“A crisis with per capita income of $30,000 is not like one with $5,000”

A year ago José Juan Ruiz resigned as chief economist of Banco Santander for the Americas to occupy the same position at the Inter-American Development bank (IDB). He traveled to Spain recently to share his views on Latin America with the Bank of Spain. Originally from Tarancón in the Spanish province of Cuenca, Ruiz at times refers to Latin America using the first personal plural in this telephone interview he granted to EL PAÍS.

Question. What is the current situation in Latin America?

Answer. If you compare the global growth forecasts for 2013-2017 with those for the period 2003-2008, you can see we we're growing by 0.75 percentage points less. The slowdown in growth is not concentrated exclusively in the developed countries. Can Latin America grow at the same rates as in the period 2003-2008? The multilateral agencies forecast a growth rate for the region of 1 percentage point less than in that period.

Q. There is talk that the excess of liquidity in developed countries could cause problems for emerging countries.

"Latin America invests less than the world's other emerging regions"

A. There is an excess of liquidity, but the important thing is the composition of capital flows. As an emerging region, Latin America needs foreign savings. The important thing is how those savings come to our countries. If it has an impact on macroeconomic stability through short-term debt in foreign currency, then the question is what sort of instruments do governments have to moderate this impact. Latin America invests on average 5 percentage points less than the emerging countries with which we compete. We have a stock of capital per employee of $40,000, compared with $210,000 for developed countries and $260,000 for the most dynamic of the emerging Asian countries. How long would it take for us to reach a stock of $200,000 relaying only on domestic savings? About 151 years. The issue is that in recent history when inflows of temporary capita created problems for the economies such as the appreciation of the nominal exchange rate, credit and spending bubbles which, when they reversed, this caused sudden slowdowns in activity.

Q. Is the excessive dependence on raw materials, the prices of which are falling, and deindustrialization a source of concern?

A. Latin America continues to be a continent with a high dependency on raw materials, and therefore, of cycles of inflows and outflows of capital due to the volatility of prices. Inflows that are not managed well end up having a negative impact on the stability of the economies of the region. It goes without saying that raw materials cause us serious problems. If prices were at the levels of the 1990s, we would have a phase of low growth and enormous structural problems. Raw materials are not a curse; they are a blessing if managed well.

Q. Are you in favor of taxing commodities to fund more innovative sectors?

The growth of the middle class brings change that now has its own momentum"

A. To a certain degree, it could make economic sense that these resources which are at high prices produce funds that serve to generate future resources such as innovation, knowledge and an improvement in infrastructure.

Q. What are the current strengths and weaknesses of the region?

A. The most important thing is confidence because the region has enjoyed years of growth due largely to the maintenance of healthy fiscal policies and policies that foster stability. Above all, there have been social changes deriving from the growth of the middle classes that now have their own momentum. There is very little chance of a reversal in economic policy in the continent, or at least in part of it.

Q. Will commodity prices remain high?

A. Commodities, except under a catastrophic global scenario, and above all commodities such as food, seem set to remain at prices above the historic averages of the last 30 years. Although they could fall from current levels and converge around average levels, it doesn't seem that there is going to be a plunge. There is more volatility in mineral commodities, but even there we are not looking at the bottom falling out.

Q. What would be an alternative source of growth?

A. Productivity. There are two big issues that could drive it. The first would be reforms that reduce the informality of the labor market. Currently, 56 percent of Latin American citizens work in the informal or submerged economy. We have carried out an enormous survey of different countries in the region, and although the level of informality in countries such as Uruguay and Chile is low, there are countries in which it is over 80 percent. Companies that hire informally tend to be small, invest very little in their workers, and have high turnovers in their workforce. As a result, they reduce the potential consumption of the domestic market. Such companies have no track record, and therefore, lack access to funding from banks and the markets. Without funding, it is difficult for them to buy technology. And even then, they cannot incorporate it because their workers have low human capital. All of this leads to a situation in which informality is linked to low productive growth rates. The second point we have noticed is that Latin America would improve its productivity and its internal growth if it had better infrastructure. Latin America invested in the 1980s around 3 percent of its GDP in infrastructure. Of this 2 percentage points came from the public sector and the other point from the private. In the 1990s, the public sector contracted and barely invested 1 percent of GDP. As a result of privatizations and concessions, the private sector during these years invested the equivalent of 2 percent of GDP, in other words 3 percent of GDP in total. However, what we have found in the first decade of the 21st century is that the private sector has ceased to invest substantially in infrastructure: about 0.75 percent of GDP. The public sector continues to invest between one and 1.25 percent of GDP. That means we have a continent investing the equivalent of 2 percent of GDP, compared with investment of 5 or 6 percent of GDP in Asian countries.

Q. What differences are there between the crisis in Spain and those that have taken place in Latin America?

A. In the Latin American crises of the 1990s and the start of this century the talk at the time was of solvency, moral hazard, bank runs, bank rescues, competitiveness, the sale of assets and fiscal austerity. It's not the same to have a crisis with per capital income of $30,000 as $5,000. The social consequences are not the same with a system of transfers and social spending that in Chile was 8 percent of GDP during its crisis of 1984, or Mexico where it was 11 percent during its crisis in 1994, as in a country in which social spending is around 23 to 24 percent of GDP. But on the technical side, if you look at Latin America, the outcome of the crisis was to highlight institutions that need to be strengthened. But you emerge from these crises with winners and losers. The proof of this is what is happening in Chile, Peru, Colombia, Mexico and Brazil.