Buenos Aires — Following the impact of Russia’s invasion of Ukraine, inflation has become one of the main concerns at a global level. In recent months, however, several food products have shown “a certain reduction in prices”, which is good news for all countries, according to José Manuel Salazar-Xirinachs, executive secretary of the Economic Commission of Latin America and the Caribbean (ECLAC), but which has not been enough to improve growth prospects for Latin America in 2023.
In an exclusive interview with Bloomberg Linea during his recent visit to Argentina, Salazar-Xirinachs said with respect to the spiraling inflation in Argentina, that “when inflation exceeds certain levels, international experience has shown that policies to control it become a little more complicated because it has to do with negotiations, bargaining agreements, etc.”
At the Regional Conference on Women in Latin America and the Caribbean, held in Buenos Aires, where thousands of participants debated and analyzed issues such as gender equality, Costa Rican-born Salazar-Xirinachs also highlighted the advances made in different countries in this area, but said that “there is a huge challenge at the labor market level”.
The following conversation has been edited for length and clarity.
Bloomberg Línea: What have been some of the main conclusions at this conference?
José Manuel Salazar-Xirinachs: The concept that has been developed is that we must move towards a care society, which goes beyond having a care network. The concept is broader. There is an enormous growth in the care needs of the elderly. Everything indicates that the demand in this regard is going to grow enormously and that countries will need to build systems and finance them. Then, there is the great imbalance between men and women when it comes to providing care in the home and in life. The data show that women work three-quarters more than men. Moreover, it is unpaid work, which is not measured. Although ECLAC has helped some countries to measure it and it has been determined that, depending on the country, it can be as much as 20-25% of the total effective work that is done, it is not integrated into national accounts.
What are the main challenges to begin reducing these gaps?
There are indicators of progress, but there is an enormous challenge at the labor market level: to close the gap in the participation rate of women with respect to men. Also in the wage gap. There is a feminization of many occupations, such as domestic work. The biggest challenge there is that there is a lot of informal work.
How do you assess the progress being made in this issue in Argentina?
The creation of the Ministry of Women’s Affairs is good news. The institutional mandate will be to generate project ideas, make diagnoses. Compared to other Latin American countries, Argentina has a fairly well-developed welfare state. The challenge here is how to sustain these budgets, especially in times of economic crisis.
Regarding the regional macroeconomic outlook, what are the prospects for 2023?
The news for 2023 is not good. We have been lowering the estimate of what the growth rate will be next year. Our average, for Latin America, is that this year closes at 3.2%, but next year it is 1.4%. The IMF’s is 1.7% for the region. Everyone’s revision has been downward. There is the war in Ukraine, which produced the supply shock and contributed to an inflation that was already coming. Above all, food inflation, because it is the cost of living that hits the poorest people the hardest. That is why the cost of living is a major concern.
In Argentina, inflation is predicted to be 100% in 2022.
Globally there is already evidence that there are several food products whose prices have already turned around, that already have seen some price reduction. Anything can happen, but if this continues, we can see that some products have already turned around and are starting to drop in price. What happens is that it is a slow process. Once inflation starts, it already has some inertia. Another element is the policy of raising the interest rate, the monetary policy that has been the main reaction of the Federal Reserve, of banks in developed and developing countries because, if they do not somehow follow that policy, there is also a problem with the exchange rate. So, people switch to dollars and there is a devaluation. There is already a signal that there is a general expectation in the international markets that there is already a turning point. The problem is that when inflation reaches very high levels, as here in Argentina, this inertial factor has a life of its own. When inflation exceeds certain levels, international experience has shown that the policies to control it become a little more complicated because it has to do with all the labor union negotiations, bargaining agreements, etc.
Could these signs of deceleration in the price curve be reflected in Argentina?
The fact that the price curve is already flattening and even going down is good news for all countries, regardless of the inflation they are seeing. The problem is that both the private sector and the economy in general do not continue to set prices under the expectation that inflation will continue. It is very important that there is transparency and information, that at the international level things are beginning to improve on the price side. However, on the growth side, there is no good news for this key inertial behavior.
Chile, according to ECLAC and other organizations, will be the only country in Latin America with a fall in its GDP by 2023. What is the reason for this?
Correct, a contraction of 0.9%, according to our projection. But, Brazil is going to grow 1%, Bolivia 3%, Argentina 1%. In general, the average for Latin America is 1.4%. I believe that in Chile, the price of exports, the price of copper, and also a little bit of internal demand are very important. There are a series of factors that have tended to reduce consumption and investment.
You referred to interest rates. For example, in Mexico, for how long will the central bank need to raise it to consolidate the downward inflation trend?
In Mexico I have not had a reading on such a specific issue. It is super-associated commercially, and in every sense, with the United States. Many of the economic developments and, particularly in monetary policy, having so much financial integration, are going to be very closely linked to what happens with US monetary policy.
Following the elections in Brazil, what do you think will be the main challenges for President-elect Luiz Inácio Lula da Silva?
Lula has a lot of accumulated challenges in Brazil. It has been very evident. For example, the environmental agenda, to stop the deforestation of the Amazon, to achieve sustainable development. That is something that is clear. Then there are social challenges, of course. Brazil, like the rest of Latin American countries, is still suffering the impact of the pandemic and has social gaps.
And in Colombia, what can we expect in 2023, in the face of a possible recession?
Colombia is within the same pattern of Latin America. It is a medium-large country in Latin America, with natural resources, with energy sources. It has a lot of assets. It has a very strong and solid institutional framework of policies in different areas. President Petro’s program has set out a number of social and economic priorities to focus on education. With the tax reform, a fiscal space can be created with which President Petro will be able to finance several of the priorities he has proposed.