efficiency.

  • Corrected inherent anti-export bias in previous approach of import-substitution/closed-economy.

  • Prepared the region for now ongoing globalization.


Cost reduction trade liberalization deregulation privatization l.jpg
Cost reduction: trade liberalization, deregulation, privatization.

  • Lowered tariffs and non-tariff barriers.

  • Removal of price controls.

  • Reduction of state agencies, licenses and other obstacles to business and trade (both exports and imports).

  • Lessening state control of ports, roads, telecommunications, energy.

  • All aimed at lower costs of doing business.


Expectations for small open economies l.jpg
Expectations for small open economies privatization.

  • More trade, and more rapid growth in exports, including agriculture.

  • Initially poverty reduction not the direct focus. Later, yes.

  • However, important for poverty: More employment in exports for same amount of value added than import-competing activities.

  • Higher growth, higher incomes.

Outcomes

  • Depth and impact of reforms uneven: some countries more than others.

  • Exchange rate appreciation surprise.

  • Modernization of government very slow.

  • In general, greater global integration today.

  • Social policy shift toward targeted subsidies to poor.


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Growth is good for the poor. privatization.

  • The case is strong that sustained growth remains a necessary condition for poverty reduction.

  • Economic growth can be more pro-poor in some circumstance and less in others and that less inequality is better than more. But just by itself, growth is pro-poor.

  • Patterns of growth matter, because some industries are more intensive in unskilled labor than others.

  • Policies that are biased against higher-labor-intensive sectors work to the detriment of the poor.


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Questions about growth and inequality privatization.

  • Can the poor take advantage of growth? Initial inequality can influence how the poor benefit.

  • Critical for reducing poverty: pro-employment growth, particularly unskilled labor.

  • In the long run the main factor appears to be education. The record in Latin America is still overall disappointing for coverage and quality compared to East Asian experience.

  • Poverty and inequality can feedback to slower growth.

    • poor exposed to worst schools, poor regions unattractive to investment, disparities and political risk.


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Effective public expenditures privatization.

  • Tradeoffs and priorities: so many gaps, so few funds.

  • Little analysis of the effectiveness of spending.

  • So much of public spending end up being transfers as private subsidies. Waste of funds that might go to productive “public goods.”

  • Estimate for Latin America rural areas: a shift from 40% to 50% on public goods increases agricultural GDP per person 2.3% – without spending a penny more.


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