IPS-English ECONOMY-LATIN AMERICA: Another Decade of High Commodity Prices
 
Date: Thu, 13 Dec 2007 15:10:56 -0800

 
Interview with ECLAC Executive Secretary José Luis Machinea

PORTO ALEGRE, Brazil, Dec 13   (IPS)  - Visibly upbeat about the
current strong economic growth in Latin America, which is set to expand
by more than five percent again this year, ECLAC Executive Secretary
José Luis Machinea spoke with IPS editor Darío Montero prior to Thursday's
release in Santiago of the Preliminary Overview of the Economies of
Latin America and the Caribbean 2007.

The poverty rate has gone down significantly in the last five years
in the region, thanks to the fact that this strong macroeconomic performance,
unlike in the 1990s, brought improved employment and stronger social
protection, Machinea said in the interview.

The head of ECLAC (Economic Commission for Latin America and the
Caribbean ) forecast at least a decade more of high commodity prices,
which he said is ”good news” that must be taken advantage of by adding
”greater value and above all know-how to our productive structure.”

Machinea, who was appointed to head the regional United Nations agency
in December 2003 and was confirmed for a second term in February,
served as economy minister in the first year of the Argentine administration
of Fernando de la Rúa, who stepped down in late 2001 in the midst
of an economic and political meltdown.

IPS: What is the regional economic outlook for the next year? Is
it possible to continue to be optimistic despite the clouds on the
international horizon?

JOSÉ LUIS MACHINEA: The region will continue growing at a rate similar
to that of the last few years. There are uncertainties, of course,
because we all know about the mortgage crisis in the United States,
the depreciation of the dollar, etc., which pose the risk of a greater
recession than expected in that country and also a run against the
dollar.

The jitters in the market can be felt -- countries holding reserves
in dollars have suffered major losses in the last few months -- but
are still within manageable limits. The uncertainties have to do with
the fact that, if the uneasiness persists, governments that have to
refinance their debt will have greater difficulties because interest
rates will go up.

All of this will generate tension and volatility in the markets over
the next few months. But we don't think things will get out of hand.
There may be a slowdown in the global economy, but not a crisis.

IPS: Is that optimism based on the balance brought about for the
region by the high prices of export commodities, driven by the growing
demand in China and other countries?

JLM: We believe that the situation, which is related to the demand
for commodities, will continue moving ahead at a good pace. And that
will provide a platform for the multiple factors that will sustain
the boom. Besides, the region has done a lot of homework, which has
made it less vulnerable than it was four or five years ago.

IPS: What ‘homework' are you referring to?

JLM: The external situation has improved. Today, the debt is much
smaller than it was in the 1990s, and the foreign exchange reserves
are much larger. The public sector is also much more solvent, as a
consequence of the budget surplus posted by nearly all of the countries.

IPS: So 2008 could finally be the year when we see a decrease in
inequality -- which is worse than in any other region -- accompanied
by sustained growth in gross domestic product? So far, the fight against
poverty has not kept pace with economic growth, as you yourself have
called attention to.

JLM: There has been very little progress in the region with respect
to reducing inequalityàif you look at the last 10 or 15 years, you
can see that there have been minimal advances, if indeed there have
been any.

There have been advances with respect to the crisis of the 1990s
and early 2000s, but the truth is that the long-term tendency is for
inequality to remain entrenched.

Still, poverty has been reduced in the last four or five years. This
steady growth has generated employment, and of better quality than
in the 1990s, as there are more formal sector wage-earners, and thus
greater social protection for workers, all of which has helped fight
poverty. Nevertheless, 45 to 50 percent of workers are active in the
informal economy.

IPS: What are the differences between the current period of strong
economic growth and that of the 1990s, which ended in disaster?

JLM: The reforms of the 1990s were associated with restructuring.
The privatisation process generated high unemployment for former public
employees. Gross domestic product grew, but without creating jobs.
That is also happening today in Asia, for example, which is growing
at a very fast rate, without generating employment at the pace that
you would expect.

By contrast, what we are seeing now is growth with employment. That
is a novelty, and partly explains, along with the social programmes,
the reduction in poverty rates.

Social spending has increased 50 percent per capita, on average,
since the early 1990s. In addition, what has changed is that now it
is not welfare, but is based on a vision of rights: to a more decent
life, to access to food, to social coverage, and to decent jobs.

IPS: So there are no signs on the horizon that should make us fear
a catastrophe like the one we experienced at the start of the decade?

JLM: Unlike what occurred in the 1990s, the region is less vulnerable.
Argentina was a typical case, where public spending grew explosively,
and at a far faster pace than revenues, which fuelled the expansion
of the debt.

