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1. BEST EMERGING-MARKET BONDS SPURRED BY RECORD RESERVES: ARGENTINA CREDIT (Bloomberg News)
2. LA NIÑA MAY PROMPT ARGENTINE CORN FARMERS TO SPEED PLANTING AFTER RAINFALL (Bloomberg News)
3. ARGENTINA’S PUBLIC SECTOR HOLDS HALF OF GOVERNMENT DEBT (Reuters News)
4. BUENOS AIRES PROVINCE OPEN TO NEW BOND ISSUANCE – GOVERNOR (Dow Jones International News)
6. ARGENTINE ECONOMY JUMPS 11.8% IN Q2 (IHS Global Insight Daily Analysis)
7. ARGENTINA: ACTIVISTS FILE WRIT OF HABEAS CORPUS û FOR LEGAL ABORTION (Inter Press Service)
8. LATIN AMERICA: POVERTY MOVES FAIL TO TACKLE INEQUALITY (Oxford Analytica)
1. BEST EMERGING-MARKET BONDS SPURRED BY RECORD RESERVES: ARGENTINA CREDIT (Bloomberg News)
By Drew Benson and Ben Bain
September 30, 2010
Argentine bonds beat all emerging market debt this month as rising exports pushed international reserves to a record and a credit rating increase bolstered confidence in South America’s second-biggest economy.
Argentine dollar bonds returned 8.5 percent on average this month, according to JPMorgan Chase & Co.’s EMBI+ indexes. Venezuelan debt posted the next-best performance, returning 4.4 percent, while Ukrainian bonds lost 0.4 percent.
The combination of the highest emerging-market yields after Venezuela and Ecuador and the fastest economic growth in almost two decades is luring investors to Argentine debt. Exports rose 47 percent in August to $6.4 billion after a record 55-million metric ton soybean harvest, helping push central bank reserves to $51.3 billion. The central bank forecasts the economy may grow as much as 9.5 percent this year, the most since 1992.
“When you look at capacity and willingness to pay, there is no doubt that investors have to look at Argentina,” said Paolo Valle, who co-manages more than $1 billion of emerging- market assets including Argentine bonds with Federated Investors in Pittsburg. “There’s higher headline risk and higher volatility, but you’re getting paid to own it.”
President Cristina Fernandez de Kirchner tapped $5 billion of reserves to pay debt this year and is seeking another $7.5 billion for 2011, according to her Sept. 16 budget proposal.
Standard & Poor’s raised the country’s credit rating one level to “B,” five levels below investment grade, on Sept. 13, citing the economy’s “strong” performance. The move followed Argentina’s $12.2 billion restructuring of defaulted bonds in June, the second since a 2001 financial crisis.
‘More Flexibility’
Argentina’s debt-to-gross domestic product ratio fell to 48 percent as of June 30 from as high as 166 percent in 2002, Finance Secretary Hernan Lorenzino told lawmakers in Buenos Aires yesterday. As much as 45 percent of the country’s debt is held by government agencies, with only a third of maturities coming due in the next three years held by private creditors, S&P said in its ratings report.
“That gives them much more flexibility to pay,” Valle said in a telephone interview yesterday. Federated has an “overweight” position in Argentine debt and didn’t add to its holdings in September, he said.
Argentina is benefiting from a “hunt for yields,” said Jeremy Brewin, who manages $2.3 billion of emerging-markets assets including Argentine debt. Argentine dollar bonds yield 680 basis points, or 6.8 percentage points, more than similar- maturity U.S. Treasuries, the highest after Ecuador, at 1036 basis points, and Venezuela, at 1139, among nations tracked by JPMorgan Chase & Co.’s EMBI+ Index.
Argentina is outperforming because there has been “less stress than had been anticipated at the beginning of the year,” Brewin said.
Falling Yields
The yield on Argentina’s 7 percent dollar bonds due in 2015 tumbled 202 basis points to 9.18 percent this month. The yield on Ukraine’s 6.58 percent dollar bonds due in 2016 rose 22 basis points to 6.98 percent over the same period, while the yield on Venezuela’s 2017 notes fell 33 basis points to 13.34 percent.
The extra yield investors demand to own Argentine bonds instead of U.S. Treasuries fell 80 basis points this month to 680 yesterday, according to JPMorgan. Argentina’s yield spread is about 150 points higher than Ukraine and almost 500 points above neighboring Brazil.
