2030/Food, agriculture and rural development in Latin America and the Caribbean Document nº 7 Macroeconomic policies and agricultural and rural development Food, agriculture and rural development

2030/ in Latin America and the Caribbean Document nº 7 Macroeconomic policies and agricultural and rural development

Eugenio Díaz Bonilla

Food and Agriculture Organization of the United Nations Santiago, 2019 Required citation: Díaz Bonilla, E. 2019. Macroeconomic Policies and Agricultural and Rural Development. 2030 - Food, agriculture and rural development in Latin America and the Caribbean, Santiago, Document No 7. FAO. 24 p. Licence: CC BY-NC-SA 3.0 IGO.

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Sales, rights and licensing. FAO information products are available on the FAO website (www.fao.org/publications) and can be purchased through [email protected]. Requests for commercial use should be submitted via: www.fao.org/con- tact-us/licence-request. Queries regarding rights and licensing should be submitted to: [email protected]. 2030 / Food, Agriculture and rural development in Latin America and the Caribbean social development programs.These typicallyconsidersomeofthefollowing objectives: Macroeconomic policiesmustbeconsidered withinthebroader framework ofeconomicand also theinfluenceofagriculturalevents onthegeneraleconomy. their job. It considerstheimpactofmacroeconomic conditionsandpoliciesonagriculture, but on agricultural issues in developing countries should understand about macroeconomics to do It attemptstosummarize somerelevant topicsthatpolicymakersandpolicyanalystsworking 1 with agriculture, development and food rural security in Latin America and the Caribbean. This chapterbrieflydiscussesdifferent aspectsofmacroeconomic policiesanditsinteractions 1. When analyzingmacroeconomic policies,there are fourkeyissues: recognizingnevertheless thatthosepoliciesmayalsoaffectthe remaining objectives. This chapterfocusesmainlyonmacroeconomic policies linked toobjectives (iii)and(iv), concernsinpolicydesign. crucial effects– and,inparticular, how thepoorandvulnerablefare underdifferent policies–mustbe affecting theallocationofcostsandbenefitsacross social groups. Therefore, thosedistributive macroeconomic distributive policiescanhavepolicies andshorter–term effects, important and distributionofaggregate demandandsupply. Bothlonger–termgrowth anddevelopment foralltodevelop andapplytheirhumanabilities)dependsmoreopportunities onthestructure of poverty, fulfillmentofsocialneedsincludingfood security, andofferingmeaningful equilibrium objectives (iiiandiv).Thefinalobjective of economic programs (theelimination efficiency (objective ii),whilemacroeconomic programs emphasize theexternal andinternal Growth ordevelopment programs tendtounderscore thefirstobjective alongwitheconomic This chapter is based on Díaz–Bonilla, 2015, which develops these topics in greater depth and with a more global view aboutdeveloping countries ingeneral.

v. iii. ii. iv. i. i. Introduction E Contr A P M security, forhumandevelopment. andexpandingopportunities The pr demand isbelow pressures aggregate supply)orinflationary andtradedeficits(if not attained,theeconomymayexperiencerecessions andunemployment (ifaggregate romoting microeconomic efficiencyandcorrecting distortions. liminating poverty, providing forthe basicneedsofthepopulation,includingfood voiding unsustainabledisequilibriainthebalanceofpayments(externalequilibrium). aintaining oracceleratingeconomicgrowth withsustainedemployment. olling inflationary and deflationary pressures anddeflationary (internalequilibrium). olling inflationary oper alignmentofaggregate demandandaggregate supply. If thisbalanceis 3 1

2030 / Food, Agriculture and rural development in Latin America and the Caribbean 2 the internaltermsoftrade,Pa/Pna). relative priceratio between theagricultural(Pa) andnonagriculturalsectors(Pna) (forexample, an indexofrelative pricesoftradable(Pt), tonon–tradableproducts (Pnt); thatisPt/Pnt; andthe 1988; Schiffand Valdés, 1992).Thosestudiesusedtwomainindicators:the real exchange rate, price incentives for the agricultural sector compared to other sectors (Krueger, Schiff and Valdés, in developing countriestypicallyemphasized amore limitedsetofconcerns,focusingonrelative The initialempiricalanalysesoftheconnectionsbetween macroeconomic policiesandagriculture he real exchange rate isdifferent (Pt/Pnt) from the domestic terms oftrade between theagricultural and rest oftheeconomy (Pa/Pna). not translate one–to–one to changes in the relative profitability ofthe agricultural sector with respect to the non agricultural sectors (Pa/Pna) (see thediscussion inDíaz–Bonilla, 2015). Therefore, do changesinPt/Pnt T iv. iii. ii.