Of course if there is a major international shock, it will hit all
of us; that is true, without a doubt. But we do not believe there
would be a shock on the scale of what occurred in the late 1990s;
we don't think international conditions will be as bad as all that.
Nonetheless, it is necessary to be on the alert, and to maintain the
strong external and fiscal indicators, etc.

That said, we believe that the improvement in commodity prices will
continue for at least the next 10 years. This is good news for the
region as a whole. 

Of course, in order for all of this to happen, we have to do our homework.

IPS: So we have to keep on doing our homework.

JLM: We have to do other homework. At some point, this boom will
come to an end, and the essential thing is that by that time, the
countries in the region will have been able to dedicate part of the
windfall earnings we are now receiving, to add value, and especially
know-how, to our exports, and to our productive structures.

If we fail to do this, if we do not incorporate more innovation,
if we do not achieve a more highly skilled labour force, we are going
to have problems when this situation turns around, as occurred at
the end of the first economic growth cycle, back between 1870 and
1914.

IPS: How can this be done, when the most highly trained labour is
emigrating to the industrialised North today?

JLM: It's a process that must occur simultaneously. Education is
key, but a productive structure capable of hanging on to that skilled
labour must be created. That's why I say that more money must go towards
innovation, and that networks of universities, and between the private
and public sectors, must be built.

If we do not do this, we run the risk of having education without
demand for university graduates, which leads people to emigrate. If
we are not capable of creating demand for workers of increasingly
higher quality, it will be very difficult to improve income distribution
in the long term, and it will be very difficult to grow.

IPS: You spoke of the homework that was not done in the 1990s, but
you were economic minister of Argentina at the end of that decade.
Do you recognise that there may have been homework that you did not
do? Have you done a self-critique?

JLM: Yes, I obviously recognise that. At some point I will make my
criticisms public. But let's just add that I was not an actor in the
process of the 1990s. We inherited a situation.

IPS: But there are those who say the government that you formed part
of maintained the same economic policies as in the 1990s, that there
were no radical changes, as the situation apparently demanded.

JLM: One day we will discuss this issue in more detail. But I believe
that policies aimed at the productive sector were implemented at the
time. In a very poor macroeconomic situation, nothing that one might
do makes a lot of difference. When the economy is growing at a rate
of seven or eight percent a year, things become more noticeable.

IPS: What is happening in terms of regional integration? Everything
indicated that the arrival of the left or centre-left (to governments
in the region), including the centre-left faction of Peronism in Argentina,
was going to facilitate the process, but it would seem to be just
the opposite.

JLM: That's true, there has been a lot of empty rhetoric and little
action. I would say the integration process has been stalled for several
years. In the 1990s, it was quite dyamic: the Mercosur (Southern Common
Market) was created (by Argentina, Brazil, Paraguay and Uruguay),
the Andean Community made a great deal of progress (made up at the
time of Bolivia, Colombia, Ecuador, Peru and Venezuela, which in 2006
decided to withdraw in order to join Mercosur).

IPS: But it was more economic and trade-related than political.

JLM: The thing is, political integration is not possible without
economic integration. They must go together hand in hand. The problem
is that, while trying to decide which comes first, nothing is done.
We went from an integration process with shortcomings to nothing.

The governments have expressed strong desires to keep moving towards
integration. I hope that will translate into concrete developments,
because that is what will provide hope for the process.

To achieve economic integration, market access is necessary. All
integration processes have demonstrated that, and a case in point
is Europe, which has experienced an economic integration process shored
up by strong political will.

IPS: In this process, how do you see the Venezuelan government's strategy?

JLM: I believe that Venezuela has made a big effort in relation to
the need for a more comprehensive integration process, from the South
American Community of Nations, and also in terms of designing special
policies to strengthen the process. I think it is a positive thing
to focus on other dimensions of this process.

What I see, and it is not a Venezuelan problem, is that for years
we have been talking about introducing other variables, but we are
not moving forward. The question is why, and I believe it is because
a process of this type implies short-term costs, which requires great
political will, particularly on the part of the large countries, which
have to lead the process.


*****
+ ECLAC ( http://www.eclac.org/)
+ DEVELOPMENT-LATIN AMERICA:  Local Innovation - Fresh and Fair (http://www.ipsnews.net/news.asp?idnews=40393)
+ LATIN AMERICA:  And Now For Some More Ambitious Anti-Poverty Goals
(http://ipsnews.net/news.asp?idnews=40088)


(END/IPS/LA IP IF DV SU/TRASP-SW/DM/07)


 
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