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Perry: Inequality Spurs Populism

Guillermo Perry, the World Bank's chief Latin America economist the past decade, on the challenges and strengths of the region's economy.


Guillermo Perry, the World Bank's chief economist of the Latin America and Caribbean region for the past 11 years, retired last week. Previous to joining the World Bank in 1996, he served as Colombia's finance minister for nearly two years after holding several other key positions with the Colombian government, including as mining and energy minister and director of national taxes. He also served as director of Fedesarollo, a prestigious Colombia think-tank. Perry, who turns 62 this month, talked to Latin Business Chronicle about Latin America's economic progress, challenges and his main achievements at the World Bank.

Latin Business Chronicle:  What are the main differences between Latin America in 1996, when you took over the chief economist job at the World Bank, and Latin America today? 
Perry: Latin America is now booming, and was booming then as well. However, the effects of the Asian and Russian crises ....led to much more sophisticated macroeconomic and financial policies. Most countries are now significantly more resilient because they have learned to save in good times (accumulating reserves, reducing foreign debt and lengthening maturities, increasing primary surplus), have better capitalized and supervised banks, have achieved some successes in developing their domestic debt markets, have increased and diversified substantially their exports, have much lower inflation rates, have adopted inflation targeting and flexible exchange rate regimes, etc. Some countries have also achieved important progress in their investment climate and microeconomic policies, though others have gone backwards in this respect. Many countries have advanced in applying more redistributive and effective social policies (eg, conditional cash transfers, increased coverage in education and health, Chile Solidario), but major problems remain in critical areas such as the quality of education and the low coverage of social security and, more generally, with highly unequal access to basic services.

What is the greatest challenge facing Latin America's economies today? 
Coping with the inheritance of very high levels of inequality. Beyond the obvious ethical and social problems that high inequality poses, I have no doubt that it severely restricts growth. In highly unequal societies there are many forgone opportunities to increase the national stock of human and physical capital (many talented young go uneducated, many good business ideas go unfinanced), crime and violence become a serious deterrent of investment and responses to macroeconomic shocks become more difficult and ineffective. Not to speak about its consequences on political instability: I am convinced that the reason why Latin America is so prone to populistic movements and policies is because it is the most unequal region on the globe. This also becomes, in many countries, a major deterrent of growth.

What do you view as your greatest achievement during your 11 years as chief economist for the Latin America and the Caribbean region? 
The intellectual production from our office was quite influential both within the bank and in the policy debates across the region. In particular, I would highlight Beyond the Washington Consensus: Institutions Matter (1997); Securing Our future in a Globalized Economy (2000); From Natural Resources to the Knowledge Economy (2001); Closing the Gap in Education and Technology (2002); Inequality in Latin America: Breaking with History? (2004); Poverty Reduction and Growth: Vicious and Virtuous Circles (2006) and Informality: Exit and Exclusion (2007). But there were many others on fiscal issues (Fiscal Policy, Stabilization and Growth: Prudence or abstinence?), trade (Lessons from NAFTA , The Effect of China and India on Latin America), capital markets and access to credit, infrastructure, regulation, decentralization, rural development, pensions, cash transfers, quality of education, health insurance, youth at risk, etc 

Why did you retire from the chief economist position? 
Retiring time was approaching fast... 

What are your plans now?  
I' ll diversify my portfolio: continuing to engage in research (with Fedesarrollo and the CGD [Center for Global Development]), teaching, consulting and a few private sector boards. 

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