economic shocks. assets, such as small farmers’certain to weather negative livestock, must be sold to try also children mayhave tobewithdrawnfrom schooltowork fortheirfamilies;and capital compromised if, forinstance,physicaloreconomicaccesstofoodisimpaired; on poorpopulations,whichmightfindtheiralready limitedhumanandproductive growth, efficiencyandequity. negative Inaddition, crisesalsohave effects important debt, weakened fiscalaccounts, bankingandfinancialsystems, allofwhichaffects investment andfuture capital.Theyalsotendtoleave alegacyofpublic and private installed capital,andtheirrecurrence increases uncertainty, thereby reducing current itspersistenceoverparticularly time,deteriorateshumancapital.Crises alsodestroy and foodinsecuritythrough various channels.For instance,higherunemployment, problem). Crises tendtoaffectlong–termgrowth prospects andincrease poverty problem) and/orofmisalignmentsinmacro–prices (thesecond macroeconomic policy between aggregate demandandaggregate supply(thefirstmacroeconomic policy trade, andsocialcomponents,are dramaticmanifestationsofimbalances particularly The av invest inhumancapital,allofwhichdefineaggregate supplytrends. they also influence capital/labor ratios, technological alternatives and the decision to growth prospects. Similarly, wagescanaffectaggregate demandduringthecycle, but and, possibly, theselectionoftechnologicalalternatives, thereby determiningfuture but also choices betweenaggregate savings and investment run, demand in theshort to longerterm.Interest rateshave adualcharacteraswell: theynotonlyinfluence aggregate demand,aswell asotheraspectsaffectingaggregate supplyinthemedium plays acentralrolemanagement of inrelation tothenominalaspectsofshort–run the exchange rate,theinterest rate,andaverage wages.In particular, theexchange rate The lev future ormisapplicationofproductive, duetounderutilization resources. excess ofaggregate demandinthepresent canaffectpotentialtrend growth inthe aggregate demandsignificantlyexceeds aggregate supply). In addition,thelackor regulatory policies,andsoon. regulatory policies, suchasthestructure oftaxandpublicexpenditures, monetary, financialand and distributive effectsstemfrom somemicroeconomic aspectsof macroeconomic The potentialsocialandmicr oidance ofeconomiccrises.Economic crises,withtheirdifferent fiscal,financial, el, stability, andsustainabilityofmacro–prices, suchasanoverall priceindex, 2 oeconomic implications.Other growth, efficiency, poverty 4 2030 / Food, Agriculture and rural development in Latin America and the Caribbean world agriculturalprices, the evolution oftheexchange ratesofmajorglobalcurrencies andthe matters whetherornottheglobaleconomyisgrowing, whatare theworldinterest ratesand ingeneralandthatofits agriculturalsectorinparticular.performance At thecycle level, it The conditionsoftheglobaleconomy, consideringbothtrends andcycles, affectacountry’s Source: authorcalculatedfrom FAOSTAT (2019). Table 1. 2016). (measured bothinconstant2004to2006USD;theyrepresent theannualaverage for2010to aspercentage of domestic production andimports ofexport which calculatestheimportance and theCaribbean, where countries are well integrated in worldmarkets asshown in Table 1, deep awareness of the state of the global economy. thecase inLatin America This isparticularly Furthermore, macroeconomic and sectoralpolicymakingindeveloping countriesrequires a Fund programs intheagriculturalsector, (IMF)–supported seeJohnson, 1987). of–payment conditionsandfiscalbalances(foranearlyanalysisofthe International Monetary ofthe agricultural sector willdetermine growth,those cases,theperformance inflation, balance– Gross domestic product (GDP), employment, trade and even fiscal receipts linked to exports. In American andCaribbeancountrieswhere agriculture represents asignificantpercentage ofthe the reverse inLatin causalityhastobetakenintoaccountindeveloping countries,particularly In additiontotheinfluenceof various macroeconomic conditionsandpoliciesonagriculture, 1988; Orden, 1986). variables impactingdirectly orindirectly ontheagriculturalsector(Paarlberg andChambers, andmacroeconomic income anddemandeffects,interest rates,andtheeffectsofothermonetary macroeconomic analysesofdeveloped countrieshave factored inotherconsiderationssuchas countries. In oftheexchange additiontotheimportance rateforagriculture (Schuh,1976), and notonlyrelative priceeffects.Thisisawidelyknown factinempiricalstudiesofindustrialized of macroeconomic policiesandconditions–involve alargernumberofvariables andchannels However, theimpactsonagriculture, development, andfoodsecurity–given rural thevast array tic production) ports (%ofdomes- Importance ofim- Exports and imports aspercentage ofdomesticproduction andimports Exports >40% 20 to 40% <20% >66% Importance ofexports (%ofdomestic production) Chile, Belize Costa Rica Argentina Uruguay, Paraguay, 5 33-66% name icanRepublic, Suri- and Tobago, Domin- El Salvador, Trinidad ras, Nicaragua Peru, Mexico, Hondu- State of livia, Plurinational Brazil, Ecuador, Bo- <33% Republic of Venezuela, Bolivarian Colombia, Jamaica 2030 / Food, Agriculture and rural development in Latin America and the Caribbean macroeconomic conditions.Finally, achapteroutlinesthemainconclusionsofthispaper. of agricultural historical growthoverview in the region and the linkages to global and national the Caribbean(foramore detaileddiscussionseeDíaz–Bonilla, 2015).Third, there isabrief policies considered relevant development inLatin Americaand foragriculturalandrural Second, itfollows idiosyncraticdiscussionofdifferent asomewhat aspectsofmacroeconomic This chapterisorganized asfollows. First, we present thebroader macroeconomic