The peso fell for a ninth-straight month, dropping 0.4 percent in September to 3.9676 per dollar. The currency closed at 3.9725 per dollar on Sept. 28, the peso’s weakest level since its inception in 1992. Warrants linked to growth in South America’s second-biggest economy rose 0.09 cent yesterday to 11.85 cents, according to data compiled by Bloomberg.
Tapping Markets
Five-year credit-default swaps tied to Argentine debt fell 12 basis points yesterday to 738. The swaps dropped 210 points during September, the biggest decline among government debt worldwide. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to debt agreements.
“The use of reserves to pay debt along with the debt restructuring has substantially cut the bond yields, leading private and public actors who weren’t able to tap credit markets to access them,” Lorenzino said during congressional testimony yesterday.
Argentina’s bond rally may have peaked as recent gains prompt investors to look to other emerging economies, said Igor Arsenin, head of Latin America strategy with Credit Suisse Group AG in New York.
‘More Confident’
“Now that everyone is more confident that emerging market assets will perform well moving forward people will look at some of the underperformers,” Arsenin said.
The provinces of Buenos Aires and Cordoba have taken advantage of falling borrowing costs to sell bonds abroad. Buenos Aires sold $550 million of five-year notes this week to yield 12 percent, according to data compiled by Bloomberg. Its budget calls for a total of $1.1 billion in international bond sales this year. Cordoba sold $400 million of seven-year dollar bonds last month to yield 12.375 percent.
Grupo Supervielle SA, which owns Argentina’s Banco Supervielle SA and Banco Regional de Cuyo SA, is preparing the sale of 200 million pesos in local bonds, the banks’ President Juan Carlos Nougues said in an interview on Sept. 28. Shareholders of Aeropuertos Argentinas 2000 SA, the country’s main airport operator, approved plans this month to sell as much as $300 million in bonds.
Fidelity’s Valle and Aviva’s Brewin said they expect Argentine debt to outperform through the end of this year.
“The best performance on most of the emerging market debt happens as a result of step by step improvements,” Brewin said. “And that’s basically what’s been happening in Argentina.”
2. LA NIÑA MAY PROMPT ARGENTINE CORN FARMERS TO SPEED PLANTING AFTER RAINFALL (Bloomberg News)
By Rodrigo Orihuela
September 29, 2010
Corn farmers in Argentina, the world’s second-largest exporter of the commodity, will probably speed planting to take advantage of above-average rainfall before a dry spell begins, the Cordoba Cereals Exchange said.
“Farmers are likely to start planting corn at an earlier time than in other years to take advantage of the humidity” from rain in the past week, Silvina Fiant, a forecaster at the exchange, said today by telephone from Cordoba province. “Rain this year is falling earlier than in other years.”
Growers may seek to plant early so crops can withstand drier weather expected in December and January because of the La Nina weather pattern, she said. Central Cordoba got about 81.1 millimeters (3.2 inches) of rain in the four weeks through yesterday, data published on the exchange’s website show. That’s above the historical average, Fiant said.
Cordoba farmers this year will plant about 800,000 hectares (1.98 million acres) of corn, a third of the country’s total, according to an estimate by the Buenos Aires Cereals Exchange. Argentina’s total output may reach 26 million metric tons, Martin Fraguio, head of the Maizar corn growers’ association, said Aug. 31.
Corn futures for December delivery rose 2.25 cents, or 0.5 percent, to $5.0225 a bushel at 11:14 a.m. on the Chicago Board of Trade.
3. ARGENTINA’S PUBLIC SECTOR HOLDS HALF OF GOVERNMENT DEBT (Reuters News)
By Magdalena Morales and Hilary Burke
29 September 2010
* Debt held by state agencies easier to renew
* Cenbank reserves, intrastate loans key to 2011 finances
* Argentina’s debt load has fallen to 48 percent of GDP (Adds details on debt characteristics, 2011 financing plan, byline)
BUENOS AIRES, Sept 29 (Reuters) – State entities now hold half of Argentina’s total debt load, the finance secretary said on Wednesday, making it easier for the government to renew loans a year before a presidential election.
