Development in Transition, Latin America and the Caribbean, Reviving multilateralism

How Latin America can tackle the international and national drivers of discontent

By Rita Da Costa, Senior Counsellor and Head of Development in Transition, Adriana Caicedo, Policy Analyst and Martina Lejtreger, External Consultant, OECD Development Centre

Deepening economic disparity, inequalities and social injustice have been at the heart of the mass demonstrations that have multiplied in Latin America and the Caribbean (LAC) since late 2019. This trend is likely to intensify in the wake of the COVID-19 pandemic. While the number of people in poverty has increased by 22 million since the start of the COVID-19 crisis and inequalities continue to rise, the stock of wealth held by billionaires in LAC has risen by more than 40%. The current context opens a window of opportunity for LAC to exit the crisis by establishing a new social contract, but this will require a step change in international co-operation.

The COVID-19 pandemic has made it clear that countries cannot face global challenges alone. The ability of international co-operation to address global challenges such as inequitable distribution of COVID-19 vaccines, rising debt levels, under-regulation of the global economy and the worsening climate crisis, will determine both the strength of the LAC region’s recovery and its transformative potential. At the same time, national discontent can also be traced back to weaknesses in global governance institutions themselves, which need to be remodelled from top-down decision-making to mission-driven partnerships and co-operation.

Protests in LAC countries might be related to governments’ insufficient responses to structural vulnerabilities but they are reinforced by global megatrends. International economic asymmetries, arising from economic concentration, global value chains, financial centres, or digital networks are becoming harder to ignore. The pandemic has further narrowed LAC countries’ fiscal space, especially for those with high debt levels prior to the crisis, reducing public institutions’ capacity to respond to citizens’ needs.

On a more positive note, most Latin Americans recognise international co-operation to be part of the solution; almost 50% of Latin Americans and Caribbean citizens surveyed were in favour of more co-operation after COVID-19, and 70% think it is essential to deal with current global challenges (Figure 1). Globally, 81% of people in advanced economies support multilateralism, reinforcing the idea that countries should act as part of an international community that works together to solve shared problems.

Figure 1. How Latin American and Caribbean citizens perceive international co-operation

Source: OECD et al. (2021), Latin American Economic Outlook 2021: Working Together for a Better Recovery, OECD Publishing, Paris, https://doi.org/10.1787/5fedabe5-en. 

A multilevel approach: a strengthened multilateral system and mission-driven international partnerships

The ambition of the 2030 Agenda has so far not been matched by results, and we are fast approaching the deadline to reach its objectives. How can we go the extra-mile to reach them by 2030?

International co-operation needs to address weaknesses in global governance institutions and asymmetric, top-down decision-making structures (Figure 2). Megatrends such as climate change, offshoring, over-financialisation of the economy, tax challenges arising from digitalisation, and the debt crisis urgently require collective action among countries. The latter is a particularly urgent issue for LAC, which has become the most indebted region in the world, with the highest share of external debt service in relation to exports of goods and services (57%).

Figure 2. A vicious cycle between global and national development dynamics in LAC 

Source: OECD et al. (2021), Latin American Economic Outlook 2021: Working Together for a Better Recovery, OECD Publishing, Paris, https://doi.org/10.1787/5fedabe5-en.

Despite efforts under the current global governance architecture, such as the endorsement by the G20 summit in Rome of a 15% global minimum corporate tax rate last year, most of these global phenomena are still largely unregulated and mainly steered by corporate power and market dynamics. The lack of broad international regulations and standards – or the slow or non-existing convergence on existing regulations and standards – undermines international action. It also reduces the possibility of levelling the playing field for domestic resource mobilisation, which is crucial to overcoming the current crisis and achieving the SDGs. The average tax to GDP ratio in LAC was 22.9% compared to 33.8% in OECD countries in 2019, and fell in 2020 as a result of the pandemic.

As successful co-operation among the international scientific community on COVID-19 has demonstrated, effective solutions to global challenges require the inputs and expertise of different policy communities around the world. Multilateral institutions need to promote a process of experimentalism and empowering citizens, employing a broader set of tools, with the guidance of a wider range of voices, including those of the discontented themselves.

To better connect national and international agendas and strengthen domestic capacities, international co-operation requires more integrated, multilevel and comprehensive partnerships.

First, these partnerships should be mission-driven. Issue-based coalitions with integrated approaches that achieve measurable development results entail thinking beyond how sectors and institutions are currently defined, making use of all relevant resources, tools and actors. The European Union (EU) has taken decisive steps in this direction through its Team Europe initiative. LAC could partner with its regional allies, such as the EU, to build the mission-driven partnerships it needs to address its countries’ most pressing challenges.

Second, they should reinforce regional co-operation. Regional collaboration is a unique space in which states facing similar challenges can share best practices and guidance on how to design policies and compare results. Highly impactful examples of regional co-operation have emerged during the current crisis, such as the approval of the largest stimulus package in its history by the European Union and the implementation of a Comprehensive Recovery Framework by the Association of South-East Asian Nations. Efforts at the regional level can at the same time be leveraged to take action at the global level.

Third, they should implement a balanced use of financing, regulations and standards, and technical co-operation. Partnerships should be anchored in political and policy dialogues that ensure a balanced use of co-operation tools. Global regulations, for example on corporate tax rates and illicit financial flows, must not undermine the efficacy of development funding aimed at vulnerable populations. All available tools, especially considering current funding gaps, should aim at achieving the SDGs.

Given its wide range of existing co-operation mechanisms and integration processes, LAC could be fertile ground to experiment with mission-driven regional partnerships. A positive step in that direction was the approval of a Plan for Health Self-Sufficiency to strengthen regional capacities for producing and distributing vaccines and medicines by the Community of Latin American and Caribbean States. LAC countries could leverage this region-wide effort and scale it up in bi-regional and multilateral fora, multiplying these experiences in other key policy areas such as digital transformation, social cohesion and the green recovery.

This blog is based on Chapter 5 of the Latin American Economic Outlook 2021 International co-operation for the recovery: Facilitating a new social contract in LAC