framework. energy, buttheywillnotbediscussed here. There are macroeconomic implications, suchaslaborand alsootherpolicieswithimportant In thischapterlooksbrieflyatfourmainpolicygroups: termsofmacroeconomic instruments, without consideringthebroader contextoutlined. Many analytical and policy mistakes come from analyzing isolated macroeconomic policies society (includingtheheterogeneity ofeconomicagents),andtheworldenvironment. aspectsofthedomesticeconomyand consider avariety ofchannelsandinteractions,structural In summary, anadequateanalysisofspecificmacroeconomic policiesandtheirimpactsneedsto (see Díaz–Bonilla, 2015). rural areas configurationandthestructure oflandholdings in factors, suchastheurban–rural and informationflows. Theimpactofexternalshocksalsointeractswithdomesticcontextual to monitorthe integration of theworld economy through the expansion of trade, finance, labor 3 level, composition and direction of international capital flows. or instance, Reca andParellada (2001) demonstrate that theimportantboom indairyproducts (mainly (see Díaz–Bonilla,2015). preciation oftheArgentine peso generated by thecapitalflows (andlower world prices duringthat period) inflows. Ontheotherhand, at thesametimecrop production (atradable good) stagnated due to the ap- nontradables) in Argentina during the early nineties was fueled by strong domestic growth linked to capital F • • • • trade exchange rate (andfinancial/bankingissues) monetary fiscal 6 3 In terms of trends, it is crucial 2030 / Food, Agriculture and rural development in Latin America and the Caribbean than 0.4. 4 sample ofcountriesinLAC.About 55percent not control forotherinfluences(suchasclimateevents orworldeconomic conditions)fora Figure 2shows asimplecorrelation measure between GDPandagriculturalgrowth thatdoes domestic market (see Table 1). asignificantpercentagecountries withastrong ofdemandcomesfrom export–orientation the across forthoseproducts theregion. vary the dependenceonimports Nevertheless, even for ofthedomesticmarket comparedThe importance foragriculturalproducts, and toexports policies. of employment, poverty andincomedistributionpatterns,allfactorsaffected by macroeconomic –dependsonthegrowthproducts in particular ofthewholeeconomy, andtherelated generation demand side,bothdomesticandexternal.Domestic demandingeneral–andforagricultural Although growth toconsiderthe modelstendtofocusonlyonthesupplyside,itiscrucial Source: Díaz-Bonilla, 2015 Figure1. ASimplified Macroeconomic Framework sectors. agricultural andrural Figure 1shows abroader ofmacroeconomic view policiesandtheirchannelsofinfluenceonthe 2. Macroeconomic

Therefore, they are notcounted inthe55percent mentioned. The correlation for someofthecountries inFigure 2are rounded upto 0.4, butthey are below that number. policies andagriculture 4 ofthecountrieshave correlations equal orlarger 7 2030 / Food, Agriculture and rural development in Latin America and the Caribbean (irrigation, roads, communications, andsoon),allofwhichisaffected by fiscalpolicies. and education),depend onthequalityofrelevant andregional rural infrastructure rural areas(such asresearch inthe (suchashealth andextension),benefitfrom socialservices Fourth, theoperations offarmersandagriculturalvalue chainsrequire publicproductive services investments, employment andthetechnologicalpathaswell. and internationaltradepolicies.Asnoted,macro–prices influence thelevel andcompositionof canbedetermined by exchangeaddition, availability andpricesofinputsmachinery rates chains. For andfinancialpolicy. example,credit onmonetary availability dependsinpart In agriculture and the operation of thevalueinputs, impacting on the supply side ofprimary Third, macroeconomic policiesaffectthepricesand availability offactorsor production and the agro-industrial value chains. trade policies)contributetodetermineincomesforagriculturalproducers andfortheagentsin in taxes orintransfers/subsidiesfrom governments (allfactorsofteninfluenced by fiscaland implications forthegrowthactivities, withimportant path oftheeconomy. Thelevel andchange interest rates and wages) define the relative incentives between agricultural and nonagricultural Second, thelevel andexpectedvariations inmacroeconomic prices(suchasexchange rate, ofthedemandforagriculturalproducts. aspart production, facilitatetradeopportunities aggregate ofglobalmarkets demandand,given forLatinAmericaandtheCaribbean’s theimportance Therefore, thatmacroeconomic (andother)policiesmaintainasustainablegrowth itisnecessary of growth intheregion were basicallyrelated toadverse climeconditions. and AmericatheCaribbean’s agriculturalgrowth. Other episodesofnegative agricultural episode, in 2016 mostly linked to Brazil’s economic problems), showed parallel declines in Latin contractions experienced in 1982, 1983 and 2009 related to world recessions and the latest First, atanaggregate level, allmajordownturns intheregion’s GDP(i.e.theeconomic Source: authorbasedon WDI/WB (2019). Figure 2.Correlation between GDPandAgriculturalGrowth (since1960stopresent times) 8 2030 / Food, Agriculture and rural development in Latin America and the Caribbean 5 appropriately specifiedmacroeconomic generalequilibrium model. incomesareconditions andpoliciesonagriculturalactivities andrural embeddedinan nonagricultural componentsoftheeconomy. Ideally, theimpactofdifferent macroeconomic macroeconomic scenariosandthedynamic,longer–termresults, consideringthe agriculturaland effectsofpoliciesandchangesin A broader analysismustconsiderboththestatic,short–term andviceversa, families. withavarietyones (Yna), ofnetimpactsonrural net results. Events orpoliciesthatimprove agriculturalincomes(Ya) mayreduce