MercoPress. South Atlantic News Agency

IMF concerned with “social gaps” and “populist” governments

Latin American governments should increase social spending while maintaining sound fiscal policies to reduce poverty and growing political dissatisfaction in the region, IMF Managing Director Rodrigo de Rato said at a conference in Boston.

Speaking at MIT, IMF's de Rato encouraged Latin American governments to follow successful "pro-poor" programs introduced by Mexico, Brazil and Chile, which relocated spending that traditionally benefited middle- and upper-income groups. "Governments could devote more resources to targeted social assistance programs such as 'Oportunidades' in Mexico, 'Bolsa Familia' in Brazil, and 'Chile Solidario' in Chile," Rato said in a prepared speech. "These (programs) have been highly beneficial to the poor, but their effect on income distribution has been limited by their modest size relative to other government spending." Targeted social programs like that, Rato said, should replace non-target subsidies for oil products and electricity. Such a move would help reduce a social gap that has been generating great political dissatisfaction, and that eventually led to the recent election of some "populist" leaders in the region, the IMF director said. Despite encouraging more social spending, Rato said he is "concerned about the rapid increases in current government spending in several countries in recent years." Sound fiscal and macroeconomic policies, he argued, will help Latin America insulate itself against downturns in the global economy. "But Latin America's future is not entirely in its own hands," Rato said, noting that half of the growth variation in the region during the past 15 years was due to changes in external conditions. He also stressed the importance of further trade liberalization to secure global prosperity. "Brazil, China, and India, as well as the European Union, Japan, and the United States have an obligation to the world's citizens to reach an ambitious conclusion to the Doha round" of global trade negotiations, underlined Rato.