Ratings agencies say the increase in state agencies’ government debt holdings has improved refinancing options in Argentina, which is still wrestling with fallout from its $100 billion sovereign default in 2002.
It should also ease any lingering concerns of another default in Latin America’s No. 3 economy.
In recent years, the government of President Cristina Fernandez has relied heavily on loans from state agencies such as the pensions administrator, ANSES, since lawsuits over the default have blocked access to global credit markets.
Finance Secretary Hernan Lorenzino told Congress the country’s debt load totaled some $156 billion by June 30. This represents 48 percent of gross domestic product, down from 74 percent in 2005.
«Nearly half of the total debt, or 49.8 percent, is within the public sector,» Lorenzino told legislators analyzing the details of the government’s 2011 budget bill.
He added that only 35.4 percent of debt is in the hands of private creditors, whom the government proposes to pay again next year by using the central bank’s foreign currency reserves.
Next year’s financing plan foresees the Argentine Treasury will continue tapping state agencies, including state-run bank Banco Nacion, Lorenzino said.
The government will also rely on its primary budget surplus, estimated at 2.46 percent of GDP, and loans from international credit organizations.
Although Argentina had planned to issue bonds on global markets after concluding a $12.2 billion swap of defaulted debt in June, officials have since backed off that idea and supported instead the continued use of foreign reserves.
«Our financing policy for 2011 will be focused on obtaining funds to service our debt, without paying the price of accepting interest rates that do not jibe with Argentina’s real capacity and willingness to pay (debt),» Lorenzino said.
President Fernandez said last week the country was not interested in issuing foreign debt at rates between 8 and 8.75 percent.
4. BUENOS AIRES PROVINCE OPEN TO NEW BOND ISSUANCE – GOVERNOR (Dow Jones International News)
By Ken Parks
29 September 2010
BUENOS AIRES (Dow Jones)–The province of Buenos Aires could tap international debt markets for a second time this year after selling $550 million in five-year bonds earlier this week, according to a top government official.
«We’ll be evaluating market conditions and the strategic needs of the province. This year we could do a bit more,» provincial governor Daniel Scioli said in a transcript of a Tuesday press conference.
The province, Argentina’s largest in terms of population and economic output, sold bonds paying an annual interest rate of 11.75%. The provincial government’s 2010 budget includes authorization to sell up to $1.1 billion in bonds.
Speaking at the same event, the province’s economy minister, Alejandro Arlia, said the deal was the result of 32 meetings with 82 institutional investors in eight cities in Asia, the U.S. and Europe.
«We had offers for $1.1 billion and we decided to take half» in order obtain the best interest rate, Arlia said, adding that 34% of the issuance was bought by U.S. investors, 54% by European investors and the remaining 12% in equal portions by Asian and Latin American investors.
The deal follows the federal government’s debt swap in June with the holders of bonds dating back to the country’s $100 billion default in 2001, opening the door for provinces to tap foreign debt markets to finance spending and infrastructure projects.
Cordoba province sold $400 million in seven-year bonds in early August, paying 12.375% in interest a year in its debut on international markets. In March, the capital city of Buenos Aires sold $475 million in five-year bonds, paying an annual interest rate of 12.5% in the midst of the European sovereign debt crisis.
Arlia said the province was able to obtain a lower interest rate than Cordoba and the capital thanks to the timing of the deal and «good coordination with the federal government.»
Federal government transfers account for about 40% of the provincial government’s revenues.
By Shane Romig
29 September 2010
BUENOS AIRES (Dow Jones)–Argentina’s Senate is set to vote on a pair of competing glacier protection bills on Wednesday, and environmentalists and mining companies are battling to push forward their preferred legislation.
The mining industry-backed bill, originally sponsored by Sen. Daniel Filmus, includes a relatively narrow definition of what would qualify as a protected glacier and largely leaves it to the provinces to decide how to implement the law and protect their ice.
The bill was introduced by Filmus–a strong ally of President Cristina Fernandez–and approved by the Senate in late 2009. However, in August the House passed a modified bill and sent it back to the Senate for a new vote. Filmus now backs the House bill, which is competing with the «Filmus bill» he originally sponsored.
The House bill, which also has the backing of opposition lawmaker Miguel Bonasso and environmentalists, is more restrictive of economic activity in the areas adjacent to glaciers. It would also put the federal government in charge of enforcing the law.
