Senior IMF official for Latin America urged governments to force the rich to pay “a lot more” in taxes, saying the world’s most unequal region will only thrive if it meets the demands of a system fairer economic.
In an interview with the Financial Times as he prepared to step down after eight years on the job, Alejandro Werner, director of the Western Hemisphere fund, said recent social unrest in Latin America has highlighted the need for ‘a much more equitable distribution of income.
IMF has already called for the top earners around the world who have thrived on the pandemic to pay more taxes on a temporary basis to help those hardest hit. 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 pointed out that “underutilized” property taxes were a good place to start for Latin America.
“You have to have a much more progressive tax system where. . . the upper layers of the population pay a lot more and then you have to have an economic system in which economic competition is much stronger than today, ”he declared.
“Latin America cannot be the most unequal region in the world and take the next step in economic development.”
Before joining the IMF in 2013, Werner was a senior official in the Mexican Ministry of Finance and worked in a Mexican bank; he will withdraw from the fund at the end of August.
The fallout from US stimulus measures, strong growth in China and high global commodity prices have helped the region rebound faster than expected after the 7% drop in gross domestic product last year, and the IMF, along with private sector economists, has become more optimistic about its prospects.
Werner said the IMF’s current forecast of 4.6 percent growth in Latin America this year was likely to be revised upwards, in part because economies had been able to keep activity at a lower level. higher than expected, despite continued Covid infections.
“The correlation between economic activity and the rate of contagion is much lower today than in [the second quarter] last year, ”he said.
The region’s two largest economies, Brazil and Mexico, have prioritized reopening their economies despite high death tolls, helping them recover faster than some neighboring countries that have persisted with closures.
A FT excess mortality study found that Latin American countries have suffered some of the highest death rates in the world from the pandemic, with relatively little difference between countries that have imposed strict closures, such as Peru and Colombia, and those who haven’t, like Brazil or Mexico.
Latin American countries have also taken divergent paths when it comes to additional spending, with Brazil, Peru and Chile among countries taking on significant additional debt to support those most affected by the coronavirus.
Mexico was the notable exception and although Wall Street banks predict it will grow by more than 5 percent this year, that won’t offset the 8.5 percent contraction it suffered last year. . Werner said he “would have been much better served” with a stimulus package.
Politics in the region have been turbulent in recent years, with waves of street protests rocking Chile and Ecuador in 2019. They have spread to Peru and more recently to Colombia, polarizing politics and strengthening hand of foreign candidates from the extreme left and right in the elections.
In Peru, Pedro Castillo, candidate of a Marxist-Leninist political party, seems to have won this month’s presidential election, although his conservative opponent Keiko Fujimori disputed his victory with allegations of electoral fraud.
“The oscillations that we see in the political choices of the population reflect that there is a very strong demand for a much better distribution of income, and beyond that, a much better distribution of income. . . fairer economic and social system, ”said Werner.
In April, Colombia attempted a tax reform to increase its income and broaden its tax base, but the government was forced to cut it days after a wave of violent protests across the country.
Werner said tax changes aimed at increasing revenue were needed to repair public finances in the region, but added that the Bogotá experience showed the need for broad agreements on economic reforms that go beyond traditional political class.
“The political environment is very difficult for the implementation of reforms and, therefore, countries will need to be very careful in designing these reforms, engaging with the population as a whole and ultimately generating consensus. . . because these reforms are necessary, ”he said.
“Otherwise, we will see significant instability that will hurt jobs, hurt the recovery, hurt social indicators. It is a very difficult landscape.