nonagricultural conditions andpoliciesonthosefamiliesoccurthrough avariety ofchannels,withambiguous moreproportions, than one oftheseincome cells. Therefore, theeffects ofmacroeconomic rural familiesindevelopingThe livelihoods countriestendtocombine,indifferent of Source: Díaz–Bonilla (2015). Table 2. the following simplified Table 2: (Yax, (Yam,Ynax), importable Ynam), andnon-tradable (Yant, asin Ynant) goodsandservices, Innonagricultural sources (Yna). turn,allactivities(agriculturalorother)mayfeature exportable these activities are of a broader part array of activities. Some incomes may also come from incomes(Ya).component ofrural However, areas, forindividualsandfamilies in rural All theseprevious channelsinfluencethe return toagriculturalactivitiesandthe similar toindustrialized countries,thepoverty headcountwoulddiminishby onequarter. (1995) estimatedthatifLatinAmericaandtheCaribbeanhadalevel ofmacroeconomic stability engage inlow–return activities.For instance,theInter–American Development Bank (IADB) have onthehumancapitalofpoorbutalsobecauseriskyenvironment leadsthepoorto volatility can also cause poverty traps, not only because of the negative impact that crises can impact growth, poverty andfoodsecurity. In particular, ahighdegree ofmacroeconomic Finally, objective ofmacroeconomic animportant policiesistoavoid economiccrises–which economyandtheoperationofvalue chains. rural influenced by macro–policies thatshapetheprovision ofpublicgoodsandinfrastructure forthe overall foragriculturalproducers, demandistranslatedintospecificmarket are opportunities all links between agriculturalsupplyandthedomesticexternaldemand,whichensure that badresourcevery base(Díaz–Bonilla, Orden andKwieciński, 2014).In general,thecrucial as malaria)wouldberemoving constraintstoagriculturalgrowth thatcanbeaslimitinga areascitizen (such securityintherural aswell ascontrolling endemicdiseasesinthecountryside Furthermore, fiscalpoliciesthatallow enoughdecentralized resources tomaintainpeaceand or instance, adevaluation may helptheagricultural sector (asamostly tradable sector) whilenegatively Nonagriculture (Yna) Agriculture (Ya) work. impacting non–tradable sectors, suchasconstruction, where poorrural migrants may lookfor temporary F Structure ofIncomes forRural Families xotbe()Ipral m Nontradable (nt) Ynax Importable(m) Yax Exportable (x) Ynam Yam 9 Ynant Yant 5 2030 / Food, Agriculture and rural development in Latin America and the Caribbean 6 As anexample,considerthebasicnationalincomeequationGDP=C+I+G+EX-IM balance. in production, employment, tradeandthelikethatbringthosemacroeconomic accountsinto tooneyearanalysis (whichmaygofrom toseveral onequarter years) andwhatare thechanges is ampleroom fordifferent opinions regarding how theymay balancewithintheperiodof Given thebasicconsistencyframework ofthemainmacroeconomic accountingidentities,there macroeconomic identities,by definition,willnothappenasenvisioned. based onprojections ornumericalassumptionsofvariables thatdonotadduptothosebasic whether theeconomyisin“equilibrium”, however defined,buteconomic programs oranalyses identities must balance as an accounting matter. Such balance does not say anything about account (seethedefinitionsand variables in monetary Díaz–Bonilla, 2015).Thoseaccounting include thenationalincomeaccount,balanceofpaymentfiscalaccountand accounting,whichcannotbeignored.identities follow They thedisciplineofdouble–entry the functioning of markets, agents and policies. While the opinions vary, the macroeconomic It hasbeensaidthatmacroeconomics isacollectionofaccountingequationsplus“opinions” about example 3.1 Global macroeconomic balances:thedisciplineofaccountingidentitiesandatrade 3. Individual identity, hastoadjustaswell. Mechanically, there are fourbasicoptionswithcombinations – IMa) shouldincrease in value, which impliesthattherest ofequation,beinganaccounting zero quotaofzero (by imposinganimport oraprohibitive tax).Thatmeansthat(EXa import trade balance.If, wantscompleteself-sufficiency, forinstance,acountry then IMa hastogo (EXa –IMa) isthenetagriculturaltradebalanceand(EXna–IMna) isthenetnon-agricultural GDP: (C+GI)=GDP-AEXa+EXna-IMa -IMna =(EXa –IMa) +(EXna–IMna) called Absorption (A): is (EXaandEXna),notingthatusuallyC+I+G (IMna) anddoingthesameforexports We canrearrange intoagricultural (IMa) thatequation,dividingimports andnon–agricultural impact ofremittances). of achievingfoodsecurity(theframework maybeappliedtoavariety ofissues,includingthe some trade policies and, in particular, proposals for food self–sufficiency and protection as a way

public andprivate), Gisgovernmental consumption, EXisexports, andIMisimports. Where, as usual, GDP is Gross domestic product, C is private consumption, I is total investment (including policies macroeconomic 10 6 todiscuss 2030 / Food, Agriculture and rural development in Latin America and the Caribbean affect the exchange rate and increase the external interest as a whole). rate paid by the country leads tomoneycreation andmayfuelinflation); and/orfrom the rest oftheworld(whichmay increase theinterest rateanddisplaceprivate sector borrowers); from theCentralBank (which deficits may require borrowing from thebankingandnon–banking private sector(whichmay and wages),includingthedifferent waysoffinancingpotentialdeficits. Forinstance,financing Fiscal policies also affect macro–prices (price level andinflation,interest rate, real exchange rate and ofcurrent expenditures suchasthoserelated tohumancapitalorscienceand technology. supply through theadditionalimpact of publicinvestments asanaccumulation of public capital investments, andthecombinationoftaxes andsubsidies.Fiscal policiesalsoinfluenceaggregate