Latin American Economic Outlook 2018 - Rethinking Institutions for Development

256 Pages·2018·5.284 MB·English

by  coll.

Latin American
Economic Outlook 2018
Rethinking institutions foR Development

1. <Header left page - cHapter>
Latin American
Economic Outlook 2018
RETHINKING INSTITUTIONS FOR DEVELOPMENT
This work is published on the responsibility of the Secretary-General of the OECD.The
opinionsexpressedandargumentsemployedhereindonotnecessarilyreflecttheofficial
views of the OECD, its Development Centre or their member countries, those of the
Economic Commission for Latin America and the Caribbean (UN-ECLAC) or those of the
CorporaciónAndinadeFomento (CAF).
This document, as well as any data and any map included herein, are without prejudice
tothe status of or sovereignty over any territory, to the delimitation of international
frontiersandboundariesandtothenameofanyterritory,cityorarea.
Pleasecitethispublicationas:
OECD/CAF/ECLAC(2018),LatinAmericanEconomicOutlook2018:RethinkingInstitutionsforDevelopment,
OECDPublishing,Paris.
http://dx.doi.org/10.1787/leo-2018-en
ISBN978-92-64-28880-5(print)
ISBN978-92-64-28883-6(PDF)
Series:LatinAmericanEconomicOutlook
ISSN2072-5159(print)
ISSN2072-5140(online)
ECLACReferenceNumber:LC/PUB.2017/25
CAFReferenceNumber:CAF-513i-2018
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1. fOrewOrd
Foreword
The Latin American Economic Outlook analyses issues related to economic and social
development in the Latin America and the Caribbean (LAC) region. Each year, since the
launch of the first edition in November 2007, the report compares LAC’s performance with
that of other countries and regions around the world, analysing the main development
challenges of the region, and putting forward policy recommendations, experiences and
good practices.
Since 2011, the report has been published in conjunction with the United Nations
Economic Commission for Latin America and the Caribbean (ECLAC). It has also
incorporated the economic theme of the annual Ibero-American Summit organised by
the Ibero-American governments and Ibero-American General Secretariat (SEGIB). In
2013, CAF – Development Bank of Latin America –joined the team of authors, followed
by the European Commission, who joined the report in 2017 as one of its main partners.
This eleventh edition Rethinking Institutions for Development focuses on the analysis of
the increasing disconnect between citizens and public institutions in LAC, illustrated by
a decline of trust, the lack of good jobs and the decreasing satisfaction with key public
services such as health and education. The report argues that this growing divide is
weakening the social contract in the region, and that a new state-citizens-market nexus
must be built, by rethinking institutions to boost inclusive growth and to build states
that deliver and respond to citizens’ demands by being more reliable, more efficient and
effective, and more forward-looking.
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Acknowledgements
Partners of this report include the Economic Commission for Latin America and the
Caribbean (ECLAC), CAF- Development bank of Latin America, the European Commission
and the Development Centre of the Organisation for Economic Co-operation and
Development (OECD).
The report was led and managed by Ángel Melguizo, Head of the Latin America and
Caribbean Unit at the OECD Development Centre, under the guidance of Mario Pezzini,
Director of the OECD Development Centre, and Federico Bonaglia, Deputy Director of the
OECD Development Centre. ECLAC’s contribution was led by Sebastián Rovira, Economic
Affairs Officer, and Daniel Titelman, Director of the Productive Development Division;
and the contribution from CAF-Development Bank of Latin America was led by Adriana
Arreaza, Director of Macroeconomic Studies.
Production of this report was co-ordinated by Juan Vázquez Zamora, Economist at the
Latin America and Caribbean Unit of the OECD Development Centre. The report benefitted
from the research, drafting and fruitful collaboration between various authors across
these organizations, including: Adriana Arreaza (CAF), Rolando Avendaño (OECD), Juan
Carlos Benitez Molina (OECD), Adriana Caicedo (OECD), Paula Cerutti (OECD), Keiji Injoue
(ECLAC), Ángel Melguizo (OECD), Nathalia Montoya (OECD), Sebastián Nieto-Parra (OECD),
José René Orozco (OECD), Astrid Pineda (OECD), Sebastián Rovira (ECLAC), Magali Saul
(OECD), Daniel Titelman (ECLAC), and Juan Vázquez Zamora (OECD). Agustina Vierheller
and Julia Peppino (OECD) provided invaluable administrative support throughout the
elaboration of the report.
A group of experts and colleagues have been particularly active and supportive along
the production process, providing views, inputs, comments and strategic orientation to
the report. We would like to highlight the support of Ben Roseth and Carlos Santiso from
the Inter-American Development Bank; Luis-Felipe López-Calva and Kimberly Bolch
from the World Bank; José Manuel Salazar-Xirinachs and Janine Berg from the ILO; and
Sara Fyson from the OECD Public Governance Directorate.
