The richest Latin Americans have to pay a tax “much more,” the IMF says

The top IMF official for Latin America has ordered governments to pay the rich “much more” in taxes, saying the world’s most unequal region will only grow if it responds to the demands of a fairer economic system.

In an interview with the Financial Times as he prepared to leave after eight years at work, Alejandro Werner, director of the fund’s Western Hemisphere, said recent social unrest in Latin America has highlighted the need for a much more equal distribution of income.

The IMF he called earlier for the world’s highest wage earners who have prospered because of the pandemic to pay more taxes on a temporary basis to help those most affected. Latin America has suffered more than any other region since the coronavirus has exacerbated long-term problems of low growth, high inequality and poverty.

Werner marked “underused” real estate taxes as a good place for Latin America to start.

“We need to have a much more progressive taxation system where… The upper segments of the population pay a lot more and then we need to have an economic system where economic competition is much stronger than it is today,” he said.

“Latin America may not be the most unequal region in the world and jump into the next stage of economic development.”

Prior to joining the IMF in 2013, Werner was a senior Mexican finance minister and worked at a Mexican bank; will retire from the bottom in late August.

The rebound effects of the U.S. stimulus, strong growth in China and high world commodity prices have helped the region return to a faster-than-expected return from the 7 percent drop last year. past gross domestic product, and the IMF, along with the private sector economists, has become more optimistic about its prospects.

Werner said the IMF’s current forecast of 4.6 percent growth in Latin America this year was likely to be revised, in part because the economy has managed to keep activity at a higher level than before. expected, despite continued Covid infections.

“The correlation between economic activity and the contagion rate is much weaker now than it is now [the second quarter] from last year, ”he said.

The region’s two largest economies, Brazil and Mexico, have given priority to the reopening of their economies despite high death tolls, helping them recover more quickly from some neighboring countries that have persisted with blockades.

An FT study of excess mortality found that Latin American countries have suffered some of the highest mortality rates in the world from the pandemic, with relatively little difference between countries imposing tight locks, such as Peru and Colombia, and those which they do not, such as Brazil or Mexico.

Latin American countries have also taken divergent paths on extra spending, with Brazil, Peru and Chile among nations taking on a significant additional debt to support those most affected by coronavirus.

Mexico was the notable exception and even if Wall Street banks forecast it to grow by more than 5 percent this year, that won’t offset the 8.5 percent contraction it suffered last year. Werner said he “would have been much better served” with a stimulus package.

The region’s politics have been turbulent in recent years, with waves of street demonstrations rocking Chile and Ecuador in 2019. They are spreading in Peru and more recently in Colombia, polarizing politics and strengthening the hand. of foreign candidates from the far left and right in the election.

In Peru, Pedro Castillo, the candidate of a Marxist-Leninist political party, seems to have won this month’s presidential election, though his conservative opponent Keiko Fujimori has challenged his victory with allegations of electoral fraud.

“The fluctuations we see in policy choices by the population reflect that there is a very strong demand for a much better income distribution, and beyond that, a lot… A fairer economic and social system,” he said. Werner.

In April, Colombia tried a tax reform to increase revenues and expand its tax base, but the government was forced to scrap it within days after a wave of violent protests across the country.

Werner said tax changes that increased revenues were necessary to repair public finances across the region, but added that Bogotá’s experience showed the need for broad agreements on economic reforms that went beyond the class. traditional politics.

“The political environment is very tough for the implementation of reforms and therefore countries must be very careful to conceive of these reforms, to engage with the general population and in the end to generate consensus… Because these reforms are necessary, ”he said.

“In the negative case, we will see significant instability that will hurt employment, that will hurt recovery, it will hurt social indicators. It is a very difficult landscape.”

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