Latin America: The Post-Pandemic Decade. Conversations with 16 Latin American Economists

Edited by Ilan Goldfajn and Eduardo Levy YeyatiLatin America: The Post-Pandemic Decade Conversations with 16 Latin American economists Latin America: The Post-Pandemic DecadeConversations with 16 Latin American Economists CEPR PRESSCentre for Economic Policy Research33 Great Sutton StreetLondon, EC1V 0DXUKTel: +44 (0)20 7183 8801Email: cepr@cepr.orgWeb: www.cepr.org ISBN: 978-1-912179-55-8Copyright © CEPR Press, 2021. Latin America: The Post-Pandemic DecadeConversations with 16 Latin American EconomistsEdited by Ilan Goldfajn and Eduardo Levy Yeyati CENTRE FOR ECONOMIC POLICY RESEARCH (CEPR)The Centre for Economic Policy Research (CEPR) is a network of over 1,600 research economists based mostly in European universities. The Centre’s goal is twofold: to promote world-class research, and to get the policy-relevant results into the hands of key decision-makers.CEPR’s guiding principle is ‘Research excellence with policy relevance’.A registered charity since it was founded in 1983, CEPR is independent of all public and private interest groups. It takes no institutional stand on economic policy matters and its core funding comes from its Institutional Members and sales of publications. Because it draws on such a large network of researchers, its output reflects a broad spectrum of individual viewpoints as well as perspectives drawn from civil society.CEPR research may include views on policy, but the Trustees of the Centre do not give prior review to its publications. The opinions expressed in this report are those of the authors and not those of CEPR.Chair of the Board Sir Charlie BeanFounder and Honorary President Richard PortesPresident Beatrice Weder di MauroVice Presidents Maristella Botticini Ugo Panizza Philippe Martin Hélène ReyChief Executive Officer Tessa Ogden ContentsForeword viiIntroduction 1Ilan Goldfajn and Eduardo Levy YeyatiThe Latin American pandemic 7Ilan Goldfajn and Eduardo Levy YeyatiSection I: Avoiding the next crisis“The pandemic can be used as a cover for wasteful spending” 23Laura Alfaro“QE in advanced economies does not provide a convincing argument for monetary financing in emerging ones” 29Roberto Chang“Even moderate increases in interest rates may be a cause of concern for fiscal sustainability” 41José de Gregorio“Good results are the best guarantee of central bank independence” 49Federico SturzeneggerSection II: Policies for sustainable growth“Evidence suggests inequality and low productivity growth are intertwined” 59Mauricio Cárdenas“Social discontent can be easily mobilised to immobilise public policy” 67Marcela Eslava“Lack of progress cannot be solved by a redistributive strategy” 75Ricardo Hausmann“I have strong doubts about the possibility of having successful industrial |policies in the region” 89Rodrigo Valdés“The international financial community should rethink its risk tolerance” 97Alejandro Werner Section III: Social challenges ahead“The pandemic packed a triple inequality-increasing punch” 109Francisco Ferreira“Replacing existing targeted programmes with a UBI would leave the poor worse off” 119Nora Lustig“The pandemic showed the importance of transitory poverty in the determination of coverage for social programmes” 127Eric ParradoSection IV: The future of democracy in Latin America“Societies are experiencing radical political fractures; Latin American countries are no exception” 143Edmar Bacha“My bold prediction is that we will end up reinventing social democracy” 147Armínio Fraga“In Chile, the middle class is ‘too rich for the state and too poor for the market’” 151Andrea Repetto“Colombia, Peru and Chile are entering a populist phase from which it will not be easy to escape” 159Andrés Velasco ForewordThe devastating effects of the Covid-19 pandemic impacted countries worldwide, yet for governments in the Latin America region, the crisis has compounded a series of pre-existing social, economic and health issues which has heaped further pressure on already strained governmental systems. Poverty alleviation and progress towards reducing inequality have stagnated in recent years, as social expectations have become increasingly harder to meet.As a result, the Covid economic downturn has been more pronounced in the region, and long-run damage – such as that interconnected with education deprivation or job destruction – will likely be larger and more persistent. The pandemic has also highlighted acute regional deficits, including poor state capacity and labour exclusion and informality, which have contributed towards a poor economic recovery from the pandemic. These underlying issues, when adde