evolution ofaggregate through publicgeneralexpenditures demand,particularly andpublic Fiscal policies have multiple effects on the economy. For example, they influence the level and taxes andexpenditures. Bonilla anddeSalvo, 2019,there isamore detaileddiscussionofspecificfiscalpolicies,suchas This sectiontriestoplacefiscalpoliciesinthecontextofmacroeconomic program. In Díaz– 3.2 Fiscal policies would suggest(Díaz–Bonilla, 2015). wereefforts successful,theyhappenedattheexpense ofothercrops, astheprevious framework sufficiency insomestaple crops (suchaswheat).Anecdotalevidenceshows that,whenthose seventies) atself– some LatinAmerican and Caribbean countries stepped uptheir efforts After thefoodpricesspikesin2008and2011(asithappenedduringpriceshocksof impact onpoorconsumershastobetakenintoaccount. of themore expensive domesticallyproduced good.If thismore expensive goodisfood,the grow, this expansion will probably and in theconsumption force a decline in atleastsomeexports production capabilities,ontheother. Therefore, substitutionactivitiesmay althoughimport available factorsofproduction andresources, ontheonehand,andfullyemployed domestic Actual conditionsindeveloping countriesfallbetween theextremes ofunemployed andreadily other agriculturalandnon–agriculturalgoods. although itscompositionwillmove towards more production oftheprotected good,andlessof On theotherhand, if all factors of production are employed, then overall GDP will not change, (A) atthesamelevel. are now must be enoughtomaintain the absorption producingof goods the substituted imports other activities.Second, theincrease inincomesfrom thosepreviously unemployed factorsthat that canbemobilized toproduce thepreviously goodswithouttakingresources imported from hasunutilizedpossible if, domesticfactorsofproduction andother first,thecountry resources amount astheprevious IMa) andthatAbsorption doesnotdecline.However, thisisonly products areimported fullycompensatedforby more production (GDPincreases inthesame The impliedpreferred outcomeofthosesuggesting “self-sufficiency” wouldbethatthe previously agricultural tradebalancemayturnnegative. thereof: GDP may increase; Absorption may be reduced; EXa may be reduced; or the non- 11 2030 / Food, Agriculture and rural development in Latin America and the Caribbean productivity andgrowth. toprotectwith revenues, asmuchpossiblesocialsafetynetsandinvestments linkedto trying not manypolicyoptions,except tolettheexchange align expenditures rateadjustandprudently will maintainmacroeconomic stability(Go etal.2013).During thedownward cycle, there are and human capital would help with medium and long–term growth, and a countercyclical fund to financetransfers reduce poverty andmedium–term,investments inphysical intheshort and targetedsafetynetsforthepoorvulnerable (Go etal. 2013). While usingthewindfall funds, high-qualityinvestments linkedtoproductive infrastructure, R&Dandhumancapital, the best policy approach seems to beusing the extra funds for a balanced mix of countercyclical A relevant policyquestionishow tomanagethosecommoditycycles. During theupward cycle, across countries). avoid overvaluations oftheexchange heterogeneity rate(althoughobviously withimportant on average countriesresponded more thanintheseventies, whichalsohelpedto prudently (many of those in Latin America and the Caribbean) found that in the currentexports episode presenceafter analyzing32countriesthathave animportant ofcommoditiesinproduction and is amore detailedanalysisinDíaz–Bonilla, 2015).In particular, Céspedesand Velasco (2011), ofseveral economicvariablesthe performance (Medina, 2010;Céspedesand Velasco, 2011;there commodity boomreactivated theinterest inanalyzingthelinksbetween thosepricecycles and in LatinAmericaand the Caribbean (as well inotherdeveloping countries). The more recent exactly theoppositeofwhatpolicyapproach shouldbe.Thishappenedintheseventies revenues andexpenditures increase ingoodtimesandfiscaladjustmentstakeplacebadtimes, and othermacroeconomic variables, includingfiscalaccounts duetopro–cyclical policies: conditions requires specialconsideration.Thosecycles are associatedwith volatility ingrowth The linkbetween episodesofboomsandbustsincommoditypriceseconomicfiscal economic activitiesinthefaceofnegative externalshock. fiscalpoliciestosupport Caribbean countries,aswell astheimplementationofexpansionary of thedeclinecommoditypricesthataffectedpublic revenues inseveral LatinAmericanand of 2008and2009.Fiscal accountsintheregion because have deterioratedsincethen,inpart interest by theglobalfinancialcrisis ratesintheninetiesand2000s.Thatperiodwasinterrupted relief, theresumption ofglobaleconomicgrowth duringthe2000sanddeclineinworld in publicaccounts,helpedby thefiscalconsolidationofprevious decades,someschemesofdebt and theensuingdebtcrisis.During theninetiesand2000sthere were someimprovements conditions intheregion, related tothecollapseofcommodityprices,increase ininterest rates decades. Theglobalshocksoftheeightiesledtowidespread deteriorationoffiscalanddebt Overall, fiscal conditions were changing in Latin America and the Caribbean during the last expenditures, andborrowing. structureeffects anddistributive effectsoffiscalpolicieslinkedtothespecific of taxes,subsidies, rate and reducing theexternal competitiveness of the economy. There are alsomicroeconomic goods, theirexpansionmayincrease thepriceofthosegoods,appreciating thereal exchange Considering thatgovernment expenditures tendtohave alargercomponentofnon–traded 12 2030 / Food, Agriculture and rural development in Latin America and the Caribbean also beenaccompaniedby largeincreases inpoverty and foodinsecurity(Díaz–Bonilla, 2008). the region hasconverged tolower levels. Episodes highinflation have ofhyperinflation or very After highlevels ofinflation (andepisodesofhyperinflation)intheeighties andthenineties, Source: WEO databaseIMF(2019). Note: theBolivarian Republic of Venezuela isnotincludedinthelastcolumn(2010s) Table 3. comeunderthree Other mainheadings: topicsthatlinkfiscalissuesandagriculturalinterventions Table 3shows averages of inflation by decades. 