Download PIONEERS IN DEVELOPMENT

PIONEERS IN
DEVELOPMENT
PUBLIC POLICIES FOR INVESTMENT IN
HUMAN CAPITAL: THE CASE OF CHILE
1990-2000
Comments by Roberto Junguito
November 4, 2003-11-03
I. Introduction: The Lecturer, the Country
and the Topic
• I would like to congratulate the World Bank for having chosen
Eduardo Aninat to give this year’s The Pioneers in Development
Lecture.
• Mr. Aninat has distinguished himself as an economist and academic
researcher in Latin America.
• He has also had a prominent role as a policymaker, as his
achievements as Minister of Finance of Chile at the mid-nineties
clearly showed.
• Eduardo also made a significant contribution as Deputy Managing
Director of the IMF in the past four years.
• For his lecture, Mr. Aninat chose one of the central topics in
development theory: Public Policies for Investment in Human Capital.
• And, he applied it to his country, Chile, in the period 1990-2000
• Summing it all up, The World Bank chose the right Lecturer from the
right country to discuss the right economic development subject.
II. CHILE AS AN OUT PERFORMER IN
LATIN AMERICA
• It is well known that Chile out performed all other Latin
American countries in the 1990’s.
• This out performance was especially significant in terms
of GDP growth as Figure1 clearly illustrates.
• Chile, in fact, was the fourth country with largest GDP
growth in the world during the decade.
• Growth performance was accompanied with a gradual
lowering of inflation (Figure 2).
• Using a successful inflation targeting framework.
• Without major costs in terms of exchange rate
appreciation as observed in Latin American countries
that had exchange rate objectives.
Figure 1. Selected Latin American Countries: Growth Performance
(Annual percent change in per capita real GDP)
12
8
12
Latin America
8
4
4
0
0
-4
-4
-8
-8
-12
-12
-16
-16
1981 1984 1987 1990 1993 1996 1999 2002
1981
Bolivia
8
0
0
-4
-4
-8
-8
-12
-12
-16
1981 1984 1987 1990 1993 1996 1999 2002
-16
1981
8
1990
1993
1996
1999
2002
1990
1993
1996
1999
2002
1990
1993
1996
1999
2002
1990
1993
1996
1999
2002
Brazil
1984
1987
12
Chile
8
4
Colombia
4
0
0
-4
-4
-8
-8
-12
-12
-16
1981 1984 1987 1990 1993 1996 1999 2002
-16
1981
12
8
1987
4
4
12
1984
12
12
8
Argentina
1984
1987
12
Mexico
8
4
0
0
-4
-4
-8
-8
-12
-12
-16
1981 1984 1987 1990
Peru
4
1993 1996 1999 2002
Source: IMF, World Economic Outlook.
-16
1981
1984
1987
figure 2. Selected Latin American Countries: Inflation Performance
(Annual percent change in consumer price index)
600
500
Latin America
485 percent
400
300
200
100
0
1981 1984 1987 1990 1993 1996 1999 2002
14000
Bolivia
12000
11,750 percent
10000
8000
6000
4000
2000
0
1981 1984 1987 1990 1993 1996 1999 2002
50
Chile
45
40
35
31 percent
30
25
20
15
10
5
0
1981 1984 1987 1990 1993 1996 1999 2002
140
Mexico
132 percent
120
100
80
60
40
20
0
1981 1984 1987 1990 1993 1996 1999 2002
Source: IMF, World Economic Outlook.
3500
Argentina
3000
3,080 percent
2500
2000
1500
1000
500
0
1981 1984 1987 1990 1993 1996
1999 2002
3500
Brazil
3000
2500
2000
1500
1000
500
0
1981 1984 1987 1990
1999 2002
50
45
40
35
30
25
20
15
10
5
0
1981
2,948
1993 1996
Colombia
32 percent
1984 1987
1990
8000
Peru
7000
6000
5000
4000
3000
2000
1000
0
1981 1984 1987 1990
1993
1996 1999
2002
7,486
1993 1996
1999 2002
POVERTY RATES
• Chile also obtained the largest decline in poverty rates
• Showing that countries that grow strongly for a sustained
period of time are able to reduce their poverty rates
significantly.
Figure 3. Selected Latin American Countries:
1
Poverty Rates
Latin America
1999
1990
Ecuador
Colombia
Bolivia
Peru
Brazil
Mexico
Venezuela
Chile
Argentina
0
10
20
Source: ECLAC (2002).
1/ In percent of households.
30
40
50
60
70
PERFORMANCE INDICATORS
• Its governance index is above expected levels, given it GDP per
capita.
• Corruption is below the average for Latin America and also other
emerging countries.
• Chile was able to lower its public debt during the decade to 34% by
the end of the nineties.
• Chile achieved high tax revenues and the highest VAT productivity
index in the region.
• Financial deepening was significant with the highest index of stock
market capitalization.
• Bank performance indicators show low operating costs, low NPL/
total loans and high profitability margins
• Chile is also the country with the highest savings rate
• Has a low index of dollarization, and
• Is one of the most open economies of the region.
CHILE’S SUCCESS STORY
• Many distinguished International and Chilean
economists are working on the reasons behind
Chile’s success story.
• Hypothesis go beyond factor shares and Total
Factor Productivity explanations.
• Aninat’s paper brings to the forefront two major
motives: trade openness and strong institutions.
• The Lecture provides a third major reason from
the new growth theory: Investment in human
capital
III. INVESTING IN HUMAN CAPITAL IN
CHILE
• Aninat’s Lecture illustrates a case of successful policymaking in Chile.
• An elementary but important lesson for Latin-America is
that no new expenditures, no matter how important they
are, should be approved without additional public
revenue support.
• Another institutional lesson which emerges from his
Chilean experience is that the Ministry of Finance has to
involve itself in the sectoral allocation of resources.
• The paper highlights the fact that significant growth in
social expenditures may be achieved as a result of high
and sustained growth.
• Under such conditions, there is a revenue dividend that
may be allocated to serve the social debt.
• The paper also shows that increasing the tax
burden is easier to achieve when the increased
tax load, is linked to a specific public
expenditure with high internal rate of return,
such as education.
• Other lessons that emerge from the Lecture
include the importance of investing in human
capital as one of the priorities in public choice in
the developing world
• And that keeping serious macroeconomic
policies is a key to economic and social
success as the case of Chile so clearly shows