Santiago — José Manuel Salazar-Xirinachs, executive secretary of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), anticipates that, after a possible slight decrease in poverty levels in 2022 in the region, there could be a “stagnation” in the downward trend during 2023 due, to a large extent, to the slowdown of the world economy.
According to the agency’s latest estimates, Latin America and the Caribbean could reach an average growth rate of 1.2% this year. “I think we will revise it up a little bit, but it will still (remain) very low,” said the head of ECLAC in an interview with Bloomberg Línea.
The truth is that, with such a scenario, an improvement in the most vulnerable households will be difficult in the short term. In any case, ECLAC is still making calculations that will be released in a few months.
The UN economic commission for the region is preparing a new edition of its Social Panorama of Latin America and the Caribbean report, to be published in November. Based on measurements taken last year and currently being analyzed, Salazar-Xirinachs expects “a brief decrease in poverty and extreme poverty in 2022″.
Nine months ago, the regional organization’s projection pointed to 32.1% of the population living in poverty in Latin America and the Caribbean, of which 13.1% were in extreme poverty. This would represent a slight decrease, although a slight increase in extreme poverty compared to 2021.
“This is not good news by any means,” said Salazar-Xirinachs.
When examining the countries’ performance, he said he values the results obtained Chile, where poverty dropped from 10.7% in 2020 to 6.5% in 2022 due to the government aid granted in pandemic, according to data from the Socioeconomic Characterization Survey (CASEN) published at the end of July.
The following conversation was edited for the sake of length and clarity:
Bloomberg Línea: Chile reduced its poverty measured by income to historic levels in 2022. What is your interpretation?
José Manuel Salazar-Xirinachs: It is very good news that Chile’s official figures show a decrease in poverty and extreme poverty. The data are low compared to the rest of Latin America.
That is related to a long-term policy of the country, a comprehensive social protection system, very robust social registries to identify the population in vulnerable situations. Also with the fiscal space and the transfer response and so on in recent years.
That is not to say that it lacks major challenges, but it is a powerful system, with enough coverage of social policies and services. This, despite the fact that Chile’s economic growth is quite low at the moment.
What are the challenges you are referring to?
Growth. If one is thinking about social welfare, part of it is in a social policy that places a kind of floor to poverty or even to the hunger situation.
It is very important to dynamize growth and the labor market. This is one of the biggest challenges, because Chile’s growth rates have been very low and it is expected that this year will also be like that. Our expectation is for a very mediocre (growth) rate.
What are you seeing in terms of the labor market?
It is not possible to energize the labor market, or there is little that can be done, when the growth rate is close to zero or below 1%. A lot will depend on the prices of products, which is part of what is affecting. The other thing is the type of productive development policies, the bets on new, more dynamic sectors.
The problem is that the world economy is not helping, it is affecting the performance of Chile and all Latin America.
If one looks at the last decade -and it is not related to the “cascade” of pandemic crises-, the average growth rate of Latin America from 2014 to this year is only 0.8%. That is less than the 2% growth noted during the so-called “lost decade” of the 1980s.
Can the Chilean formula be applicable to other more vulnerable countries in the region?
There are always lessons and good practices. But a complete formula to apply is not, generally, the most convenient because there are different institutional capacities.
One Chilean lesson is to have social policies, which have been refined over time; a comprehensive agenda of responses. But I believe that each country has to look at its trajectory and the aspiration for universality of social policies, which is important so that no one is left behind to the extent that the fiscal situation allows it.
Now there are also new technologies, and this is another characteristic of Chile, where there are very complete databases. Digitization allows precision social policies, so we must also enter this world to make the most of the digital revolution. These are positive ways of improving social policies.
What is your conclusion?
Poverty reduction depends, on the one hand, on social policies which, at the same time, require quality institutions. It is necessary to use precise social policies and to have the financial capacity.
After the cascade of crises, fiscal space is very limited. This is the reason for all the discussion on renegotiation or restructuring of the foreign debt, and tax reforms are on the table to mobilize fiscal resources.
But much of a country’s success in reducing poverty lies in creating good quality jobs, so as not to have to depend on social policy. This is a double gain, because it is an effective way to reduce poverty and, to the extent that progress is made along this path, the cost of social policy is reduced.
Which countries in Latin America do you expect to bring inflation under control the fastest and which would take the longest?
In general terms, the main determinants of the recent evolution of inflation in Latin America and the Caribbean are external factors, including the disruptions to supply chains observed during the post-pandemic recovery, as well as the spike in international food and fuel prices caused by Russia’s invasion of Ukraine.
The speed and transmission of these external factors to domestic prices depends, among other things, on the dynamism of domestic demand, the evolution of the nominal exchange rate, the composition of consumption baskets, as well as macroeconomic policy responses.
At the regional level, the outlook is for domestic aggregate demand to continue to decline in the economies of the region, as well as energy and food prices in international markets. These factors would contribute to lower cumulative inflation by the end of 2023 compared to the previous two years.
Consensus projections indicate that regional inflation will remain above the average recorded in the five-year period prior to the pandemic (2015-2019), 4.3%.