A special thanks goes to experts for providing boxes or inputs on a range of interesting
topics, including: Tomasa Rodrigo (BBVA Research); Carolina Camacho and Oswaldo
López (CAF); Sebastián Trujillo (Colombian Embassy in France); José Durán, Sebastián
Herrero and Dayna Zaclicever (ECLAC); Sebastián Acevedo, Nicolás Dassen, Pedro Farías,
Paolo Giordano, Jorge Kaufmann, Mariano Lafuente, Zachary Levey, Alejandro Pareja,
Miguel Porrúa, and Ángela Reyes (IDB); and Antonio Campobianco, Iratxe Gurpegui,
Florian Koester, Przemyslaw Kowalski, Lynn Robertson, Katherine Scrivens and Claire
Shewbridge (OECD) and Andrés Mariño (Universidad del Rosario). Simon Evenett and
Johanness Fritz kindly shared the data on the Global Trade Database to deepen the
analysis on trade included on the macroeconomic chapter.
The content of the report was enriched by constructive feedback received during
the Experts Meeting which took place in Paris on May 12th 2017. We are particularly
grateful to the experts who joined us: Karina Banfi (Argentina), Janine Berg (ILO), Romina
Boarini (OECD), Manuel Felipe Díaz Rangel (Colombia), Ángel Estrada (Bank of Spain),
Ricardo Fuentes-Nieva (Oxfam México), Carlos Ganoza (Perú), Daniel Gómez Gaviria
(WEF), Nicolás Grossman (Mckinsey Global Institute), Nora Lustig (Tulane University and
CEQ Initiative), Luiz de Mello (OECD), Álvaro Pereira (OECD), Ben Roseth (IDB), Juan Ruiz
(BBVA Research), María Luz Vega (ILO), Andreas Schaal (OECD), Federico Sosa (Paraguay),
and Juan Yermo (OECD).
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acKNOwledgeMeNtS
A group of colleagues from the OECD provided insightful comments that significantly
improved the report: Ángel Alonso, Sonia Araujo, Jens Arnold, Ken Ash, Geoff Barnard,
Sarah Box, Raffaella Centurelli, Paolo Falco, David Goessmann, Alberto Gonzalez
Pandiella, Antoine Goujard, Iratxe Gurpegui, Alexis Jubin, María Eugenia Le Gourrierec,
Lisa Meehan, Cristina Mendes, Rodrigo Mejía Ricart, Anna Pietikainen, Tobias Querbach,
Christian Reimsbach-Kouznate, Jehan Sauvage, Katherine Scrivens, Vincenzo Spiezia,
Caroline Tassot, Maria Varinia Vichalum, and Juan Yermo.
The country notes benefitted from constructive inputs, scrutiny and verification by
delegations to the OECD from Chile and Mexico, as well as the Embassies in France of
Argentina, Brazil, Colombia, Costa Rica, the Dominican Republic, El Salvador, Panama,
Paraguay, Peru and Uruguay.
The OECD Development Centre would also like to express its sincere gratitude to CAF-
Development Bank of Latin America, the Dirección Nacional de Planeación of Colombia,
the European Commission, the International Labour Organisation, the Spanish Ministry
of Foreign Affairs and Cooperation, and Universidad del Rosario (Colombia), for their
financial backing of the Latin American Economic Outlook.
Finally, many thanks go to the Publications and Communications Division of the
OECD Development Centre, in particular Aida Buendía, Delphine Grandrieux and Irit
Perry, for their steadfast patience and expedient work on the production of this report
and associated materials. We also appreciate the support received from the OECD
Public Affairs and Communication Directorate, including that of Anne-Lise Prigent and
Laurence Gerrer-Thomas. The authors also sincerely appreciate the editing activities
undertaken by Linda Smiroldo Herda, from the OECD Development Centre, and by Mark
Foss and Jane Marshall; and the translation services provided by Lidia García de Vicuña
and Gerardo Noriega.
