13.2.4.3 Trends in socio-economic factors

From 1950 to the end of the 1970s Latin America benefited from an average annual GDP growth of 5% (Escaith, 2003). This remarkable growth rate permitted the development of national industries, urbanisation, and the creation or extension of national education and public health services. The strategy for economic development was based on the import-substitution model, which consisted of imposing barriers to imports and developing national industry to produce what was needed. Nevertheless, this model produced a weak industry that was not able to compete in international markets and this had terrible consequences for the other sectors (agriculture in particular) which funded the industrial development.

In the 1980s the region faced a great debt crisis which forced countries to make efforts to implement rigorous macroeconomic measures regarding public finances in order to liberate the economy. Control of inflation and public deficit became the main targets of most governments. Deterioration of economic and social conditions, unemployment, extension of the informal economy and poverty characterised this decade. In most of Latin America, the results of economic liberalisation can be characterised by substantial heterogeneity and volatility in long-term growth, and modest (or even negative) economic growth (Solimano and Soto, 2005).

This shift of the economic paradigm produced contradictory results. On the one hand, the more-liberalised economies attained greater economic growth than less-liberalised economies and achieved higher levels of democracy. On the other hand, there was an increase in volatility which led to recurrent crises, poverty and increasing inequality. The governments have failed to create strong social safety nets to ameliorate social conditions (Huber and Solt, 2004).

In Latin America the wealthiest 10% of the population own between 40% and 47% of the national income while the poorest 20% have only 2-4%. This type of income distribution is comparable only to some African and ex-USSR countries (Ferroni, 2005). The lack of equity in education, health services, justice and access to credit can restrain economic development, reduce investment and allow poverty to persist. A study conducted by CEPAL (2002) concludes that the likelihood of the poorest Latin American countries reaching the 7% GDP growth they need is almost zero in the medium term. Even the wealthier countries in the region will find it hard to reach a 4.1% GDP growth target. Predictions for GDP growth in the region for 2015 range from 2.1% to 3.8%, which is very far from the 5.7% average estimated as necessary to reduce poverty.

The combination of low economic growth and high levels of inequality can make large parts of the region’s population very vulnerable to economic and natural stressors, which would not necessarily have to be very large in order to cause great social damage (UNDP-GEF, 2003). The effects of climate change on national economies and official development assistance have not been considered in most vulnerability assessments. The impact of climate change in Latin America’s productive sectors is estimated to be a 1.3% reduction in the region’s GDP for an increase of 2°C in global temperature (Mendelsohn et al., 2000). However, this impact is likely to be even greater because this estimation does not include non-market sectors and extreme events (Stern, 2007). If no structural changes in economic policy are made to promote investment, employment and productivity, economic and social future scenarios for the region do not hold the economic growth needed for its development, unless an uncommon combination of external positive shocks occurs (Escaith, 2003).