The IMF’s top Latin American official has urged governments to make the wealthy pay “much more” in taxes, saying the world’s most unequal region will not develop unless it responds to the demands of a fairer economic system.
In an interview with the Financial Times as he prepares to step down after eight years in the job, Alejandro Werner, fund manager for the Western Hemisphere, said recent social turmoil in Latin America has highlighted the need for a more equal distribution of income.
International Monetary Fund call before For high-income earners around the world who have thrived due to the pandemic to pay more taxes on a temporary basis to help those most affected. Latin America has suffered more than any other region as the coronavirus has exacerbated long-standing problems of low growth, high inequality and poverty.
Werner cited “untapped” property taxes as a good place to start in Latin America.
“You need a more progressive taxation system where… the higher strata of the population pay much more and then you have to have an economic system where economic competition is much stronger than it is today,” he said.
“Latin America cannot be the most unequal region in the world and leap to the next stage of economic development.”
Prior to moving to the IMF in 2013, Werner was a senior official in the Mexican Ministry of Finance and worked for a Mexican bank. He will retire from the fund at the end of August.
The spillover effects of US stimulus, strong growth in China and higher global commodity prices have helped the region recover faster than expected from last year’s 7 percent drop in GDP, the International Monetary Fund, along with the private sector. Economists are becoming more optimistic about its forecast
Werner said the IMF’s current forecast for 4.6 percent growth in Latin America this year is likely to be revised upwards, in part because economies have been able to maintain activity at a higher level than expected, despite the ongoing Covid-19 infection.
“The relationship between economic activity and the infection rate is much weaker now than it was in [the second quarter] last year “.
The region’s two largest economies, Brazil and Mexico, have prioritized reopening their economies despite the high death toll, helping them recover more quickly than some of the neighboring countries that have continued to shut down.
FT Excess mortality study It found that Latin American countries have experienced some of the world’s highest death rates from the pandemic, with relatively little difference between countries that have imposed strict lockdowns, such as Peru and Colombia, and those that have not, such as Brazil or Mexico.
Latin American countries have also taken divergent paths on additional spending, with Brazil, Peru and Chile taking on significant additional debt to support those hardest hit by the coronavirus.
Mexico has been the notable exception, and although Wall Street banks expect it to grow more than 5 percent this year, that won’t offset the 8.5 percent contraction it suffered last year. Werner said he “could have done a lot better” with the stimulus package.
The region’s politics have been turbulent in recent years, with waves of street protests rocking Chile and Ecuador in 2019. Spreading to Peru and more recently Colombia, politics polarized and strengthened the hands of outside candidates from the far left and right in elections.
In Peru, Pedro Castillo, candidate of a Marxist-Leninist political party, Looks like he won The presidential election was held this month, though his conservative rival Keiko Fujimori challenged his victory with allegations of election fraud.
“The fluctuations we see in policy choices by the population reflect that there is a very strong demand for a much better income distribution and, beyond that, a lot…a more just economic and social order,” Werner said.
In April, Colombia attempted a tax reform to increase revenue and expand its tax base, but the government had to scrap it within days after a wave of violent protests across the country.
Werner said tax changes to increase revenue are necessary to reform public finances across the region, but added that the Bogotá experience demonstrated the need for broad agreements on economic reforms that go beyond the traditional political class.
“The political environment is very difficult for the implementation of reforms, and therefore countries have to be very careful in designing these reforms, engaging with the population at large, and ultimately in achieving consensus . . . because these reforms are necessary.
“If not, we will see major instability that will hurt employment, hurt recovery, hurt social indicators. It is a very difficult scene.”