3.3 Monetary policies,inflationand related issues for thepublicprograms andinvestments (Díaz–Bonilla, 2015). andimplementationsystems equity objectives, andtouseefficienttransparent budgetary define levels andcompositionofexpenditures thatallow theattainmentofgrowth and system that avoids disincentive effects, implement an efficient and honest tax administration, be sustainedover time.Additionally, todefinealevel andstructure ofthetax itisnecessary an appropriate tomaintainfiscalbalancesthatcan operationaldesign.Overall, itisimportant In must consider financialsustainability, anycase,allthoseinterventions cost–effectiveness and production subsidiesinLatinAmericaandtheCaribbeanseeDíaz–Bonilla andDe Salvo, 2019). (for amore detailedanalysisofallthree topicsindeveloping countriesseeDíaz–Bonilla, 2015;for typesofconditionalcashtransfers;andproductionand thenew subsidieswere relatively modets appear tohave beenlimited;generalized foodsubsidieshadbeenreplaced by targetedprograms during themostrecent episodeofhighprices:pricestabilizationschemesutilizingpublicstocks Mexico. However, thosethree typesofprograms donot seemtohave hadcomparablefiscalincidence public foodagency(CONASUPO)representedof between 3and9percent ofthetotalfiscaldeficit in Peru andbetween 1and2percent oftheGDP;andduringmid-eighties,deficits Scobie (1988)notedthatthericesubsidyin1980accountedfor14percent ofthegovernment deficit countries between thesixtiesandeighties.For instance,regarding generalfoodsubsidiesforconsumers In general,several ofthosethree fiscalimpactsinLatinAmericanandCaribbean topicshadimportant ASEAN-5 Latin AmericaandtheCaribbean Sub-Saharan Africa Middle East andNorthAfrica Emerging market anddeveloping economies Advanced economies World iii. ii. i. Inflation, average consumerprices(%annual) subsection). production subsidies(includingcredit subsidies; thelatterwillbediscussedinanother general foodsubsidiestoconsumers;and food prices; tomanagethelevel andvariability ofagriculturaland the useofpublicstockstotry 13 1980s 13.9 131.9 na 11.0 36.6 6.5 15.8 1990s 10.3 150.2 19.7 11.0 55.4 2.9 20.2 2000s 5.8 6.2 10.7 6.6 6.9 2.0 4.2 2010s 3.9 5.2 8.6 7.7 5.2 1.5 3.6 2030 / Food, Agriculture and rural development in Latin America and the Caribbean 7 more relevant forfoodsecuritythanoverall inflation. households devote largershares oftheirincometofood,inflation infoodproducts maybe often citeinflationasacentralconcern(Easterlyand Fischer, 2000)and,given thefactthatpoor pressures). Also,highinflationlevels negatively affect andfoodsecurity.poverty Poorpopulations tocontrolchannels (suchasarateofdevaluation inflationary lower totry thaninflation,inpart on growth andwouldalsogenerateanappreciation ofthedomesticcurrency through other But inflation in the range of 25 to 30 percent or higher would most likely have negative effects positive consequencesoflower inflationonagriculture, foodsecurityandpoverty alleviation. could bringcapitalflows thatappreciate thelocalcurrency. Thoseadverse effectsmaynegatethe that targetmayrequire highreal interest ratesthataffectgrowth, increase unemployment, and a 2percent annualinflationrateistoolow foradeveloping country, consideringthat reaching without compromising growth whileavoiding overvalued exchange rates.It couldbe arguedthat crucial becauseitmust provideThe selectedinflationtargetis somesenseofpricestability income countriesintheregion moved (seeDíaz–Bonilla, 2015). totheITcategory income countriesintheregion show upmostlyintheERAandMTcategories,whilehigher- (see,forinstance,IMF,(IT) of“other”). category 2013,whichalsoconsidersafourth Lower– exchange targeting(MT), rateanchors (ERA) andinflation targeting approaches: monetary frameworksfollowThe basicallythreerest ofthecountrieswithindependentmonetary since then. affected by theswitchtodollarization,in badly El Salvadorvery thesectorhasbeenperforming shocks totheireconomies. While agriculturalgrowth inEcuador doesnotseemtohave been must have greater and nominal flexibility in other policyvariables instruments to accommodate policyandtheevolution oftheUSdollarinworldmarkets. Therefore,monetary thosecountries to the US dollar. policy anddepend onthe US They donot have an independent monetary rigidly arrangements linked very and several Caribbean countries that are injointmonetary In theregion there are three countriesthatare fullydollarized (Panamá, El Salvador andEcuador) thatprotect themfrominstruments priceincreases. because theyusually have nominalincomes that adjustslowly anddonothave accesstofinancial On the other hand, it has been argued that lower inflation tends to benefit poor populations poverty alleviation. regimes foodsecurityand andtheselectedtargetlevel forinflationonagriculturalperformance, Caribbean. More detailedanalyseswillbeneededtoelucidatetheimpactofdifferent monetary There islittleanalysisofthistopicingeneral,andeven lessappliedtoLatin Americaandthe those variables whentheeconomyandagriculturalsector sufferexternalorinternalshocks? food securityinnormaltimes,andwill,atthesame time,helpmaintainreasonable levels of thewholeeconomy,competitiveness inawaythatsupports agriculturaldevelopment and policyframework will aligngrowth,The questionis,then,whatmonetary inflation and breaking