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Table of contents
Acronyms and abbreviations ....................................................................................................................................................13
Editorial ....................................................................................................................................................................................................15
Executive summary .........................................................................................................................................................................17
Overview – Rethinking institutions for development: Towards a new state-citizens-market
nexus .......................................................................................................................................................................................................21
Trust and citizen satisfaction, a defining moment in Latin America .......................................................21
The social contract is weakening in Latin America and challenging global and domestic
contexts are fuelling citizens’ discontent ...................................................................................................................25
Rethinking institutions for greater well-being: Towards a new state-citizens-market nexus ....................28
Institutions to boost inclusive growth in a challenging global economy ...............................................30
Institutions to support a state that delivers: Towards enabling and empowering states .......................32
Institutions to embrace the future .................................................................................................................................36
References .......................................................................................................................................................................................39
Chapter 1. The social contract in Latin America and the Caribbean: Situation
and policy challenges .............................................................................................................................................43
The social contract has weakened in LAC owing to the difficulties of institutions
to respond to the rising and evolving aspirations of society ........................................................................45
A stronger social contract in LAC entails rethinking institutions to overcome persistent
socio-economic challenges and promote greater well-being .........................................................................62
Conclusions ....................................................................................................................................................................................82
References .......................................................................................................................................................................................84
Chapter 2. Macroeconomic prospects for Latin America and the Caribbean ...........................................89
A subdued recovery in Latin America and the Caribbean with a brighter global context ..............92
Institutions and openness matter ...............................................................................................................................106
Boosting productivity and potential output through trade ..........................................................................110
Conclusions .................................................................................................................................................................................132
Notes ................................................................................................................................................................................................133
References ....................................................................................................................................................................................134
Chapter 3. Institutions to make the state deliver in Latin America and the Caribbean ................139
Towards trustworthy states: strengthening the rule of law and regulatory systems ...............142
Towards a better administration: public sector reform to ensure effective governance ........153
Towards a new connection with citizens: Fostering open and transparent states .....................170
Conclusions and policy recommendations .............................................................................................................182
References ....................................................................................................................................................................................185
Chapter 4. Institutions to embrace a future of better jobs and greater well-being
in Latin America and the Caribbean .........................................................................................................189
Providing better jobs and socio-economic opportunities in a changing global context ..........191
Enhancing the efficiency and effectiveness of public finance to foster inclusive growth .......202
Conclusions .................................................................................................................................................................................220
References ....................................................................................................................................................................................222
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Country notes ...................................................................................................................................................................................227
Argentina ......................................................................................................................................................................................228
Brazil ................................................................................................................................................................................................230
Chile .................................................................................................................................................................................................232
Colombia ........................................................................................................................................................................................234
Costa Rica .....................................................................................................................................................................................236
Dominican Republic ...............................................................................................................................................................238
El Salvador ....................................................................................................................................................................................240
Mexico .............................................................................................................................................................................................242
Panama ...........................................................................................................................................................................................244
Paraguay ........................................................................................................................................................................................246
Peru ...................................................................................................................................................................................................248
Uruguay ..........................................................................................................................................................................................250
Technical notes .........................................................................................................................................................................252
References ....................................................................................................................................................................................252
Figures
1.1. Trust in governments vs. growth and poverty rates in Latin America ..........................................46
1.2. Satisfaction with main public services in Latin America, OECD and Southeast Asia
(percentage of total population) ..............................................................................................................................47
1.3. Internet searches on economic, political, and social issues in Latin America,
within different levels of executive approval .................................................................................................48
1.4. Latin American population by socio-economic groups ............................................................................50
1.5. Latin American population by subjective socio-economic groups ...................................................50
1.6. Satisfaction with public medical and health services by income levels
in Latin America, 2015 ...................................................................................................................................................51
1.7. Enrolment in private schools by income quintiles in Latin America, 2014 ..................................52
1.8. Net fiscal position of the middle class, circa 2010 .......................................................................................53
1.9. Definitions of income concepts ...............................................................................................................................54
1.10. Ratio of taxes paid to market income for the middle class
(vulnerable and consolidated) by country in Latin America, circa 2010 ........................................55
1.11. Ratio of transfers received to market income for the middle class
(vulnerable and consolidated) by country in Latin America, circa 2009 .......................................55
1.12. Tax morale in Latin America .....................................................................................................................................57
1.13. Determinants of tax morale: Marginal effects on probability of “never justifying tax
evasion”, 2010-14 ................................................................................................................................................................58
1.14. Willingness to pay higher taxes for public services (education and health)
in Latin America, by country and socio-economic group, 2015 ..........................................................61
1.15. Citizens agreeing that redistribution is not an essential characteristic
of democracy, 2010-14 .....................................................................................................................................................61
1.16. The OECD How’s Life? Framework for measuring well-being .............................................................63
1.17. Selected indicators of governance and well-being in Latin America and OECD ......................64
1.18. Taxonomy of rules (institutions) for the LEO 2018 ......................................................................................66
1.19. Quality of government in Latin America and the OECD ..........................................................................67
1.20. Government effectiveness perception index in Latin American countries
and the OECD, 2015 ..........................................................................................................................................................68
1.21. Labour informality in Latin America by socio-economic group .........................................................71
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