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Political economy with social responsibility and social policy with economic responsibility

NEW ORLEANS -- After the success of macroeconomic structural reforms of the past decade, now is the time for Latin America to re-examine its policies to ensure higher growth and greater social equity, according to Inter-American Development Bank President Enrique V. Iglesias.

At the opening of a seminar Sunday titled Socially Responsive Macroeconomics, on the eve of the inaugural plenary session of the Annual Meeting of the IDB’s Board of Governors, Iglesias urged the region to evaluate the results of economic policies in light of social objectives, such as reduction of poverty and inequality.

"We must advance toward a political economy with social responsibility, and, at the same time, toward a social policy with economic responsibility," Iglesias said. Just as stability is the indispensable basis to achieve economic growth, the region should pay special attention to its 180 million inhabitants living in poverty, he added.

Management of economic crises takes on special significance, because in Latin America these disruptions hit the most vulnerable sectors of the population the hardest, he warned. Therefore, the region should take advantage of its recent recovery and implement steps to extend the benefits of development to the greatest number of people as possible, while at the same time consolidating economic and political stability, Iglesias said.

These steps should not threaten fiscal stability, as countries already devote considerable portions of their budgets to social spending. The main obstacle to overcome is the lack of adequate instruments to channel help rapidly and accurately to those who most require it and in the hour of greatest need.

During the seminar organized by the Poverty and Inequality Advisory Unit of the IDB, government leaders, officials of international institutions and academics examined experiences and effects of economic adjustments of the 1980s and 1990s in Latin America and the Caribbean.

Representatives of labor, civic, and business organizations took part in the ensuing debates.

The former managing director of the International Monetary Fund, Michel Camdessus, closed the seminar by saying that the region is beginning to outline the fundamentals of a "new economic paradigm."

Camdessus mentioned Colombia and Mexico as countries that have improved their social programs --social security, social investment funds, and price stabilization funds-- to alleviate social and economic costs of adjustments required by both internal and external conditions.

"Stability alone is not enough," he said. "Modest growth and stability are not enough. What everybody is looking for is high quality growth and capacity for social response in the framework of sustainable growth."

Like Iglesias, Camdessus said that countries of the region face the challenge of focusing their economic policies to place social equity in the center of the decision-making process.

Several governments are already taking steps in this direction, Camdessus said. The most successful policies have several features in common, he added. He listed them as defense of macroeconomic stability, support for free and open markets, support for private sector-led growth, placing human development and poverty alleviation at the center of strategy, consolidating public institutions and their legal frameworks, and implementing mechanisms for social protection in times of crisis.

One of last decade’s policy failures was the lack of success in solving unequal distribution of income. Latin America continues to be the region with the greatest gap in the world between the rich and poor.

Camdessus said the region should not stand still on this issue. "The word R, for redistribution, should not continue to be taboo," he said.

Mexico’s Finance Secretary, José Angel Gurría, said there should be no choice between economic efficiency and social efficiency; both are an ethical imperative.

"This is not an option. It is an obligation. It is the ultimate mandate of democracies," he said. "A macroeconomic strategy that does not take social issues into account will not be successful."

Gurría listed as an example of social efficiency Progresa, a Mexican program that offers food to 14 million indigent persons. Until recently, Mexico subsidized the price of tortillas, a staple of the Mexican diet. The subsidy applied to rich and poor alike.

The government phased out the tortilla subsidy and replaced it with a program benefiting people who most needed help. Today Mexico can spend more not only to assist the poor with basic food assistance, but also in helping them to keep children in school, the indispensable tool to avoid the transmission of poverty from generation to generation.

The day before the seminar, the first meeting of the Forum on Social Equity was held in New Orleans ─ an IDB initiative aimed at mobilizing government leaders, policy-makers, academics, and social, labor, and business leaders to analyze how to promote equity through economic and social reforms.

The forum, which was chaired by IMF deputy managing director and former finance minister of Chile Eduardo Aninat, proposed studying the social impact of economic reforms in recent decades to draw lessons from what went right and what went wrong.

Nora Lustig, chief of the IDB’s Poverty and Inequality Advisory Unit and one of the coordinators of the Forum on Social Equity, said that Latin America should take advantage of its growing stability to begin to develop countercyclical methods to mitigate the impact of crises.

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