Sunday, May 25, 2014

Employment , economic growth and poverty

Economic growth prospect for 2014 in Latin America economies has moved downward from those rates above 5% some few years ago(2010). The current forecast is to have a rate of economic growth of 2,7% this year, but depending upon the pace of normalization of monetary policy in the USA economy(tapering).If it follows a smooth path, Latin America economies may get the projected rate. Otherwise, growth rates for these economies may be even lower. The implications of this deceleration are twofold: a.- It will affect latest employment gains. In fact ECLAC estimates , it will be hard to get the level of unemployment of 2013 (6,2%),even at the optimistic expected rate of economic growth for 2014. Employment is the first step to solve poverty. b.- It will threat the progress made on key social indicators such as poverty level and , inequality, because the States will not have available the same amount of financial resources coming from commodities high prices and economic growth .- So what does it comes next? There are higher risks of populism, fiscal expenditure above the available means, important capital outflow , currency depreciation and a probability of a sudden stop . In some countries interest rates may moves up, in others may moves down, depending in each case of the expected inflation rate to move up or down as well. Besides, there are some concern about the chance of hard landing in the growth prospect in China, which would affect harder those economies with stronger commercial links whit that country. Therefore, there are troubled waters ahead (2015),although not necessarily out of control for these economies, which have important foreign currency reserves , low levels of debt / gdp ratio, and its financial sector is fully capable of supporting the economies requirements. Close to get half of the year away, the expectations for this year to be important in economic outcomes, look now weaker than at the beginning of 2014. The pace of economics and politics, are not always at the same speed. In fact, taking a deeper insight, the variety of alternatives and scenarios depend on this relationship. Those countries which politics have taken charge of economics ,are worse off than those ones in which politics get along well with economics.

Sunday, May 04, 2014

Poverty and inequality in Latin america: New developments

A recent report (may the 3rd),done by the digital newspaper based on data gathered by the SEDLAC (Social economics data for Latin America and the Caribbean),focused on the poverty level in Latin America. There are two countries Uruguay and Chile, with poverty levels below 10% (12,4% and 14,4% respectively).The remaining ones, are Brazil (21%) , Costa Rica (24%),Venezuela and Peru (close to 25%).The continent as a whole, has a 34,6% rate of poverty level, almost ten percentage points, below the level of the nineties.- Poverty is a complex issue which depends upon a variety of factors and variables. Among factors, there are cultural and sociological ones such as either lack of ambitions or a weak sense of achievements, limited self esteem (Todaro 1982). Some variables, includes human capital endowment, low quality of education programs at basic and secondary levels, inefficiency in social policies, low wages, and an institutional framework not strong enough for steady economic growth. Poverty and inequality are not equivalent . While Poverty refers to those who do not have the ability of getting a basic set of goods, Inequality ,refers to how the total income is distributed among the total population. Thus, high poverty levels means that an important share of the population cannot get the basic goods with their earnings, while high inequality means that a small percentage of that population, get the higher share of total income. The Gini coefficient measure the inequality levels. It goes from “0” (perfect equality, everyone has the same income) to “1” (perfect inequality, one person has all the income).Most of Latin America countries are among the most unequal countries in the world with Gini coefficient in the range of 0,40-0,58. However, this coefficient has some flaws because can be manipulated throughout transitory bonus programs, which increase income levels for the bracket people belong to ,moving them upward and reducing the Gini coefficient while those bonus are in place. A better approach, is to have higher taxes which allows permanent increases in income levels throughout social programs. In most cases the empirical evidence indicates that the Gini coefficient decrease (improves)after taxes. However, in Latin American economies, this does not mean a decrease in poverty level. It may be the case that Gini coefficient improves, while poverty index deteriorates. There are few cases which have gotten both inequality and poverty ,moving in the downward direction (Norway), which means an effective and efficient social programs. Thus, higher taxes may be a necessary, but it is not a sufficient condition by itself to get at the same time, both a better poverty index and Gini coefficient . It follows, that it also requires on the one side, efficient complementary public policies, and on the other to become an effective tool for investment and growth. In other words, taxes (either low or high),must equilibrate efficiency with fairness.