Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean

LATIN AMERICA: Transparency Key to Competitiveness, Says World Economic Forum

Mario Osava

SAO PAULO, Brazil, Apr 6 2006 (IPS) - Improving transparency by overcoming problems like corruption, the wounded credibility of governments, and fiscal weaknesses could be a decisive factor in bolstering Latin America’s competitiveness on the global market.

The factors affecting regional economic growth, which has rallied in recent years but is still far below the levels seen in China, India or eastern Europe, were the focus of a report released Wednesday, the first day of the World Economic Forum (WEF) on Latin America, in which the risks and opportunities for development in the region were discussed.

The WEF, whose annual meeting of top business and political leaders and selected intellectuals is held in the Swiss ski resort of Davos, also organises regional gatherings throughout the year, like this week’s two-day meeting in the southern Brazilian city of Sao Paulo, the country’s industrial and commercial hub.

The “Latin America Competitiveness Review 2006” recognises macroeconomic advances in the region, such as a reduction in inflation, and fiscal efforts that together with “benign external conditions” have boosted growth.

But the region’s economic performance has not lived up to expectations, in terms of per capita income, said Augusto López-Claros, the WEF’s chief economist and director of the Global Competitiveness Programme, which produces the competitiveness reports.

In Latin America and the Caribbean, Chile is an “exception to the rule,” demonstrating that it is possible to develop solid economic institutions in the region, he said. With respect to macroeconomic management, one of the indicators taken into account by the WEF’s Global Competitiveness Index, Chile ranks first among the 117 countries assessed, even ahead of the world’s most developed countries, he underlined.

Overall, Chile ranks 27th out of 117 countries, and is top in the region. The Index takes into consideration nine “pillars” of competitiveness: institutions, infrastructure, macroeconomy, health and primary education, higher education and training, market efficiency, technological readiness, business sophistication, and innovation.

Economic growth does not necessarily reflect strong competitiveness. India, which is growing much faster than the economies of Latin America, has very poor economic indicators, although it is well-known for the strides it has made in technology, noted López-Claros. He added that “in infrastructure it is a disaster.”

Taken together, the numerous indicators included under each pillar point to a country’s potential for sustained economic growth, although the factors that are decisive to economic growth vary from one country to another, he explained. In Finland, for example, the macroeconomy is less important, and the key factor is technological innovation.

Increased “transparency” could have a strong impact on Latin America, the economist told IPS. Chile, for example, has an extremely low level of corruption compared to its neighbours, after “15 years of governments that have gained a strong degree of credibility.” The country also has the best infrastructure in the region, he added.

The indicators show that Chile is thus “evolving” away from the region. The second-most competitive country, Argentina, ranks 54th out of 117 countries, followed by Brazil, Costa Rica, Colombia and Mexico.

Strong education and infrastructure help explain the fact that Argentina ranked so high in the region despite its recent economic crisis and weak macroeconomic indicators.

Corruption weighs heavily in the WEF assessments. It undermines democracy and inhibits the economy, according to Moisés Naim, chief editor of the Foreign Policy magazine, which is published in the United States.

The problem is not only corruption in and of itself, but the war against corruption as well, which in the last 15 years has “distracted societies from facing urgent problems” and has “crowded out the debate on other crucial problems.”

The war on corruption, he said, ends up being a remedy that kills the patient.

A second factor that he considered damaging to development in the region is the fight against inequality, which he said gives rise to interventionist policies such as price and exchange rate controls that are ineffective in eradicating inequality while they slow down investment and thus economic growth, and foster corruption.

Latin America is the region with the largest gap between rich and poor. In addition there is an “ideological vacuum” in the region, which longs for growth and wants to overcome a “desperate social situation,” but continues to repeat errors of the past, said Naim.

That leads to a paradox in Latin America, he said: “Chavismo”, the leftist current led by Venezuelan President Hugo Chávez, awakens much more enthusiasm than Chile, even though “the Venezuelan model is far inferior to the Chilean one.”

That is reflected by the emergence of new leaders, like Bolivia’s indigenous President Evo Morales, and other leftist or anti-establishment candidates who have a real chance of winning presidential elections in Mexico and Peru, he added.

Although poverty does not impede growth, it is a hurdle, said Guillermo Perry Rublo, chief World Bank economist for Latin America and the Caribbean. His recommendation is to strengthen human capital, education and infrastructure, while freeing up trade – a combination that generates opportunities, he said.

In a debate on the risks facing the region, Jose Miguel Insulza of Chile, the secretary-general of the Organisation of American States (OAS), said Latin America today no longer has a problem with “the mechanisms of democracy – fair elections, peaceful handover between governments, and so on û but with the results that democratic governments are generating for their citizens.”

“The problem of political risk in Latin America today is much more about the stability and quality of governments,” he said.