Tuesday, the Senate environmental committee voted to send the Filmus bill to the floor for a vote. If the legislators vote down that bill, they will then vote on the House version. The bill that gets passed will head to the president’s desk to be signed into law. A similar glacier protection bill was vetoed in 2008 after complaints from a number of governors from glacial provinces, but Fernandez has made it clear that she won’t stand in the way of the legislation this time.
Oil and mining groups have lobbied hard against the House version and have the backing of governors from mining provinces such as San Juan and Santa Cruz.
«In reality, the [House] bill aims to inexplicably block and prohibit mining development,» the mining chamber Caem said in a recent statement.
But environmental groups say the Filmus bill is little more than window dressing.
«If the Filmus version gets passed, we have no glacier law–they will allow mining on glaciers,» said Daniel Taillant, founder and consultant to the Center for Human Rights and Environment, or Cedha.
«A vote for the [Filmus] bill is a deceitful vote–it’s a vote for there not to be a law,» Greenpeace Argentina said in a press release.
It remains unclear how the Senate will vote. According to a poll of Senators conducted by local daily La Nacion, supporters and opponents of the Filmus bill are tied at 32, with five still undecided.
Argentina’s mountainous western border is famed for its soaring peaks, pristine rivers and lakes, forests and numerous glaciers, drawing flocks of tourists each year. Proponents of tighter protection of the glaciers also point to the key role they play in ensuring the country’s water supply.
But mining and oil companies are worried that passage of the bill could be used by environmental groups and others to stall projects. These groups may seek restraining orders in local courts to stop exploration and mine development.
The law could complicate plans for companies such as Barrick Gold Corp. (ABX, ABX.T), which is finally moving forward with construction of the $3 billion Pascua Lama gold and silver mine straddling the border between Argentina and Chile.
The company spent years fending off challenges from environmentalists in Chile, securing permitting and waiting for Chile and Argentina to reach a tax-sharing agreement for the project. Barrick vice president of corporate affairs Rodrigo Jimenez declined to comment on the legislation while debate continues in Congress.
6. ARGENTINE ECONOMY JUMPS 11.8% IN Q2 (IHS Global Insight Daily Analysis)
By Santiago Mosquera
29 September 2010
IHS Global Insight Perspective
Significance
The stellar GDP expansion observed in the second quarter responds to good performance across all sectors except mining, but it is agriculture that leads the expansion, rebounding after last year’s droughts.
Implications
The agricultural sector, which represents 8.7% of overall GDP, advanced by 65%, contributing 5.6% to total growth.
Outlook
At IHS Global Insight, we expect the economy to expand 8.2% in 2010 before decelerating to 5.2% in 2011.
According to the latest national accounts data released by the Argentine statistical office, the economy jumped 11.8% year-on-year (y/y) in the second quarter of 2010 and posted a 3.0% change with respect to the previous quarter on a seasonally adjusted basis. Global demand was propelled by an 18.1% advance in capital formation, with investment in plant and equipment advancing 35.5% y/y and construction growing 8.1% y/y. Good results were observed across the other categories. Government consumption continues to be a growth engine, expanding 12.9% y/y, while household consumption grew 8.1% y/y. Performance in the external sector raises some concerns, with total imports jumping 35.6% y/y, while exports only did so by 18.2% y/y; nevertheless, the latter result is substantially better than the 4.2% expansion observed in the previous quarter. While the impact is not that dramatic from the terms-of-trade perspective, the jump in imports confirms the economic rebound, with important advances across all import categories, at the expense of a shrinking trade surplus in the coming quarters.
The goods-producing sector advanced 18.3% y/y in the second quarter thanks to a solid recovery in manufacturing activities (up 9.9% y/y), and agriculture (up 65.0% y/y), the latter the result of a low comparison base in 2009 when the sector suffered from adverse weather conditions. In fact, agriculture retreated by 27.1% during the second quarter of 2009. The growth rate in the service sector accelerated to 8.2% y/y, driven by advances in transportation (up 11.3% y/y) and commercial activities (up 12.0% y/y), with important contributions from other sectors. The advances observed in manufacturing, commerce, and agriculture suggests that these labour-intensive sectors will be increasing their demand for labour in the coming months, improving the outlook for the overall economy.
