The Organization for Economic Cooperation and Development (OECD) recently presented its report on perspectives and challenges for Latin America, in which it warns that fiscal stability must be one of the priorities of this region and that The search for sustainable development still requires a lot of effort and commitment to the future.
Sebastián Nieto, head of Latin America and the Caribbean of the OECD, spoke with Portfolio about the proposal of a green fiscal rule contemplated by the government of Gustavo Petro and said that although it is a laudable measure, its structuring must make clear the rules of the game and have independent spokesmen, whose priority is the creation of a long -term road map, thinking about sustainability.
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How is the fiscal panorama in Latin America?
Currently, we are in a context of restricted fiscal space, in which several Latin American countries have undertaken fiscal consolidation processes. This situation significantly limits maneuver margins to meet the growing financing needs, which are estimated at approximately USD $ 99,000 million annually until 2030 in the region.
Is the road cut out the expense?
It is necessary to adopt a comprehensive vision that covers three key dimensions: public debt, fiscal income (taxes) and public spending. Strategic actions can be implemented in each of these components. Regarding public debt, adequate management implies reducing foreign currency financing dependence, extending expiration deadlines and establishing a credible framework for administration, which is essential for fiscal sustainability.
In the component of public spending there is also margin of action. It is key to build credible fiscal frameworks that promote investment on current spending, as well as review subsidies and tax benefits that have proven inefficient. Many of these mechanisms have not generated formal employment or added value, and in some cases, such as certain energy subsidies in Argentina, they have had regressive effects.
Sebastián Nieto, Chief for Latin America and the OECD Caribbean.
Courtesy – API
Regarding the tax system, it is possible to move towards greater progressivity, without neglecting incentives for productivity, entrepreneurship and employment generation. Currently, in Latin America there is a high dependence on indirect taxes, especially VAT, and a significant concentration in corporate taxes within direct taxes. This situation contrasts with OECD countries, where the effective load on societies is, in many cases, lower and is better distributed.
Do we have good productivity?
In aggregate terms, productivity in Latin America represents just one third of that observed in OECD countries. Particularly worrying is the evolution of the total productivity of the factors, whose gap in front of those countries has been expanding. This shows the need to implement robust innovation policies, focused on a greater articulation with the private sector and the construction of strategic consensus.
For example, research and development expense (R&D) in Latin America reaches, on a simple average, only 0.3% of GDP, compared to about 2% in OECD countries. In addition, the participation of the private sector in that expense is 40% in the region, while in the OECD it amounts to 70%. This underlines the urgency of strengthening public-private collaboration and improving coordination in innovation policies, considering global trends in digital transformation, green transition and, in a priority, social inclusion.
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How to improve this reality?
This varies from country in country, but without a doubt, when we talk about improving fiscal resources we must do so from an integral perspective: debt, expense and taxes. In some countries, especially on green issues, failures in fiscal policy are observed, although there are also advances.
Each case must be analyzed individually. Regarding the participation of the private sector, it is essential to advance in the development of the capital market and financial integration, which is key to achieving economies of scale and attracting greater investments.
Finally, international alliances are essential. In the current context, it is necessary to identify who our strategic allies are. An example is the Gateway Global Agenda, which includes resources for USD $ 45,000 million to 2027, and that must be properly used to boost productive transformation in the region.
Economic growth
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What to do with subsidies?
There are tax incentives that do not generate added value, and it is necessary to make a complete mapping of them. We are preparing a publication on this issue in Latin America, where we identify that many of these incentives lack adequate evaluation, monitoring and monitoring criteria. In many cases, the expected results have not materialized, which raises the urgent need to review and reformulate them.
What do you think of the green fiscal rule?
There is a discussion about the so -called “golden rule”, understood as the incorporation of criteria related to the green transition within the tax frameworks. As long as a fiscal rule is credible and considers long -term sustainability, it can become a solid starting point for any fiscal policy mechanism that you want to implement.
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What should be taken into account in this rule?
It must establish clear rules that recognize the long -term character of the investments associated with the green transition. It must also have an anti -cyclical approach, have a technical committee and independent actors for design and evaluation, and maintain coherence and consistency over time.
What is regional integration?
Regional integration is fundamental. A prominent example is Nuam Exchange, which demonstrates how to advance in greater integration of financial markets in Latin America, particularly through the interoperability of stock exchanges.
This process requires coordinated actions by the State and the superintendencies of the three countries involved. Undoubtedly, there is enormous potential to strengthen collaboration between public and private institutions, which would allow stock market integration that generates economies of scale, portfolio diversification and a greater attraction of investments towards the region.
