Ricardo Ffrench-Davis: “A favorable macroeconomic environment is essential to attaining inclusive growth”

A favorable macroeconomic environment with controlled aggregate demand, a policy of exchange rate administration and countercyclical regulation of capital accounts, among other measures, is essential to attaining inclusive growth, said distinguished Chilean economist Ricardo Ffrench-Davis today at the headquarters of the Economic Commission for Latin America and the Caribbean (ECLAC) in Santiago, Chile.

Ffrench-Davis, winner of Chile’s National Prize for the Humanities and Social Sciences in 2005 and professor at the University of Chile’s Economics Department, delivered the XV Prebisch Lecture this Tuesday to a packed audience of distinguished national and international figures, including former Chilean President Ricardo Lagos Escobar (2000-2006); former Chilean Minister of Finance Alejandro Foxley (1990-1994); and Osvaldo Sunkel, Chairman of the CEPAL Review editorial board.

“Ricardo Ffrench-Davis is a man who, having borne witness to the formation of neoliberal hegemony in Chile and the region, has traversed the long and adverse path of constructing economic practices that recognize the ethical and moral imperative of human dignity, with proposals for growth with equity,” Alicia Bárcena, ECLAC’s Executive Secretary, said in her opening remarks to the conference.

She reminded the audience that Ffrench-Davis was one of the first authors to emphasize that free-market reforms, while they may diminish nominal volatility, increase real volatility.

“Ricardo asserted that volatility affects economic sectors and producers asymmetrically and tends to make trend GDP endogenous to its cyclical movement. This is summed up in the Ffrench-Davis concept of the recessive gap,” affirmed ECLAC’s Executive Secretary.

Alicia Bárcena said that attaining equality in Latin America and the Caribbean is today the core pillar of ECLAC’s work, an effort that entails “breaking away from the economic paradigm that has prevailed in the region for at least three decades.”

“We are driven by the deep conviction that equality is the horizon, structural change is the path, and policy the instrument,” the senior representative of the United Nations regional organization remarked.

During his presentation entitled “Neostructuralism and macroeconomics to grow while including,” Ricardo Ffrench-Davis listed the conditions for attaining a macroeconomic environment favorable to growth with inclusion.

In the first place, he asserted, countries must ensure that aggregate demand runs close to potential GDP.

“We have to learn to manage aggregate demand, which is the counterpart to productive capacity. We want for demand to be circulating that is appropriate and consistent with what we’re capable of producing,” the scholar explained.

He added that the real exchange rate should respond to the evaluation of relative productivity levels and not to fluctuations in short-term financial flows and cyclical export prices.

“The foreign exchange experience in Latin America is one in which the exchange rate shoots up and then begins to depreciate. Then there’s an explosion and it shoots back up. We do not know what the equilibrium exchange rate is, but we do know that if we are productive, we can get the exchange rate to appreciate over time,” said Ffrench-Davis.

Finally, he called for actively regulating capital accounts, creating and compelling coordination between central banks and economy and finance ministries, and consolidating fiscal responsibility to guarantee countercyclical responsibility.

In the context of his lecture, the economist (ECLAC’s Principal Regional Advisor from 1992 to 2004) asserted that growth is not sustainable if it is not accompanied by inclusion, and warned that recent globalization has been much more financial than real or productive.

He added that “the nature of financial flows has different impacts depending on whether we are in a homogenous society – everyone in a similar position, with equal access to the financial market, with good income distribution, a very formalized society, etc. – or if we are in the world we live in, i.e., one of enormous structural heterogeneity.”

“The contrast between our Latin American countries and those of Europe is that informality and heterogeneity is notably higher here,” he noted.

The Prebisch Lecture was established in April 2001 to mark the 100-year anniversary of the birth of Argentine economist Raúl Prebisch, former Executive Secretary of ECLAC and one of its key sources of inspiration. Prominent figures from Latin American economics, including Celso Furtado, Joseph Stiglitz, Fernando Henrique Cardoso, Dani Rodrik, Enrique V. Iglesias, José Antonio Ocampo and Mariana Mazzucato, among others, have participated in this lecture series.

More information at ://www.cepal.org/en/prebisch-lecture