OFFICIAL DEVELOPMENT ASSISTANCE AND THE FIGHT AGAINST POVERTY AND HUNGER IN LATIN AMERICA AND THE CARIBBEAN

OFFICIAL DEVELOPMENT ASSISTANCE AND THE FIGHT AGAINST POVERTY AND HUNGER IN LATIN AMERICA AND THE CARIBBEAN Regional Consultations on the Economic and Social Council Annual Ministerial Review Ministry of Foreign Affairs of Brazil José Luis Machinea EXECUTIVE SECRETARY Economic Commission for Latin America and the Caribbean (ECLAC) Palacio do Itamaratay Brasilia, 17-18 18 May 2007

After stagnating in 1997-2002, poverty and indigence rates have fallen sharply in recent years, yet the percentage of people living in poverty is still close to the 1980 figure. LATIN AMERICA : TRENDS IN POVERTY AND INDIGENCE, 1990-2006 (Percentages) Percentage 60 50 40 30 20 10 0 48,3 40,5 43,5 43,8 44,0 42,0 39,8 38,5 18,6 22,5 19,0 18,5 19,4 16,9 15,4 14,7 1980 1990 1997 1999 2002 2004 2005 2006 b/ Indigent Non-indigent poor

Most of the countries of the region saw reductions in their poverty and indigence rates TRENDS IN POVERTY AND INDIGENCE, 2002 2005 and 1998 2005 a/ Uruguay b / Do minican Rep. Bo livia Costa Rica Paraguay Panama Brazil El Salvador Chile Ho nd uras Peru Ecuador b/ Mexico Colombia Venezuela (B.R.) Argentina b/ 2000/2002-2003/2005 Uruguay a/ Bolivia Peru Argentina a/ Costa Rica Dominican Rep. Paraguay Brazil Panama a/ El Salvador Chile Honduras Me xic o Colombia Venezuela (B.R.) Ecuador a/ 1998/1999-2003/2005-20 -15-10 -5 0 5 percentage points -20-15 -10-5 0 5 percentage points Poverty Indigence Source: ECLAC, on the basis of special tabulations of data from national household surveys. a/ Guatemala and Nicaragua are not included because poverty estimates later than 2002 are not available. b/ Urban areas.

Between 2002 and 2005, the number of poor and indigent population declined by 12 and 16 million persons. This might show a change in trend, but now there are still more poor people than in 1980. LATIN AMERICA: POVERTY AND INDIGENCE, 1990-2006 (Millions of people) 250 200 200 204 211 221 217 209 205 Millions 150 100 50 136 62 93 89 89 97 88 81 79 0 1980 1990 1997 1999 2002 2004 2005 2006 b/ Indigent Non-indigent poor

Projections of the extreme poverty rate up to 2006 indicate that the region is back on track towards the first target of the Millennium Development Goals (actual progress is greater than the time elapsed) LATIN AMERICA (17 COUNTRIES): LEVELS AND PERCENTAGES OF PROGRESS IN REDUCING EXTREME POVERTY BETWEEN 1990 AND 2006 a/ 14.7 Latin America 69 50.9 40.5 33.1 30.9 31.6 17.1 15.9 18.3 14.5 15.8 14.4 10.3 10.8 60 50 40 30 20 10 0 Extreme poverty rate, 2006 8.4 6.6 3.6 3.4 Argentina b/ Colombia Costa Rica Ecuador b/ El Salvador Guatemala Honduras Nicaragua Panama Paraguay Peru Uruguay b/ Venezuela (B.R.) -6-1 3 19 32 32-20 -10 0 10 20 30 40 50 60 70 80 90 100 Percentage of progress between 1990 and 2006 Source: ECLAC, on the basis of special tabulations of data from national household surveys and projections on the basis of official information from the countries. a/ The percentage of progress is calculated by dividing the reduction (or increase) in the rate of extreme poverty in percentage points observed during the period by half of the 1990 extreme poverty rate. The red line represents the percentage of progress expected in 2006 (64%). b/ Urban areas. Bolivia Brazil Chile Mexico 42 52 66 69 68 73 73 79 Expected progress, 2006 (64%) 85 100 100