According to the consumer confidence index (ICC) drawn up by the Universidad Torcuato Di Tella, confidence in August advanced 4.6% with respect to July, while in annual terms, it remains 23.8% higher. Perceptions of personal finances advanced 7.1% in August, while consumers’ views about macroeconomic conditions and timing for the purchase of durable and non-durable goods advanced 2.4% and 4.0%, respectively. This suggests that household expenditure should remain strong in the third quarter of 2010, good news considering the negative impact coming from external accounts and weaker fiscal position. A survey on consumers’ inflation expectations for the coming 12-month period shows that the median inflation expectation remains at 25.0% for August 2011, while the average expected inflation rate increased slightly to 32.8%.
Outlook and Implications
The economy is growing fast again. The strong economic expansion observed in Argentina during 2003–08 called a short-lived truce in 2009, as deteriorating economic conditions worldwide took their toll on Argentine exports and, later, on household consumption. Economic expectations improved during the last quarter of 2009 because of an apparent change in policymaking, and not even the removal of the central bank president in early 2010 without following proper procedure derailed the process. Some deceleration in activity levels is expected in the second half of 2010, with the outlook for 2011 and beyond very much linked to the evolution of the global economy, particularly Argentina’s main trade partners. Returning to the financial market is important for the government, but especially for companies located in Argentina and for its provincial governments, which have suffered a lack of financing sources since 2001. Improving the business climate under current conditions would be a big plus for the economy. So far only a few provinces and cities have issued new debt, with more to follow in the coming months. At IHS Global Insight, we expect the economy to expand 8.2% in 2010 before decelerating to 5.2% in 2011.
7. ARGENTINA: ACTIVISTS FILE WRIT OF HABEAS CORPUS û FOR LEGAL ABORTION (Inter Press Service)
By Marcela Valente
29 September 2010
BUENOS AIRES, Sep. 28, 2010 (IPS/GIN) – Heartened by the passage of a same-sex marriage law in Argentina, women’s organizations in this South American country stepped up their demands for the legalisation of abortion, on the Day for the Decriminalisation of Abortion in Latin America and the Caribbean.
Some 1,000 members of the Juana Azurduy Women’s Collective, better known as Las Juanas, filed a «collective and preventive» writ of habeas corpus at different courtrooms around the country, demanding that the criminalisation of abortion be declared unconstitutional.
They also asked the courts to press the legislature to bring the law that penalises abortion into line with international norms that recognize a woman’s right to make decisions about her body.
«We chose the habeas corpus route because it protects people’s freedom, and we are thus asking the courts, in a preventive manner, to protect us if we become pregnant and want to interrupt the pregnancy,» Las Juanas activist Gabriela Sosa told IPS.
Sosa, who is head of the organization in the eastern province of Santa Fe and is one of the women who signed the writ of habeas corpus, said the present political and social climate in the country lends itself to making progress towards a law that would decriminalise abortion.
«Not long ago we could not imagine that Argentina would have a same-sex marriage law, and this year it was achieved because there is social concern and interest in debating these issues, and the politicians are picking up on and reflecting that,» she said.
But she admitted that the 2011 elections are an obstacle, because «no candidate is going to want to pick up the hot potato of abortion» in a campaign year.
In Argentina, abortion is a crime punishable by prison, except in cases where the pregnancy is the result of rape, the expectant mother’s life is in danger or she is mentally ill or disabled.
But every year some 460,000 to 600,000 women resort to abortion in this country of 40 million people, according to the report «Estimate of the Extent of the Practice of Induced Abortion in Argentina», prepared by experts from the University of Buenos Aires and the Centre for Population Studies.
In Latin America, abortion is only legal in Cuba, Puerto Rico and Mexico City. With the exception of Chile, El Salvador and Nicaragua, where abortion is illegal under any circumstances, in the rest of the countries in the region «therapeutic» abortion is legal in certain cases, such as rape, incest, fetal malformation or risk to the mother’s life.
Nevertheless, more than four million illegal abortions a year are practiced in the region, according to different sources, and 13 percent of maternal deaths are caused by abortion-related complications.
In Argentina, unsafe abortions are the main cause of maternal mortality, the Juana Azurduy Women’s Collective reports.
Against that backdrop, Las Juanas presented their legal action on Tuesday Sept. 28, observed as the Day for the Decriminalisation of Abortion by the women’s movement in Latin America and the Caribbean since 1990.
