ECONOMY-LATIN AMERICA/CARIBBEAN: Balancing Growth and Development

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Wesley Gibbings

ORANJESTAD, Aruba, May 12 1998 (IPS) - Countries of Latin America and the Caribbean are struggling to find the correct balance between what now appears to be a pattern of economic growth and the anomaly of social displacement.

And, delegates attending the 27th Session of the Economic Commission for Latin America and the Caribbean (ECLAC) are finding much common ground in their assessment of the disturbing irony.

In fact, a discussion document released here and entitled: The Fiscal Covenant: Strengths, Weaknesses, Challenges, identifies the promotion of social equity as one of five major imperatives of “the social covenant.”

By this is meant the socio-political agreement that “legitimises the role of the state and establishes the areas and scope of government responsibility in the economic and social spheres.”

The key considerations being debated here this week include the consolidation of the ongoing fiscal adjustment process in the region; raising the productivity of public management; making fiscal policy more transparent, promoting social equity and encouraging the development of democratic institutions.

Jose Ocampo, Executive Secretary of ECLAC, says “the priority given to adjustment in the 1980s relegated the pursuit of social equity to second place in both the design of the tax system and spending.”

“Although the 1990s have seen an important recovery in the priority given to social expenditure, and in focusing this where it is most needed, considerable room for improvement remains,” Ocampo argued.

He said such improvement is required in “the contribution of public policy to reducing poverty, improving income distribution and reinforcing social integration.”

The ECLAC head said the “second generation reforms” being introduced “underline the need for a state which is more committed to achieving social equity, especially in education and investment in human resources.”

Aruba’s Minister of Economic Affairs, Robert Croes, told the opening session of the meeting Tuesday, that the interaction between economic and social development needed to be more carefully examined.

He said there was the challenge of heightening the social impact of he economic growth in Latin America and the Caribbean after the crisis of the 1980s.

“We have seen how, with the renewal of growth in Latin America in the 90s poverty has tended to fall; however, there has been no similar advance in other fronts of social development, for example, unequal income distribution,” he said.

“What is called for in the region is a tremendous internal effort based on high-quality development capable of meeting the challenges posed by the search for equity,” Croes told delegates.

“Each of our countries, through all the uncertainties, risks, successes and failures the effort entails, must develop its own internal vision in order to address with decision, the fascinating task of achieving economic, social and political development,” he said.

An ECLAC economic survey of Latin America and the Caribbean over the period 1996-1997, noted that the economies of the region appeared to have “returned to the pattern of moderate growth based on heavy inflows of foreign capital that characterised the years prior to the outbreak of the Mexican financial crisis.”

But, the same report noted that while there were “favourable trends”, there was no improvement in the labour market with urban unemployment reaching the highest level in 1996-1997 for the entire decade.

Croes believes there can be some alleviation of the problems if there is greater “social investment.” He suggests policies “directed at better distribution of human and physical capital in the areas of education, training, social integration and health.”

“My position as Economic Minister of Aruba has helped me to understand that the tolerance of society has limits, and that, ultimately, adjustment programme must be accompanied not only by short-term social compensation measures, but also by a clear vision of a different future for the most vulnerable social groups,” the Minister said.

He nevertheless advised that “technocratic solutions” might not be enough. “There must also be recourse to the art of politics,” he said.

In targeting economic stagnation and sustained development, “there are no magic formulas nor absolute models to guide these processes,” he added.

The 1996-1997 ECLAC study however shows that while growth and employment are “closely related, a one-to-one correlation does not exist between the two variables.”

The economic recovery of 1996, for example, was not accompanied by a drop in unemployment. In fact, unemployment generally rose and it was only during continued buoyancy in 1997 that the labour market improved.

“Events in a number of countries … suggest that growth is only one of the elements required in order to do away with unemployment,” the study said.

There was evidence that in some cases, such as Colombia and Brazil, that “unemployment is indeed caused by GDP (Gross Domestic Product) growth.”

The study also argued that in the cases of Argentina and Peru, reforms have led to “the extraordinarily high levels of unemployment now being observed.”

Experts here believe the work must begin urgently on devising a strategy which ensures that growth extends beyond the concept of economic figures and begin making a difference in the lives of the region’s populations.