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Reducing Poverty and Inequality in Latin America

INTRODUCTIONPoverty and persistent inequality in income distribution remain a key concern in Latin America. The recent financial and economic crisis has retriggered a debate on the mechanisms and policies required to improve the socioeconomic situation in this region characterized by the worst income distribution in the world.During the last decade, Latin American countries have overcome several important crises: the emerging countries crisis in 2002, followed by the financial crisis that began in the United States. Currently, the focus is on a third crisis, or the second part of the financial crisis - the European sovereign debt crisis. Despite the magnitude of these crises, Latin American countries have proven to have more solid economies than they had before the period from 2002 to 20I2. Although strong and sustained economic growth has in some way reduced poverty, it has been less effective in reducing income inequality. Latin American countries are renowned for having the highest income inequality in the world in the past four decades. Ten out of the fifteen countries with the highest levels of inequality are in Latin America and the Caribbean. Significant and persistent inequality, accompanied by low social mobility, has led the region to fall into an inequality trap.1This article examines what has been and could be the Canada's contribution to address these challenges. The first section describes the economic outlook of Latin American countries facing the economic crisis and its impact on social indicators such as poverty and income inequality. The second section provides a descriptive overview of Canadian development assistance to the region in the last ten years. The third section reviews Ottawa's recent strategy of economic engagement in the region. Finally, we discuss a potential role for Canada to contribute to inclusive growth, i.e., economic development that encompasses poverty reduction and lesser inequality in the regionPOVERTY AND INCOME DISTRIBUTION IN LATIN AMERICA: THE UNSOLVED CHALLENGEThe development of more equal societies is potentially one of the most radical challenges for any country,2 particularly for Latin America. The region has the worst income distribution indicators in the world.3 The study of social and economic inequalities in Latin America has attracted great attention from academic researchers, international organizations, and policy makers. There is some agreement that inequality in the region is historically rooted in the colonial era, which cemented racial and socio-economic divides. As a recent report by the UN's economic commission for Latin America and the Caribbean observes, the colonial period was succeeded by republican regimes that perpetuated those assymetries; and finally, "the pattern of development and modernization helped to perpetuate socio-economic divides based on race, ethnic origin, gender and social class. The productive structure and the education system helped to ingrain and reproduce inequality."4There is evidence that neoliberal models have increased or at least maintained levels of inequality. Hoffman and Centeno refer to Latin America as the inverted continent in which the resources assignation and opportunities are highly concentrated.5 The region remains the worst in the world in terms of income distribution, even though Latin America has increased its overall income in recent years. Between 1980 and 2010, the income per-capita has increased, although it varies significantly depending on the indicator used, i.e., whether the figure is based on purchasing-power parity or not. Based on purchasing-power parity figures, it has moved from US$2,680 in 1980 to US$9,119 in 2010.Moreover, we observe great variation of level of inequality from one country to another. During the period from 2000 to 2009, nine countries were above the Latin American average, and these countries included with a high per-capita income, such as Chile, as well as countries with extremely low incomes, such as Haiti and Bolivia. …