Latin America’s leaders must not retreat from the triple-challenge of improving infrastructure, tax collection and human capital, Hasan Tuluy said, as he announced his retirement after more than 27 years at the World Bank.
The Bank’s VP for Latin America said failure to meet these goals would hinder growth and undermine “shared prosperity”.
The first area, and one that has been receiving attention, if not sufficient action, for years is infrastructure.
“Latin America is still struggling in infrastructure and logistics,” said Tuluy. “The cost of doing business in many Latin American countries is eating away at their competitiveness. In roads, rails, warehousing and transportation it has one of the lowest scores. And these are things that can be remedied.”
Changes already appear underway. Peru on March 28 awarded the contract for the construction of the second line of the subway in Lima, the capital, to a consortium formed by Italian, Peruvian and Spanish builders. The cost will be close to $6bn. In neighbouring Colombia, the government expects to award tenders for roadways in the second quarter of the year for a total of $8bn. A second package, for a similar amount, should be offered in the final two quarters of the year, with a third group in 2015.
Colombian finance minister Mauricio Cardenas said the World Bank, with Tuluy, played an important role in helping Colombia “construct sound policies, especially in sectors fundamental for our growth, such as infrastructure, health and education. Hasan has been a good friend of Colombia’s and we look forward to continuing the relationship with Jorge Familiar [his successor].”
TAX EFFICIENCY
Another important pillar, according to Tuluy, is in tax collection, where most countries in the region lag behind other emerging economies. “The tax to GDP ratio in Latin America tends to be low,” he said. “There need to be tax and revenue policies with a fundamental sense of distributive fairness so the burden of taxation and benefits are distributed in a fair way.”
This is the thrust of what President Michelle Bachelet’s new government is expected to propose on March 31, when it presents its tax reform. The goal is to increase the tax haul by 3% of GDP and use the new revenue for education.
Finally, and most importantly, he said the region needed to invest more in human capital. Tuluy said big gains had been made in pulling people out of poverty. He said 35 million people in Brazil, for example, have left the ranks of the poor but more is needed to be done.
“The progress in Latin America is really remarkable, bringing down poverty, bringing down inequality and growing the middle class, but even with those massive gains you still have the highest levels of inequality in the world,” he said.
“With the right levels of equality and distribution we will not only have more robust growth, but the growth cycles will be longer.”