Inequality still presents a big challenge for Latin America: World Economic Forum

Between 70 million and 90 million people were lifted out of poverty in Latin America over the past decade, according to the World Bank

April 04, 2014 8:58 IST | India Infoline News Service
Latin America has made huge strides in lifting millions of people out of poverty. The challenge now is not only to continue that momentum but also to reduce inequality, panellists at the World Economic Forum on Latin America said today.

Between 70 million and 90 million people were lifted out of poverty in Latin America over the past decade, according to the World Bank. They have entered what are often called the consuming classes or the middle classes.

Arif Naqvi, Founder and Group Chief Executive, The Abraaj Group, United Arab Emirates, said that 10 of the world’s 15 most unequal countries are in Latin America.

“What you have in this region, although you are achieving success, is enormous income inequality and that leads to social issues,” said Naqvi. “But it is not all doom and gloom. We are aspirational and growing, and have a great future ahead of us. The opportunities are mind-boggling.”

However, Marcelo Côrtes Neri, Minister of Strategic Affairs of Brazil, said the understanding of the term “middle class” needs to be better defined. “When we talk about middle class we think of the US middle class, with two cars and two dogs and a swimming pool. That is not Latin American middle class or the world middle class. Latin America, and Brazil in particular, is the middle of the world. Our PPP (purchasing power parity) income is close to the world’s income distribution.”

The changing aspirations of a wealthier middle class prompt a particular challenge for the region’s governments, Neri said. “They could become a problem for governance. They are the ones that put pressure for better levels of education and healthcare; they are the ones that go to the streets to demand rights. How prepared is Latin America to have a robust middle class?”

Another question debated was who can claim responsibility for middle class growth.

Luis de la Calle Pardo, Managing Director and Founding Partner, De la Calle, Madrazo, Mancera, S.C. (CMM), Mexico, said that many politicians are too opportunistic in this regard: “People’s progress is due to their own effort. They study, they wake up early, they work hard, they go to university, they invest in assets. Only 10% is down to government programmes.”

All participants agreed that young people will determine where the continent goes from here. In Brazil, for example, there are 51 million people between the ages of 15 and 29, Neri said: “This is the group I am most worried about. They have very high expectations and so the probability they will get frustrated is enormous. This group is the door of change.”

One of the key issues in helping to bring about these changes is investment, said Naqvi.

“If you look at Latin America as a trading bloc, the key is to bring down barriers,” he said. “Ease mobility of people, capital and products. The one thing every country in this region needs is more capital. Capital will flow to countries that are welcoming. Capital has no loyalty. It is a function of the returns it generates. And that is the best thing that can happen to the middle classes.”

Participants were optimistic that the momentum will continue, but warned the region must not be complacent.

“We have to have a higher sense of urgency and we shouldn’t be confused,” concluded Rafael Fernández de Castro, Chair, International Studies Department, Autonomous Technological Institute of Mexico (ITAM), Mexico.

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