Investment in the Caribbean and Latin America on the decline

ECLAC warns that investment levels in the region are inadequate to maintain high growth rates.

SANTIAGO, Chile, Thursday, February 2, 2012 – Low levels of current investment by the private and public sectors across Latin America and the Caribbean will prohibit growth when the recession ends.

This was the warning delivered by Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena, in Chile this week when she addressed the XXIV Regional Seminar on Fiscal Policy.

Bárcena said that the investment ratio in the region was not enough to maintain high growth rates because investment was unfortunately prone to being unsustainable during crises.

“Investment in Latin America and the Caribbean is not only highly volatile, but during economic upturns, it is also unable to recover from its fall during the downturn,” she told the high-level meeting, which included top officials from the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD).

“Private investment has not been dynamic and public investment has been declining” Bárcena added.

The speakers agreed that the region is currently in a “privileged situation” in the midst of the crisis that some European countries currently face. They underscored in particular, the control of public finances and debt sustainability and regional assets which they stressed, must be maintained.

Bárcena said the quality of public finances in the region has improved.
“Public debt has been significantly lowered, and its profile and composition are more balanced,” she said.

“Tax revenues and the average tax rate (have) increased. The decrease in interest payments has created significant fiscal space, and social public spending has been maintained.”

The executive secretary highlighted that the region’s gross fixed capital formation represents almost 20 percent of gross domestic product (GDP), while in some countries in the Asia Pacific it reaches 40 percent.

Bárcena urged that investment in the region be aimed at improving infrastructure, increasing research, science and innovation, promoting banking institutions for development, and developing cleaner matrices from an environmental perspective.

She called on regional countries to consolidate a “sustainable and, at the same time, stabilizing” fiscal policy, with a low debt-GDP ratio in good times and counter-cyclical expenditure policies during recessive phases.

“Fiscal policy must contribute to long term economic growth through stable investment in physical and human capital and innovation,” she said. “It must also have a redistributive impact, which includes progressive tax rates.”

The Fiscal Observatory of Latin America and the Caribbean (OFILAC) which aims to contribute to the improvement of fiscal policy in the region through the dissemination of studies and debate with different actors participating in this area, was launched as part of the seminar.

OFILAC is an ECLAC initiative which involves the participation of OECD, the Inter American Center of Tax Administrations (CIAT) and the Institute of Fiscal Studies (IEF). Click here to receive free news bulletins via email from Caribbean360. (View sample)