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2030: Shared prosperity is possible in our region

Thursday, May 16, 2013

The World Bank, under the leadership of President Jim Yong Kim, has focused attention on the ambitious and demanding work to eliminate extreme poverty in the world's population by 2030 and to increase the income of the poorest 40 per cent in order to promote shared prosperity. It may sound bold, but it is possible in Latin America and the Caribbean. The region has already made significant progress in poverty reduction and the governments and economies have evolved considerably, taking the political, social and economic steps necessary to achieve them. Improving opportunities for the less fortunate has become a priority of all governments in spite of their political bent. Preliminary data for 2011 indicate that 13.3 per cent of the population lived on US$2.50 or less per day, the income threshold used by the World Bank to determine the extreme poverty in the region. This figure represents a reduction of almost 50 per cent in a decade. If this feat is repeated over the next decade, the elimination of extreme poverty will be realized even sooner than the 2030 timeline projected by President Kim. 


Undoubtedly the governments of LAC have much more to do for the bulk of its population living as moderately poor (17 per cent) or vulnerable (35 per cent). The vulnerable earn more than the poor but they lack the economic security of the middle class. It is for these segments that shared prosperity is extremely critical. This view - backed by global financial authorities in recent spring meetings of the World Bank and the IMF has led the Bank to focus on the improved  provision for 40 per cent of the world population with lower incomes. This means ensuring better access to basic services like education and health.


Making small slices bigger 

Shared prosperity will of course be easier in Brazil or Mexico than in countries like Haiti, where the size of the cake is already small. Brazil has in fact, already demonstrated that it is possible to secure economic growth to become a regional power while mainly helping the poor, embracing both economic and social progress. For example, ensuring access to quality education by disadvantaged children increases its production capacity and improving social inclusion through increased employability and productivity. This in turn spurs growth, making more resources available to more people, raising their quality of life. In recent years, this virtuous circle seems to have taken root throughout the region. A recent World Bank report shows that over the last decade the incomes of the poorest segment of the population in Argentina, Bolivia, Colombia, Ecuador, El Salvador, Guatemala, Panama, Dominican Republic and Venezuela grew much faster than the income of the wealthier segments. 


To make prosperity possible
Four key factors make this prosperity possible and sustainable: progressive taxation, efficient, transparent and effective institutions; a favorable business climate and better risk management.  A good example is Uruguay. Some years ago, this South American nation has these four factors, their extreme poverty is now below 0.5 per cent and its level of inequality is the lowest in the region. Working closely with Latin American and Caribbean leaders, I have seen their determination to ensure environmental sustainability. The current search for shared prosperity cannot be achieved by reducing the options of future generations. Polluted air today will undermine the health of our children. Poor sanitation today stymies growth for future generations. 

The region should accelerate the reform process - such as improving the quality of education and infrastructure - to improve the chances of the majority of its population. 
World Bank economists, looking for a way to measure shared prosperity in the region, identified a composite index that leaves LAC lagging behind the best performing countries in the world.  In fact, according to this index, if the same rate of reduction of inequality in the last decade is maintained, LAC would have to grow 7.5 per cent annually per capita to close the gap with the frontrunners by 2030. This performance is well above the estimated growth of 3.1 per cent per capita this year. But I'm optimistic. The region already proved that with the right combination of reforms and leadership the situation of the less fortunate can be quickly reversed.  What it has done for the extreme poor, it can do again for the vulnerable. 


Hasan Tuluy, World Bank Vice President for Latin America and the Caribbean                   


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