Africa, Latin America Seek Fiscal Reforms: In a Global Economic Crisis, the Developing World Finds Itself on Its Own

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Foreign aid and investment in the development of Africa, Latin America, and the Caribbean have been seriously impaired by the recent global economic crisis. Leaders in these regions are thus looking inward to find the resources necessary to support their own economies and overcome longstanding, nettlesome obstacles to sustainable development.

In Uruguay in May 2009, policy officials from the European Union, Latin America, and the Caribbean debated the impacts of various approaches to fiscal reform, such as lowering taxes rather than raising them in order to increase private investment.

"Lowering taxes is easier but less effective, because increasing private income doesn't necessarily imply more private spending. A significant amount would most likely be put away in savings," pointed out Alicia Barcena, Uruguay's minister of economy and finance. "Increasing spending is more effective, but countries do not always have projects ready that may be implemented rapidly."

As the international crisis continues, limiting resources available to the Third World, internal tensions may grow within developing countries. For example, governments may see demand for policies that subsidize vulnerable sectors, but they will also face pressures to avoid protectionism.

Chile, Colombia, Mexico, Peru, and Venezuela are already experiencing trade shocks due to deteriorating capital flows and falling economic activity, according to the Economic Commission for Latin America and the Caribbean. The countries most at risk are those most dependent on resource-based revenues and import taxes; as trade suffers, so do revenue streams.

Without cooperative action, the developing world could drift further from achieving the UN's Millennium Development Goals, warns Abdoulie Janneh, UN under-secretary-general and executive secretary of the Economic Commission for Africa (ECA).

"The global economic and financial crisis began just as it seemed that the worst was over with regard to the food and fuel crisis," Janneh told the June 2009 meeting of the African Union and the ECA in Cairo. "After growing at an average of nearly 6% over the preceding half decade, Africa's average growth rate is expected to decline by up to four percentage points this year."

Janneh predicts an increase of 3 million jobless Africans in 2009, compounding already critical social problems for the continent, which has little in the way of unemployment benefits or other social safety nets to protect people. …