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The IMF’s top official for Latin America has urged governments to make the rich pay “much more” in taxes, saying the world’s most unequal region will not develop if it does not meet the demands of a more economic system. just.
In an interview with the Financial Times as he prepared to step down after eight years in the workplace, Alejandro Werner, director of the fund’s Western Hemisphere, said recent social unrest in Latin America posed manifests the need for a much more equitable distribution of income.
The IMF has previously called for the most successful people around the world who have prospered due to the pandemic to pay more taxes temporarily to help those most affected. Latin America has suffered more than any other region, as the coronavirus has exacerbated long-term problems of low growth, high inequality, and poverty.
Werner pointed to “underutilized” property taxes as a good place to start in Latin America.
“We need to have a much more progressive tax system. . . the upper segments of the population pay much more and then we need to have an economic system in which economic competition is much stronger than it is today, ”he said.
“Latin America cannot be the most unequal region in the world and jump to the next stage of economic development.”
Prior to moving to the IMF in 2013, Werner was a senior Mexican finance ministry official and worked at a Mexican bank; will retire from the fund in late August.
The effects of the US stimulus, strong growth in China and high world commodity prices have helped the region recover faster than expected from the 7% fall in domestic product. gross last year and the IMF, along with the private sector. economists, has become more optimistic about their prospects.
Werner said the IMF’s current forecast of 4.6% growth in Latin America is likely to be revised this year, in part because economies had been able to keep activity higher than expected. , despite continuing Covid infections.
“The correlation between economic activity and the contagion rate is much weaker now than it is today [the second quarter] from last year, ”he said.
The region’s two largest economies, Brazil and Mexico, have given priority to reopening their economies despite high death rates, helping them recover faster than some neighboring countries that have persisted with blockades.
An FT study of excess mortality found that Latin American countries have suffered some of the highest mortality rates in the world from the pandemic, with relatively little difference between countries that imposed strict stagnation, such as Peru and Colombia, and those that did not, such as Brazil or Mexico.
Latin American countries have also taken divergent paths in terms of additional spending, with Brazil, Peru and Chile taking on significant additional debt to support those most affected by the coronavirus.
Mexico was the notable exception, and while Wall Street banks predict it will grow by more than 5% this year, that won’t offset the 8.5% contraction it suffered last year. Werner said he “would have served much better” 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 spread to Peru and, more recently, Colombia, polarizing politics and strengthening the hand of external candidates from the far left and right in the election.
In Peru, Pedro Castillo, the candidate of a Marxist-Leninist political party, seems to have won this month’s presidential election, though his conservative opponent Keiko Fujimori has challenged his victory with claims of electoral fraud.
“The changes we see in the political decisions of the population reflect that there is a very strong demand for a much better income distribution and, beyond that, a lot. . . a fairer economic and social system, ”Werner said.
In April, Colombia attempted a tax reform to increase revenue and expand its tax base, but the government was forced to scrap it a few days after a wave of violent protests across the country.
Werner said fiscal changes were needed to increase revenue to repair public finances across the region, but added that the Bogota experience demonstrated the need for broad agreements on economic reforms that went beyond the traditional political class. .
“The political environment is very tough for the implementation of the reforms and therefore countries will have to be very careful in the design of these reforms, in the interaction with the general population and, finally, in the consensus generation … because these reforms are necessary, ”he said.
“If not, we will see a significant instability that will harm employment, that will harm the recovery, will harm social indicators. It’s a very difficult landscape. “
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