The Question of Latin America and OECD Membership

The Question of Latin America and OECD Membership

In the OECD accession process, the means can be just as beneficial as the end. Yet, Latin American middle-income countries oftentimes experience unique challenges. Can these be reconciled?

With Colombia in the final stages of its membership bid, and Peru and Argentina in the initial stages of theirs, one cannot help but think about the words developed and prestige. Becoming a member of the so-called rich countries’ club is almost by consensus seen as a milestone in the economic development of any nation.

Indeed, the transformational process that bidding nations go through brings about important — and beneficial — structural reforms and evaluations. As such, the acceptance process seems just as appealing as the membership itself. However, to what extent are these best practices mindful of the particular challenges and landscape of middle-income countries such as those in Latin America? How does this process interplay with issues in the aftermath of the Pink Tide?

OECD Roadmaps, benefits and other stories

The accession process usually starts with the bidding nation presenting a request to become an OECD member. It is then followed by a ‘roadmap’ that details conditions, criteria, and specific policy reviews to be carried out by OECD technical committees. These are usually ‘peer review’ committees, which use best OECD policy practices (from another member country) as assessment benchmarks.

The accession timeline is contingent upon the bidding nation facilitating information, responding to policy recommendations and so on. It is important to mention that most Latin American middle-income countries are already part of several OECD committees and instruments, abiding by their regulation and bringing their policies closer to OECD standards. As such, a membership bid certainly feels like a natural progression.

On the other hand, the OECD’s own reform towards membership enlargement represents recognition of the shifting status quo within the last two decades. Emerging countries and other non-European nations have become very relevant actors in the international community. Thus, accepting them into the ‘club’ guarantees the OECD remains a relevant political and economic organisation itself. Global policy is, afterall, a matter of functional legitimacy.

So why join the club? Colombian authorities have highlighted supposed benefits. Specifically, they claim that full OECD membership will boost confidence in the country’s economic future and, in turn, bolster FDI — which would turn into increased competition and growth.

But to what extent is this true? Empirical evidence isn’t conclusive. A World Bank study on FDI inflow rates against OECD membership of Mexico and Chile (entering 1998 and 2010 respectively) shows that this is not necessarily the case.

The study demonstrates increased FDI rates, yet this could be due to NAFTA-inclusion in the case of Mexico, and the commodity boom in the case of Chile. Indeed, the upward trend is true for Colombia as well, despite not being a member yet. Moreover, an OECD report states that actually investment outflows fell about 15% by 2012, reinforcing the idea that an increase in FDI influx isn’t guaranteed.

On the other hand, it is also claimed that sovereign-debt interests have fallen since OECD accession for both Chile and Mexico, the only Latin American members so far. Whilst this is true, the same cannot be said for Colombia, which has seen increasing interest rates since launching its membership bid. Similarly, growth rates appear not to be responsive since the region is currently undergoing general deceleration. In other words, while attractive, OECD membership is no fool-proof solution for such complex tasks.

Is seeking membership an impractical move then? No, it isn’t. In fact the process itself can justify the ‘hassle’ even if macroeconomic benefits aren’t guaranteed. This is because the thorough evaluation and structural transformation the bidding nation goes through, represents an unrivalled opportunity to absorb best practices.

For instance as a transparency exercise, the intense external scrutiny regarding institutional accountability can prove particularly beneficial for Latin America since corruption is one of the main issues pervading recent administrations (a recent example being Dilma Rouseff’s impeachment process).

In addition, the membership process can be used as leverage to push for reforms in key areas such as public finance and environmental issues. The extensive research produces a great variety of statistics that can subsequently be used for internal impact evaluations and other studies. Finally — and perhaps most importantly — it constitutes a ‘seal of quality’ of the nation’s commitment to liberal, market-friendly values. This cannot be disregarded in a region that is just coming out of a left-wing tide. The OECD ‘seal’ is largely also a matter of international recognition.

Particularities, clashes and other questions

In practice, the process is not so clear-cut. Public opinion across Latin America is not unanimously convinced of reaping benefits from belonging to a club of nations viewed as very different from their own.

Moreover, the move also faces criticism from neighbouring countries that feel regional cooperation should be a priority over enrolling in the elite club. Those that perpetuate this critique often present the membership as a platform for easier integration into exploitative trading mega-blocs rather than South-South development cooperation.

On the other hand, it is acknowledged within the OECD that the process needs the participation of key actors across national civil society — given that membership bidding is a comprehensive governance initiative. Participation in a region that has complex issues such as social conflicts, relatively high Gini coefficients, and decelerating growth rates is challenging because of the oftentimes-fractured nature of Latin American societies. Indeed, criticism suggests that OECD membership would favour elites over addressing deep inequality.

In the same vein, the still-fragile position of the regional middle class certainly demands the prioritization of social programmes and a particular attention to the poorest. Needless to say, this is a remarkably different experience from those within the club. Thus, OECD recommendations cannot constitute a one-size-fits-all prescriptive prognosis but rather a reciprocal dynamic where country issues and success stories feed into the structural process.

Beyond the usual costs associated with structural reforms and other policy recommendations, Latin American bidding nations face the reality of trying to meet criteria in areas with long-term agendas. For instance in environmental regulation or labour market informality — despite its successes — the OECD recognizes there is still a long way to go. Particularly, the usual prescriptions of tax and pensions reforms for inequality-amelioration are very sensitive, and usually met with reluctance and adverse reactions. If we add unstable political power for incumbent administrations to the mix, then the forecast is tough.

By and large, OECD membership benefits do outweigh the costs. The political willingness required to embark on the accession process already sends a favorable signal to the international community. This is especially true for countries like Colombia, marked by turmoil in the past yet en route to OECD status at present. Furthermore, the membership process also largely justifies the ‘hassle,’ since best-practices absorbed and policy evaluations represent an unrivalled opportunity. Whilst it is true that the road ahead is long and complex, the OECD membership question remains a favorable one.

Categories: Latin America, Politics

About Author

Gabriela Lecaro Calle

Gabriela Lecaro specialises in Latin America, particularly in trade policy, macroeconomic and development issues. She graduated from The University of Manchester with a degree in Economics and Politics. She is currently undertaking the MSc International Public Policy at UCL, where she also serves as advertising manager for the International Public Policy Review. She has worked in various independent consulting and academia projects as well as being an active member of UNA-UK and YPFP London.