Latin America building a reliable revenue base, says Shinohara
Mr. Shinohara's Opening Remarks for the Tax and Growth Seminar: It is a great pleasure to be in Brazil, and to participate in this important gathering of policymakers from Latin America. We will discuss and share experiences on the highly relevant and difficult issue of strengthening the structure of government revenue in a manner conducive to economic growth. In my short intervention, I will touch on how the global context makes this issue particularly relevant for Latin America today.
Despite troubles elsewhere in the world, most of Latin America continues to perform quite well. This success is largely the result of the determination of policy makers to strengthen policy frameworks over the past decade. The region's resilience has increased thanks to improved government balance sheets; lower external debt and higher international reserves; more flexible exchange rates; and stronger financial regulation and supervision.
These improvements have allowed the region to withstand the severe external shocks of recent years. However, this success should not give rise to complacency, particularly given that the global environment remains complicated, and risks and uncertainty are bound to persist for some time.
We project a gradual pick up in global activity in the coming years, although this hinges on more decisive and timely policy actions, particularly in the advanced world. Recent announcements by European leaders have helped calm down markets, but these must be followed by concrete implementation steps to improve confidence and ease financial conditions in the more vulnerable euro area economies.
Policymakers also need to present a credible path to a stronger banking and fiscal union. In the United States, with the Presidential election behind us, a political agreement is urgently needed to prevent an unduly large fiscal contraction in 2013, with negative implications for global growth.
Emerging Asia has weathered the storm relatively well, but sustaining growth over the medium term is conditional on gradually shifting domestic demand toward consumption.
In Latin America, many countries continue to benefit from the double tailwinds of easy financing conditions and high commodity prices. Recent decisions by central banks in advanced economies indicate that world interest rates would remain very low for a prolonged period of time. Meanwhile, still healthy growth in Emerging Asia suggests that commodity prices will remain at relatively high levels from a historical perspective.