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Trapped: High Inequality and Low Growth in Latin America and the Caribbean
Latin America and the Caribbean is a region of great contrasts where wealth and prosperity coexist with vulnerability and extreme poverty. The list of contrasts is long and familiar. The region is also characterized by very volatile and low average growth explained by low productivity. This Regional Human Development Report argues that the region is caught in a double trap of high inequality and low growth. These two phenomena interact in a vicious circle that limits the ability to advance on all fronts of human development. Understanding the nature of the trap is critical to breaking free from it.
Overview
Latin America and the Caribbean (LAC) is in a development trap. Despite decades of progress some of which could be wiped out by the COVID-19 pandemic two characteristics of the region have remained largely undisturbed: high inequality and low growth. These two factors are closely related and interact with one another to create a trap from which the region has been unable to escape. This is not a new finding. This phenomenon is well documented in the region. A rich body of research has explored the different channels through which high inequality and low growth reinforce one another. However many of our existing approaches in thinking about how to escape this trap inevitably leave us with a long list of “good policies” that work to address these channels separately. In LAC this has often led to political incentives that foster fragmented policy responses with a short-term perspective—in some cases deepening the existing distortions.
Foreword
The Latin America and the Caribbean (LAC) region has been historically characterised as a region with some of the highest rates of inequality in the world. The richest quintile of the population in the region accounts for some 56 per cent national incomes for instance. The COVID-19 pandemic has now widened the gap. In the wake of closing and suffering businesses incomes have dropped and unemployment has risen with millions of households struggling to get by. Moreover the digital divide — notably the lack of high-speed broadband internet and appropriate digital skills — have prevented many people especially the most vulnerable from working or studying from home during the crisis. In these unprecedented circumstances 22 million more people have fallen below the poverty line in the region returning to 2008 levels.
Acknowledgments
This report was conceived before the outbreak of the COVID-19 pandemic and produced under the turmoil it brought about. For this reason we are twice grateful to everyone who made it possible.
The Economic Costs of the Israeli Occupation for the Palestinian People
The study focuses on the economic cost of the Israeli occupation of Area C which accounts for about 60 per cent of the total area of the occupied West Bank. While the occupation also imposes significant restrictions on Palestinian economic activity in Areas A and B it imposes more restrictions in Area C. This report estimates the cost of these additional restrictions on economic activities in Area C outside the settlements. The economic cost is estimated by applying an innovative well-established methodology that uses nighttime luminosity (NTL) captured by satellite sensors over a span of time to estimate levels of economic activity. Occupation fragments the geography and economy of the West Bank disfiguring Areas A and B and C and rendering them like a jigsaw the pieces of which no longer fit together. These areas broken down by a complex multi-layered control system are deprived of much more than their unity. How can the losses entailed by restrictions and territorial fragmentation be assessed? And what is the economic cost of depriving Palestinian producers of Area C the only contiguous part of the West Bank? This study aims to answer both questions by estimating part of this cost.
Revisiting the public debt-development nexus
Eight years into implementing the 2030 Agenda for Sustainable Development the Asia-Pacific region is not on track to achieve any of the Sustainable Development Goals (ESCAP 2023a). Urgent action is therefore needed if countries are to come even close to achieving these Goals. While several behavioural and policy changes could help financial investments are a critical requirement to accelerate progress. In 2019 ESCAP estimated that Asia-Pacific developing economies would require on average $1.5 trillion per year to achieve the SDGs by 2030: an additional 5 per cent of the average 2018 GDP of the region (ESCAP 2019). The bulk of these investment requirements were expected to be fulfilled by public resources impacting fiscal dynamics. These requirements have most likely increased since then given substantial unexpected setbacks such as the COVID-19 pandemic and more recently the war in Ukraine.
Economic and Social Survey of Asia and the Pacific 2023
One of the main value additions of the Survey 2023 is a proposal for an augmented Debt Sustainability Analysis (DSA) approach that duly incorporates SDG investment needs potential socioeconomic and environmental gains government's structural policies that go beyond financial considerations and government's resource mobilization strategies and financial capacity. The Survey 2023 also provides new insights on how to prevent potential public debt crises and resolve public debt distress in order to effectively pursue the SDGs. For example in prevention of public debt crisis governments will need to explore unconventional policy measures such as leveraging the potential of non-tax policy measures and public assets. In resolving public debt distress governments might need to bring the rising number of commercial debt creditors into discussions with the existing institutional investors while fundamental policy actions to enhance fiscal resources are still needed governments will also need to explore unconventional policy measures such as leveraging the potential of non-tax policy measures and public assets amid rising public indebtedness. In resolving public debt distress while the emergence of commercial creditors brings new opportunities as many of them are increasingly mindful about the importance of sustainable development their participation in the existing global debt architecture is virtually missing. At the same time several unconventional SDG-aligned debt relief modalities have recently been proposed. Amid these and other changes in the global and Asia-Pacific debt landscapes and rising public indebtedness in the region it is time to rethink public debt issues in support of the SDGs.
Public debt profiles of Asia-Pacific economies
Even before the COVID-19 pandemic the Asia-Pacific region was lagging in its progress towards achieving the Sustainable Development Goals while at the same time facing rising levels of government debt. The average government debt-to-GDP ratio in developing countries in Asia and the Pacific was at an 11-year high of 40.6 per cent in 2019. Driven by large stimulus packages and declining government revenues the pandemic pushed the region’s average level of government debt up to 49.5 per cent of GDP in 2021 with two thirds of regional economies reaching the highest level of such debt since 2008. Several economies are still struggling with double or triple the size of their recent average external debt servicing as high as 10 per cent of GDP in 2022.
Rethinking public debt sustainability analysis for achieving the Sustainable Development Goals
Assessments on the risk of public debt distress typically carried out by international financial institutions (IFIs) and credit rating agencies (CRAs) have served various purposes for different stakeholders.
Preface
Post-pandemic economic growth in developing Asian and Pacific countries weakened considerably in 2022 and is expected to remain weak in 2023 amid the global economic slowdown unprecedented inflation and uncertainty brought about by the war in Ukraine. These setbacks to past development gains have also been worsened by a food and fuel price crisis which has increased poverty and inequality across the region. Thus restoring price stability has become a priority and a critical factor for implementing the 2030 Agenda for Sustainable Development in the region.
Acknowledgements
The Economic and Social Survey of Asia and the Pacific is a flagship publication of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). Published annually since 1947 the Survey is a valuable companion for policymakers civil society academia other United Nations entities including the United Nations Resident Coordinator offices and other stakeholders in the Asia-Pacific region and provides forward-looking analyses and recommendations on economic conditions and key sustainable development challenges.
Executive summary
Economic activity in Asia and the Pacific is expected to remain weak amid high inflation fiscal stress and rising geopolitical risks
Managing sovereign debt surges: policy considerations and options
Since the Asian financial crisis that began in mid-1997 Asia-Pacific developing countries have relied primarily on a three-pronged strategy of strong economic fundamentals large fiscal and foreign exchange buffers and timely countercyclical interventions for achieving debt prudence and macroeconomic resilience (Posen and Rhee 2013). This strategy proved highly successful during the 2007-2008 global financial crisis wherein Asia and the Pacific weathered the storm relatively smoothly and became the first region in the world to regain economic growth momentum (Park Ramayandi and Shin 2013).