To support national efforts on development financing, it is time to definitively move beyond the dichotomy of donor-receiver and the criteria of per capita income in the allocation of Official Development Assistance (ODA) and advance toward a new model that takes into account, for example, the needs of middle-income countries, a category that encompasses 85% of Latin American and Caribbean nations, Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), said today in Brussels.
Bárcena participated this Thursday in a seminar entitled Next steps for Development in Transition, organized jointly by the European Commission’s Directorate-General for International Cooperation and Development (DG DEVCO), the Development Center of the Organization for Economic Cooperation and Development (OECD) and ECLAC.
Other speakers at the event included Stefano Manservisi, Director-General of DG DEVCO, with whom Bárcena also held a bilateral meeting; Mario Pezzini, Director of the OECD Development Center; and Ibrahim Mayaki, Chief Executive Officer of the New Partnership for Africa's Development (NEPAD), among other senior representatives.
“A country’s level of per capita income does not reflect its ability to save, access or mobilize resources for development financing,” emphasized the most senior representative of the United Nations regional organization, who called for working on the basis of the structural gaps approach that ECLAC promotes.
Among the new schemes that contemplate this vision, Bárcena highlighted South-South cooperation and triangular cooperation. These provide a new model for collaboration among peers that allows for protecting the interests of middle-income countries, strengthening the participation of developing nations in global forums on fiscal cooperation, and addressing harmful fiscal competition through integrated regional programs, she said.
Of the 33 countries of Latin America and the Caribbean, 28 are considered middle-income, four are classified as high-income, and one as low-income, Bárcena explained.
External financing represents more than 5% of Gross Domestic Product (GDP) in 80% of Latin American and Caribbean countries, the senior official added, warning about the region’s difficulties in accessing financial markets: just five countries (Mexico, Brazil, Chile, Colombia and Peru) are responsible for 85% of bond issues in Latin America and the Caribbean.
Migrants’ remittances and Foreign Direct Investment (FDI) have become the most dynamic components of financial flows into the region, she indicated.
Caribbean countries, specifically, face high levels of debt, which reduces their fiscal space and their ability to achieve the Sustainable Development Goals (SDGs). For that reason, she recalled, ECLAC has proposed a pardon for part of their debt to create a resilience fund that would finance actions aimed at climate change mitigation and adaptation, one of their most pressing problems.
To mobilize domestic resources, countries in the region must increase the tax burden and change its structure to make it more progressive while also reducing fiscal evasion, she sustained. They must also take advantage of the resources administered by national development banks and combat foreign trade-related illicit flows, she added.
According to ECLAC’s data, estimated tax losses in the region resulting from trade misinvoicing were approximately $31 billion dollars or 0.5 of a percentage point of GDP (weighted average) in 2013. This represented between 10% and 15% of the actual corporate income tax take in that year. On top of this, annual tax evasion in the region (on the Value-Added Tax and income tax) is estimated at $340 billion dollars, or 6.7% of regional GDP.
In this context, ECLAC’s Executive Secretary called on the region’s countries to strengthen regional integration, “which is more necessary than ever,” and to participate in the global governance of fiscal issues on the basis of reciprocity and the coordination of actions to avoid fiscal evasion and illicit flows, she concluded.