Falling commodity prices must prompt reforms in Latin America, says OECD executive

By on 30/05/2017
Luiz de Mello, OECD’s, deputy director, Public Governance and Territorial Development, OECD (Image courtesy: OECD).

Latin American governments must target spending more closely and make public administration more efficient in order to ease pressure on budgets caused by falling commodity prices, a leading OECD official has said.

Luiz de Mello, OECD’s Deputy Director of Public Governance and Territorial Development, has called for better public financial management and governance in the region.

“A combination of stagnant productivity, high inequality and low revenue collection is putting a pinch on Latin American and Caribbean governments,” De Mello said. “There is very limited room to expand public budgets, so they will need to better target their public spending and improve policy design to ensure better living standards for citizens.”

The region benefited from rising commodities prices until 2014, which enabled it to grow and improve income distribution. However, falling prices have since reduced output, strained fiscal revenues and hit tax receipts. In some countries such as Brazil, shaky public finances and prolonged recession have fuelled political turbulence.

It will be important to drive up tax revenues, said de Mello, “but it’s not only about how much you collect, but how efficiently you spend it: reallocating resources to those spending categories and uses of public money where the social rates of return are highest is a good guiding principle for policymakers.

“In Latin America’s unequal societies with low productivity growth, spending more efficiently on education or the development of skills in the labour force are sectors where the payoff is probably highest.”

De Mello believes there is a pressing need to foster a culture of policy evaluation by introducing tools used routinely in the OECD such as regulatory impact assessments; and that Latin American countries also need to extend digital government.

Latin American state structures are surprisingly small – government spending averages 31% of GDP compared with a 41.5% average across the OECD, and public sector jobs as a share of total employment averages 12.4% compared with the OECD average of 21.6%. Given their small size, de Mello argued, civil services must access the very best skills through methods such as extending competitive hiring and competency-based selection processes.

“Public administration in Latin America has improved and there is more professionalisation of the civil service than a few decades back,” he said. “But the key challenge now is: does the government have the flexibility to attract the skills that it needs in an evolving society? Can it get away from the more conventional, silo-based structures of government to ones that are much more forward-looking and flexible?”

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See also:

Brazil boosts analysis of risks to public finances

Pensions reform aims to tackle Brazilian deficit

Tax evasion in Latin America worth 6.7% of GDP, UN agency finds

About Gavin O’Toole

Gavin O’Toole is a freelance writer and editor in London. He has written for leading newspapers, magazines, wire services and business schools about financial markets, business and regulation around the world. He has a particular interest in international relations, and a specialism in Latin American affairs. He has conducted research on this region’s political economy and has also published a number of books about its politics and natural environment. His latest title, Environmental Security in Latin America, will be published by Routledge in September 2017.

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