therecord levels suffered and by Germany inthethirties Zimbabwe incurrent times). inflation rates (the Bolivarian Republic of level, high hyperinflationary is at a Venezuela very the Bolivarian Republic of Venezuela are the onlycountriesofregion experiencinghigh In thisr of highandpersistent food inflation whenitisgenerated by macroeconomic, andnotsectoral, policies. egard, agricultural price stabilization schemesbasedonpublicstocks willnotaddress the problem 14 7 Currently Argentinaand,particularly, 2030 / Food, Agriculture and rural development in Latin America and the Caribbean 8 problems),programming toavoid inflationary approach, maintainingCentralBank lending(usuallywithinthelimitsofoverall monetary Key andSadoulet 1997).However, developing countriesinotherregions followed adifferent Central Banking financingandclosedmanyoftheagriculturalfinancialinstitutions (De Janvry, the nineties.LatinAmericanandCaribbeancountriesstopped“developmental role” of there were reversals duringtheeightiesdebtcrisis,reforms proceeded at afasterpacesince reform earlierinLatinAmericaandtheCaribbeanthanotherregions, started andalthough to liberalize thefinancialsystemandavoid directed credit anddedicatedinstitutions. Financial concerns led to a change in approach during the eighties and nineties. The policy proposal was farmers, allofwhichaffectedproduction, employment andequity. Thecombinationofallthose and credit rationingandmisallocation,whichwouldexclude smallandmediumfirms of publicbanks).There were concernsas well abouttheimpactongrowth oflower savings entities and theirmedium–termsustainability, and on fiscalaccounts (dueto recurrent bailouts The approach wasalsocriticized becauseofthenegative impactonthecapitalizationoffinancial in theseventies (World Bank, 1986). pressuresto inflationary and/orfueledtradedeficits,whichseemstohave beenthecaseof Brazil and directed credit. Thecreation ofexcess liquiditythrough agriculturalcredit subsidiesadded granting preferential loansthrough sector–specificinstitutions,whichsubsidized interest rates financing theagriculturalsector(andothers)wastoissue rediscounts from theCentral Bank, the bankingandfinancialsystemtopursuedevelopmental objectives. Acommonapproach to Many developing in countriesduringthesixtiesandseventies usedaseriesofinterventions 3.4 Banking andfinancialissues domestic credit totheprivate sectoraspercentage oftheGDP(see Table 4). it didnotreach ahighlevel ofmonetization of otherregions, whichalsolimitedthelevels of of high inflation in the region meant that, notwithstanding financial liberalization, The history

by theReserve BankofIndia(RBI,thecentral bank). Indiahasmaintainedfor many decadesan extensive system ofagricultural credit, administered at thetop 8 andreforming agriculturalfinancialinstitutions. 15 2030 / Food, Agriculture and rural development in Latin America and the Caribbean Table 4. financial system in the region is a potentially important source of financing for the necessary financial systeminthe source offinancing for thenecessary region isapotentially important As brieflydiscussedinother chapter(Díaz–Bonilla and Saravia-Matus, 2019),the banking/ (median) inLatinAmericaandtheCaribbean. 1.95 (average) and1.47(median)(Díaz–Bonilla, 2018),compared to0.76(average) and 0.66 As a reference, during the current decade, developed countries have had an AOI for credit of Source: Author from FAOSTAT (2019). Table 5. of agriculture inGDP. (greater) thanoneindicatesthattheshare ofcredit toagriculture isless(more) thantheshare credit over totalcredit dividedby theshare ofagriculturalGDPintotalGDP. Anumbersmaller intensity (AOI) ofcredit withdatafrom FAOSTAT. It shows thepercentage ofagricultural Regarding the agricultural sector, Table 5 displays an indicator called agricultural orientation other regions (Díaz–Bonilla, 2015),whichalsolimitstheexpansionofcredit ingeneral. of credit. Another factisthat LAC countriestend to have higherreal rates ofinterest than in Latin AmericaandtheCaribbeanisonlower sideoftheindicator, showing alimited supply Compared tootherdeveloping regions andtheworld(nottomention high incomecountries), Source: authorbasedon WDI/WB (2019). World Low andmiddleincome High income Sub-Saharan Africa South Asia Middle East andNorthAfrica Latin AmericaandtheCaribbean Europe andCentral Asia(excluding highincome) East AsiaandPacific Bolivia (Plurinational State of) Panama Argentina Uruguay AOI >1 Domestic credit toprivate sector(%ofGDP) Agricultural Orientation Intensity (credit; average forthe2010s) LAC Average LAC Median 0.66 0.76 Costa Rica Mexico Guyana Ecuador Peru Nicaragua Belize Dominican Republic AOI 0.5-1 16 1980s 102.2 40.5 88.0 30.7 29.8 23.2 37.3 117.1 17.8 Brazil El Salvador Jamaica Honduras Suriname Guatemala Trinidad andTobago AOI <0.5 1990s 135.2 161.4 118.8 34.8 48.7 23.6 52.8 31.4 NA 2000s 140.5 124.6 143.7 36.4 28.0 26.4 54.7 41.8 51.8 142.0 2010s 138.7 119.3 46.9 84.6 46.8 49.9 47.5 50.1 2030 / Food, Agriculture and rural development in Latin America and the Caribbean and asafinancial variable inthe “nominal anchorapproach” (whichhighlightsthe role ofthe of thereal exchange rateongrowth, production, trade andemployment; Balassa, 1977,1985) (which emphasizes thebalancebetween tradable andnon–tradablegoodstheinfluence (ER), typicallyrelated toitsdualrole asarelative priceinthe“real exchange rateapproach” Many crisesindeveloping countrieshave resulted from misalignmentsoftheexchange rate 3.5 Exchange ratepolicies ofagriculture.a policyprogram insupport Therefore, aholisticapproach is neededinwhichaccessanduseofcredit isjustacomponentof animal healthandsoon.Credit alonemaynotbeenoughtoovercome