The London-based Amnesty International joined its voice to the campaign. The deputy director of the rights watchdog’s Americas Program, Guadalupe Marengo, called for the repeal of all laws that penalise or provide for the imprisonment of women or girls who undergo an abortion under any circumstances.
Amnesty said the restrictions on safe, legal abortion put the human rights of women in the region in «grave danger.»
For years, women’s groups in Argentina have been campaigning for the decriminalisation of abortion, but have continually run up against the fierce resistance of the powerful Catholic Church and other conservative sectors of society.
However, this year the situation looks more favourable. Since March, the lower house of Congress has been studying a draft law that would decriminalise abortion, which has the backing of around 50 lawmakers from different parties.
The bill, which may be debated in October, was introduced by Cecilia Merchan, a legislator with the left-wing movement Libres del Sur, and would legalise first-trimester abortion on demand, similar to the law in effect in the Federal District of Mexico City.
None of the nearly 20 earlier bills on abortion introduced in the Argentine legislature over the years progressed. But the current draft law has already made it through several committees and is on its way to a full session debate in the lower house.
Merchan told IPS that the bill she sponsored is in response to the large number of abortions practiced in this country, and especially to the fact that more than 70,000 — mainly low-income — women are hospitalised annually for complications from unsafe abortions.
«Last year, 120 of the women admitted to public hospitals with abortion-related complications died: in other words, every other day, a woman dies in Argentina due to this cause,» she said.
The lawmaker said «the present climate is favourable» to moving forward on the issue because «society has raised the need for Congress to address a question that has severe consequences for the lives of so many women.
«Just like in the case of the debate on same-sex marriage, society as a whole, even those who are opposed, don’t want to keep hiding a reality that involves so many people,» she said.
«For us, this is not a new issue, but we see that society’s demands are now forcing legislators to discuss it,» she added. There have also been declarations on the issue by sectors that in the past have been reluctant to take a public stance, like public universities. The deans of the University of Buenos Aires, for instance, backed the decriminalisation of abortion by 23 votes against one, in August.
In addition, there have been statements in favour by members of the Supreme Court, like magistrate Carmen Argibay, who said this month that the time to debate changes in the country’s abortion law «is now.»
However, while the legislators are preparing their offensive in the lower house, another bill has been presented in the Senate, which would merely expand the circumstances under which therapeutic abortion is legal.
The idea underlying the initiative by several women senators is that legal abortion would also be made available to women facing risks to their health, a concept that would be broadly defined as physical and mental health.
The women’s organizations do not have the support of President Cristina Fernandez, who has spoken out against the legalisation of abortion. But Merchan is confident that the president’s position will not impose itself in the legislative debate.
8. LATIN AMERICA: POVERTY MOVES FAIL TO TACKLE INEQUALITY (Oxford Analytica)
September 29 2010
SUBJECT: Persistent inequality in Latin America.
SIGNIFICANCE: According to the first Human Development Report for Latin America and the Caribbean published by the UN Development Programme, the region is caught in an inequality trap from which it will not escape while reductions in inequality continue to be regarded as a spin-off of anti-poverty policies.
ANALYSIS: In a new report, Acting on the Future: Breaking the Intergenerational Cycle of Inequality, released earlier this month, the UN Development Programme (UNDP) points out that Latin America and the Caribbean (LAC) is not only the region with the world’s most unequal income distribution, but this inequality has also proved relatively immune to the different development strategies tried by LAC and its different political regimes over the past half century:
¨ LAC’s income inequality, measured using the Gini coefficient, is 65% higher than in the world’s high-income countries, 36% above that of East Asian countries and 18% higher than in Sub-Saharan Africa. In addition, ten of the world’s 15 most unequal countries are in LAC and, even in Uruguay, the region’s least unequal country, income inequality is higher than in the most unequal developed country (Portugal).
¨ From the 1970s through to the end of the 1990s, income inequality in LAC increased. The report attributes this mainly to the greater vulnerability of poor people to the inflation of the 1980s and, in the 1990s, to a drop in demand for unskilled workers and a widening gap between their wages and those of skilled workers. During LAC’s recent period of high growth through to the 2008-09 global financial crisis, most countries showed a small improvement in income distribution but this may have since shown at least a temporary reversal and the report questions its sustainability over time.
