Jorge Familiar, Vice-President for Latin America and the Caribbean, World Bank: Interview

Interview: Jorge Familiar

What needs to be done in mining-based countries such as Peru and Chile to decrease their dependence on commodity exports?

JORGE FAMILIAR: Commodity exports are an important part of the economy of many Latin American countries and will continue to be so in the future. Natural resource-rich countries can diversify toward other activities as they increase their physical and human capital, liberalise their trade, reduce their transport and transaction costs, and accelerate transfer and adoption of technologies.

More specifically, both Peru and Chile can take advantage of their currency depreciation, resulting from the global slowdown, to promote non-traditional exports and further diversify their respective economies. Growing a more balanced system of cities allows countries to take advantage of regional economic vocations, which can ultimately result in more diversified and decentralised economies. On the fiscal front, a continued effort to maintain the exemplary macroeconomic management that both Peru and Chile have fostered will definitely pay off.

What future policies can be implemented to encourage the development of regional supply chains in Latin America?

FAMILIAR: A practical first step could be that export-promoting authorities clearly publicise the rules agreed to for different products in the region’s multiple trade deals. However, it is important to underline that the idea that intra-regional trade is low in Latin America is a myth.

Our research has shown that in 2013, the average Latin American country had active export relationships with close to 88% of its possible regional partners, which is not bad considering that in East Asian countries that rate is 83%.

This does not mean that Latin American intra-regional trade is as developed as it could be, particularly now, when it could be used to serve as a counterweight to a slower global economy.

In order to do so, Latin America would benefit from policies that favour more vigorous participation in intra-industry trade and in global value chains, which have proven to lead to higher growth.

Part of that effort would need to focus on closing current gaps in logistics and infrastructure that are important obstacles for intra-regional trade. The average logistics costs in the region are three to four times higher than in OECD countries. For instance, exporting tomatoes from Managua, Nicaragua to San Jose, Costa Rica is more expensive than sending them to San Jose, California.

Another, more structural, issue is that Latin American countries tend to integrate into global value chains only at the beginning, as exporters of raw materials, or the end, as manufacturers of final goods, not in the middle, where we have found the most potential for growth gains.

How can Peru continue the trend of significantly decreasing poverty rates in the post-commodities boom? Will this affect the informal sector?

FAMILIAR: The new global economic context demands a re-energised push for microeconomic reforms that can serve as new engines of growth to complement the continued importance of commodities in the Peruvian economy.

The agenda should focus on raising productivity through a mix of reforms that include a new approach to labour regulations, to increase incentives for the formalisation of the labour force, and a focus on quality of education, which in the medium term can reduce the shortage of skilled workers. In addition, updating Peru’s costly labour code would reduce incentives for the informal sector, while a continued investment effort in partnership with the private sector would reduce the infrastructure gap.