Reasons for the progress made towards the target: higher growth, increasing employment and rising per capita social expenditure 30.0 25.0 20.0 15.0 10.0 5.0 LATIN AMERICA AND THE CARIBBEAN (21 COUNTRIES): SOCIAL EXPENDITURE AS A PERCENTAGE OF GDP IN 1990-1991, 1996-1997 AND 2002-2003 (Percentages) 5.5 5.7 6.5 7.1 7.4 8.0 8.8 9.0 9.6 10.5 11.7 1990-1991 1996-1997 2002-2003 13.1 13.5 13.6 14.8 13.1 15.1 17.3 18.6 19.1 19.4 20.9 29.2 0.0 Trinidad and Tobago Ecuador Guatemala El Salvador Dominican Republic Peru Nicaragua Paraguay Jamaica Mexico Venezuela (B.R.) Honduras Colombia Bolivia Chile Simple average Weighted average Panama Costa Rica Brazil Argentina Uruguay Cuba Social expenditure as a percentage of GDP

The number of people suffering from undernourishment declined from 59 to 52 million between 1990 and 2001-2003. Even so, projections indicate that 40 million people will still be undernourished in 2015. Peru 138% Cuba Guyana 114% 125% Ecuador 100% C hile Uruguay 67% 100% Costa Rica 67% Jamaica Haiti Bo livia 55% 50% 57% Target for 2015 Brazil Argentina 50% 49% C o lo m bia Paraguay 47% 44% Suriname 31% Nicaragua El Salvador Trinidad and Tobago Dominican Republic Honduras Setbacks 9% 17% 15% 15% 20% Progress to 2001 (44%) Mexico 0% Panama Guatemala -100% -48% Venezuela (Bo livarian Republic o f) -109% Latina America and the Caribbean 48% Source: FAO (2006) -150% -100% -50% 0% 50% 100% 150% 200%

However, progress in poverty reduction since 2002 points to a larger reduction in undernourishment LATIN AMERICA (21 COUNTRIES): RELATIONSHIP BETWEEN EXTREME POVERTY AND UNDERNOURISHMENT, 2000-2002 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from the Food and Agriculture Organization of the United Nations (FAO), and ECLAC, Social Panorama of Latin America, 2004.

Unequal income distribution is an important factor to explain high poverty rates LATIN AMERICA AND THE CARIBBEAN (23 COUNTRIES a/): INCOME DISTRIBUTION INDICATORS, 2003/2005 Income share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 50 45 40 35 30 25 20 15 10 5 0 Income ratio (times) Income share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Uruguay Costa Rica El Salvador Venezuela (Bol.Rep.of) Argentina Peru Paraguay Mexico Panama Ecuador Guatemala Chile Dominican Rep. Nicaragua Honduras Colombia Brazil Bolivia Trinidad and Tobago 1992 St. Lucia 1995 Guyana 1999 Jamaica 2004 Haiti 2001 10% richest 20% below the richest 10% Next 20% 40% poorest 40% poorest Next 30% 20% below the richest 10% 10% richest D10/D(1-4) a/ The Caribbean countries (right-hand side of the figure) have different income categories (20% above the poorest, 40% and 30% below the richest 10%). For these countries, the average income ratio cannot be calculated. Source: World Development Indicators, World Bank.

The tax burden is too small but differs sharply across countries 40% TAX REVENUES (% GDP, 2005) 35% 30% 25% 20% Caribbean w/o SS (5 countries): 25.5% Total: 21.9% Tax rev. + SS: 17.9% 15% 10% 5% 0% Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Rep. Uruguay c/ Venezuela (B.R.) Tax revenue Social security contributions Other revenues Capital income The tax burden in the Caribbean is higher, however

In the Caribbean the tax burden is higher 40 35 30 25 20 15 10 5 THE CARIBBEAN: TAX REVENUE WITHOUT SOCIAL SECURITY CONTRIBUTIONS (Percentages of GDP) 0 Barbados Guyana Jamaica Suriname Trinidad & Tobago 2004 2005 N.B.: Central government except Barbados, which includes the non-financial public sector.

Even when the figures are corrected for GDP, there is still room to increase Latin America s tax burden PER CAPITA GDP AND TAX REVENUES (Percentages of 2003 GDP and constant dollars at 2000 prices) COMO % DEL PIB 2003 (en dólares constantes de 2000) 40 35 30 Tax revenues as % of GDP 25 20 15 10 LA OECD 5 0 5.25 5.75 6.25 6.75 7.25 7.75 8.25 8.75 9.25 9.75 10.25 10.75 LOG (Per capita GDP, in 2000 US dollars)

ODA AND THE CHALLENGES FOR LATIN AMERICA AND THE CARIBBEAN

Recent developments ODA flows have increased but still fall far short of the Monterrey targets.