Unequal human development. Over the past 20 years, human development in LAC as measured by the UNDP’s Human Development Index (HDI) has advanced steadily. However, the HDI reflects a country’s average performance in the three main areas considered in the index (health, education and income), without taking account of how the benefits are distributed across the population. In a recalculation of the HDI for 18 LAC countries in which inequality is incorporated using a parameter of «aversion to inequality», the new report found that all countries showed a drop in their score, with the largest losses seen in Nicaragua, Bolivia and Honduras. However, most retained their relative position within the region, with the notable exception of Bolivia which dropped from 13th to 16th position.
Vicious circle. According to the report, LAC is caught in an «inequality trap» in which inequality breeds inequality. This appears to be the case not only for the region’s disadvantaged groups as regards equality — principally women and indigenous peoples — but also for the population at large:
¨ A study carried out in the late 1990s found that, in LAC countries, the correlation between a family’s socioeconomic situation and its children’s educational level was, in general, at least twice as high as in United States.
¨ Similarly, according to a more recent study, the correlation between the income level of successive generations is generally much higher than in developed countries and, in Peru, for example, reaches 0.60 as compared to 0.32 in Germany and 0.47 in the United States (although Chile’s coefficient of 0.52 is only just above England’s 0.50).
Necessary conditions. Over the past decade, economic growth and anti-poverty policies have meant an important expansion of basic services across the region. However, in many countries, access to these services remains very unequal:
¨ Infrastructure. In Uruguay, Chile, Argentina and Costa Rica, there is little difference between the access of the richest and poorest quintiles of the population to drinking water or in the quality of the materials used in housing. However, in other countries, particularly Bolivia, Peru, Paraguay and in Central America, wide differences persist.
¨ Education. Enrolment in primary education is now virtually universal throughout the region but important differences exist in secondary education where enrolment rates range from 94.1% in Chile and 90.3% in Argentina to 60.9% in Guatemala.
¨ Healthcare. A study of infant malnutrition — a key indicator of access to healthcare — in five countries (Bolivia, Colombia, Nicaragua, Peru and the Dominican Republic) in the early 2000s found that this was between five and ten times more prevalent in the poorest quintile than in the richest quintile.
Insufficient conditions. Moreover, the report points out that, even when schools and healthcare services are available, inequality may itself prevent or deter families from using them. For example, evidence from Chile — one of the LAC countries most successful in reducing poverty — suggests that access to free education does not guarantee attendance by poor children. A study in 2006 found that Chilean children from the poorest quintile were four times more likely not to attend school than peers in the richest quintile.
This phenomenon appears to have two main causes:
¨ Hidden costs. Although schooling or healthcare may be free, use of these services has costs for families in the form of out-of-pocket expenses (such as transport and school uniforms) and, particularly in rural areas, loss of children’s work. This may explain, for example, why in Paraguay, desertion from school reaches of 4-5% in urban areas but up to 50% in rural areas.
¨ Limited aspirations. In LAC’s stratified societies, low-income parents have little contact with alternative role models for their children and, as a result, tend to base their expectations on their own limited experience. For instance, a survey in Buenos Aires found that the probability of a low-education parent aspiring to only a low level of education for a child dropped significantly if the parent had a friend or colleague with a university education.
Policy recommendation. In response to these challenges, the UNDP recommends that inequality be addressed as a problem in itself, as distinct from poverty. While recognising the benefits as regards inequality of the conditional cash-transfer programmes used by some LAC countries to combat poverty, it advocates a broader approach based on three «Rs»:
¨ reach or, in other words, policies that effectively benefit those for whom they were designed;
¨ range, in ensuring they reduce objective restrictions that would prevent the intended beneficiaries from taking advantage of the policies; and
¨ reason, or a consistency with people’s subjective aspirations that empowers them to make the best use of the new opportunities created.
CONCLUSION: There is growing awareness in many LAC countries that inequality is a broader problem than poverty and, moreover, constitutes a key barrier to economic and social development. However, because it affects more areas of national life and is embedded in countries’ political systems through, for example, regressive tax structures and the vested interests of elites, it will be far more difficult to address.
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‘Hypocrisy is the homage vice pays to virtue.’ — de La Rochefoucauld
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