Latin America and the Caribbean and the International Crisis.
Beyond the Current Situation.

By Alicia Bárcena, ECLAC Executive Secretary

The current crisis surprised Latin America and the Caribbean in a historical period of economic boom and progress the region hadn’t experienced in over 40 years.

We had five years of sustained economic growth, expanding from 2.1% in 2003 to 5.7% in 2007. This five-year momentum allowed the region to continue growing during 2008 at 4.6%.

During this quinquennium, the number of people living in poverty dropped by 10%. Some 37 million people rose above the poverty line, while another 29 million ceased being indigent. Inequality was reduced in eight countries, but worsened in three, remaining more or less the same in the rest of the region. Given the difficulties in changing the structure of inequality in a country, these results are good news, although modest.

In addition, the rate and quality of employment also increased. Unemployment dropped an average 11% to 7.5% between 2003-2008, and labour income rose in almost every country.

Total public expenditure continued rising as a percentage of GDP, albeit moderately, as was the trend since the early nineties.

In sum, countries became wealthier, employment rose and improved, poverty decreased and inequality was reduced. All of this progress took place in the context of democratic regimes.

This was the general scenario in Latin America and the Caribbean when the crisis hit, seriously threatening these economic and social achievements.

The contraction of trade

Since the crisis struck last September, the impact on trade has been the strongest. The fall in trade, exports and production in general is the region’s main concern.

During the first quarter of 2009, trade contracted significantly. An analysis of seven countries demonstrated that the value of exports in the region diminished nearly 30%. All exports to all destinations have fallen, although sales to China and Asia decreased more moderately.

Intraregional trade has not recovered as we would have liked, and the trend towards protectionism in some countries is concerning. In general, the protectionist measures adopted in region are temporary, transparent, and compatible with international free trade agreements signed by these countries.

However, the tendency of developed countries to privilege government procurement within their boundaries and increase subsidies to banks, for example, under the condition that credit flow more towards the domestic market than abroad, is alarming. There has also been an increase in subsidies for industries, such as the automobile industry, and especially for agriculture.

In this regard, I believe the big pending issue we must resolve in the world is concluding the Doha Round as soon as possible.

Social equality in times of crisis

In this context, ECLAC is analyzing how to recover economic stability in times of crisis, and how the region stakes a position in the international economy in light of this complicated scenario.

We are doing this without forgetting the issue of social equality. This requires changing paradigms based on two basic principles. One is that equality is a prerequisite for growth. We’ve already seen that distribution after growth doesn’t work.

The second principle is that social protection should have universal coverage; it should be a right, a guarantee. People should enjoy the right to social protection just because they are citizens; these benefits should not be associated, for example, to employment.

One way to protect society, especially the most vulnerable, is through social protection.

The region advanced a great deal in social protection and equality over the past five years. How do we maintain these achievements? There is a risk of reversal, and that reversal entails high costs. ECLAC has shown that regaining economic growth could take 12 years, but recovering social indicators to the levels they had in the eighties could take twice as long, almost 25 years

Climate change, the role of the State and productive innovation

There is also the big issue of climate change. We need to adopt actions to “decarbonize” our economies quickly. If we do nothing, by the year 2030 or 2050, humanity will face a problem for which there will be no rescue package. Therefore, action must be taken today so that the planet’s temperature does not rise more than 2.5 centigrades as a consequence of the accumulation of greenhouse gas emissions, basically carbon.

All of this can be attained only if we assign a new role to policies and strengthen the role of the State. Citizens are well aware that it is the State that has to participate and intervene in times of crisis. However, it doesn’t always count with the instruments it needs to do so.

For example, although a government may announce significant countercyclical fiscal packages, if it doesn’t have the resources to back these programmes, it is very difficult to move forward. This is why ECLAC believes that the role of the State should be revised, reinforced and strengthened so that it may become an efficient agent that can interact more swiftly with the market. The market is also a good resource allocator, but it will not deal with issues of social equality.

The region could attain the development is desires with a much stronger and dynamic society, with an adequate relationship between the State and market.

In this regard, there is another important aspect that ECLAC believes essential: innovation and scientific and technological development, which is perhaps the most important modern instrument for this transition towards an economy without carbon, to attain much more sustainable social equality and economic development.