120000 100000 80000 60000 40000 20000 0 Since Monterrey, ODA flows have increased 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 US$ billions Monterrey Consensus Years

0.8 0.6 0.4 0.2 but are still far below the target Projected ODA as a percentage of donor GNI 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Monterrey target (0.7% of GNI) Source: OECD data base (2007)

Recent developments ODA flows have increased but still fall far short of the Monterrey targets. Channelling ODA towards low-income countries and focusing on social spending.

Channeling ODA to low-income countries and.. 60 ODA, 1970-2005 (Averages) 50 Percentages. 40 30 20 10 0 1970-1980 1981-1990 1991-2000 2001-2005 Low-income countries Lower-middle-income countries Upper-middle-income countries N.B: Does not include Iraq, which accounted for 33% of total ODA in 2005.

focusing on social spending 60 ODA TO PRODUCTIVE SECTORS, 1973-2005 (Percentages) 50 40 30 20 10 0 1973-1980 1981-1990 1991-2000 2001-2005 Social sectors Production sectors Finances Infrastructure Government institutions Source: ECLAC, on the basis of OECD (2007). Government institutions include budget support, emergency assistance and external debt operations.

Recent developments ODA flows have increased but still fall far short of the Monterrey targets. Channelling official assistance towards lower-income countries and focusing on social spending. Latin America and the Caribbean have lost ground in terms of their relative share.

Channelling ODA on the basis of income leads to a regional concentration REGIONAL CONCENTRATION OF ODA, 2001-2005 (Averages as percentages) Middle East 14% Europe 5% Africa 35% Asia 37% Americas 9% Source: ECLAC on the basis OECD (2007).

The Latin America s share of ODA has diminished and has fallen more sharply in upper-middle-income countries 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Percentage of total ODA Latin America and the Caribbean Lower-middle income Upper-middle-income N.B.: Excludes Iraq.

And the same pattern is observed in the Caribbean countries 1.8 1.6 1.4 1.2 1.0 Percentages 0.8 0.6 0.4 0.2 0.0 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Caribbean Middle to low income Middle to high income

Donations play a significant part in some Caribbean countries and territories THE CARIBBEAN: GRANTS (Percentage of GDP) 12 2004 2005 10 8 6 4 2 0 Belize Guyana Jamaica Suriname Dominica Grenada St. Lucia St. Kitts and Nevis St. Vincent and the Grenadines

The effectiveness of ODA depends crucially on: National policies Institutional capacity-building for the design and implementation of economic and social policy Absorption capacity Development and improvement of domestic resource mobilization. Improved competitiveness through changing production patterns and technological innovation. Improved effectiveness and efficiency in social policy ODA management Harmonization of donor policies Coordination with recipient countries development strategies Mutual accountability between donors and recipients Stability of flows

There are a number of reasons why the importance of ODA for middle-income countries, particularly those in the region, should not be underestimated: From a national perspective: Slow and volatile growth makes it necessary to guard against economic and social setbacks. Most countries financial and trade linkages with the global economy are vulnerable. Countries do not exhibit an equal capacity to access the international financial system. Institutional weaknesses hinder the implementation of economic and social policies and are an obstacle to social cohesion. Difficulties in building up technological capacities and productive development. Poverty is widespread (60% of the poor and 50% of indigents live in upper-middle-income countries).

There are a number of reasons why the importance of ODA for middle-income countries, particularly those in the region, should not be underestimated: The nature of the various components of ODA are also important: Grants to support fiscal stability. Long-term concessional loans not affected by international financial fluctuations to support capital investment. Technical assistance: knowledge transfer.

There are a number of reasons why the importance of ODA for middle-income countries, particularly those in the region, should not be underestimated: From a more global viewpoint: Stability and growth in those countries produce significant externalities for the other economies of the region or subregion. Countries can support the provision of global or regional public goods: diffusion of knowledge, trade integration, environmental sustainability. These countries are part of the international aid and cooperation system, and their role as recipients and donors should be strengthened.

In addition to benefiting from ODA, middle-income countries should also contribute to the cooperation system Direct ODA donors: Brazil has forgiven debts totalling about US$ 1.15 billion. New financing mechanisms such as global taxes. South-South cooperation: Macroeconomic coordination. Mechanisms to support liquidity in times of crisis. Development financing through regional and subregional development banks. Technical cooperation.

The ways in which middle-income countries are integrated into the global economy are important in terms of leveraging ODA Improved access and regulatory frameworks in the international economic system Trade Finance Technology Strengthened representation in global economic institutions.