thoseconstraints. Also, smallfarmersfaceconstraintsinothermarkets suchasfertilizer, seeds,extensionservices, rural areas. into financial services cellular phones) has proven useful in reducing to be very transaction costs and expanding extensive andmore efficientlyusedinformationandcommunication technology(particularly developing countriesthantheinterest rate(Desai andMellor, 1993). In thatregard, more of localfinancialofficesmaybe more ruralborrowing, relevant to savings,anddepositsin Furthermore, other factors such as accessibility through an extensive geographical coverage should betransparent themarket savings. ratesneededtomobilize andshouldnotdistort rural or CentralBank matching fundstohelpreducebudgetary fundingcosts,buttheseoperations lead tolower overall interest rates(Meyer, 2011).In someinstances,thegovernment mayoffer improved sanitationandpreventive andweather forecasts diminishrisksandcan healthservices, in publicgoodssuchasagriculturalR&D,smallirrigationschemes,drought–resistant seeds, agencies working onlandtitling,whichalsoreduces transactioncosts.Government investments Furthermore, itispossibletoimprove andofpublic thefunctioningofcommercial courts relatively highadministrative andtransactioncostsperunitofloanvalue thataffectsmallfarmers. interest rate).Thegovernment mayalsooffersubsidiestofinancialinstitutions cover the pressuresgovernment toreduce inflationary (whichwould help maytry reduce thenominal in the setting offunding costs (that is, the market-determined interest rate). For instance, the Public withfinancialmarkets policycanhelpwithsomeofthecomponentswithoutinterfering Final interest rate (nominal)=costsoffunds+inflationrisksadministrative andtransaction costs to farmers;asimpleformulawouldbe: itisusefultounderstandthecomponentsoffinalinterestmore rate adequateinterventions, The perennial andcontroversial issueofinterest subsidiesmustalsobeconsidered. To devise economic objectives. ofamoneysupplyalignedwiththedesiredlong terminvestments) aspart inflationandother program toaccommodateCentralBank’s rediscounts for foragriculturallending(particularly customers. Thisanalysisshouldincludetheconsiderationofhow tostructure themonetary banking andfinancialsystemits rural relation toagriculturalandfoodproduction and environmentally sustainable.Therefore, toupdatetheanalysesof region’s itisnecessary conformation of foodsystemsthatare healthydietsandare dynamicandequitable, support investments toreach theSustainable Development forthe Goals (SDGs),andinparticular 17 2030 / Food, Agriculture and rural development in Latin America and the Caribbean Source: authorwithestimatesofreal ERby BISdatabase(2019),covering 61countries. Table 6. sample of61countries. calculated usingthedatabaseofBank forInternational Settlements (BIS)thatincludesa Table 6 shows of the the coefficient of real variation(CV) exchange rate (an indicator of volatility), controlled exchange ratewassupposedtoavoid. adjustments inthenominalparityofERandtriggeringadeepereconomiccrisisthat crisis intheBolivarian Republic of Venezuela. But thosecontrols usuallycollapse, causing larger to rent-seeking Thosemechanismshave beenusedextensively andcorruption. inthecurrent negative last, they have effecton economic activity andlead a very While these interventions floating;” Calvo and 2000),andthey tocontrolsReinhart, andmultipleexchangeresort rates. to theER)governments are reluctant toadjustthenominalparity(whathasbeencalled“fear of For thoseandotherreasons (suchasthecostsoffoodthatmaybedirectly orindirectly linked crisis. ThishappenedinArgentinatheeightiesandagainearly2000s. onthebanksandafull-fledgedfinancial honoring thedollardeposits,whichmaytriggerarun andlimitthepossibilityofbanks loans, asharpdevaluation maypushdebtorsintobankruptcy ER maybecomeovervalued. If thebankingsystemhasincreased itsshare ofdollardepositsand foreign currency, there isaresistance toadjustthenominalvalue oftheER,even thoughthereal governments’ balance sheet. When governments and private sectors are increasingly indebted in thebankingsystem,butalso liabilities ofdomesticactorsinUSdollars,particularly More recently, therole oftheERasnominalanchorincludedconcernsaboutassetsand 2001). anchor(see Díaz–Bonilla andSchamis, offailedattemptsatusingERasaninflationary history badly (Calvo and Végh, 1999).ThesamehappenedinArgentina recently, inlinewithalong Latin AmericaandtheCaribbeantouseERasameanscontrol inflationintheeightiesended and itisgenerallypreferably toassigntheERexternalcompetitiveness. Several attemptsin suchastheER.Policymakersjust oneinstrument foreachgoal, needtohave oneinstrument as in thereal exchange approach, and low inflation, as in the nominal anchor approach) with It difficultfora wouldbevery government toattainthetwoobjectives (externalcompetitiveness, Corden, 1990). process andits relationship withinterestnominal ERintheinflationary ratesandcapitalflows; Venezuela (Bolivarian Republic of) Argentina Brazil Mexico Colombia Chile Peru 1994-2018 Coefficient of Variationofthe RealEffective ExchangeRate Average (61 countries) Median (61 countries) 0.100 0.102 1.689 0.498 0.186 0.134 0.122 0.064 0.052 CV ofREER 18 2030 / Food, Agriculture and rural development in Latin America and the Caribbean 9 tocorrect deviationsasearlypossible. misalignments andtrying developing countries,analyzingdifferentcase ofcommodity-exporting indicatorsofpotential possibility of sudden reversals in those flows and the evolution of commodity prices in the linked toboomingtradablesectors,capitalflows (includingforeign aidand remittances), the countries.Therefore,important itisessentialtomonitortheimpactof Dutch diseaseeffects andexchangeas commodity prices, capital flows rate policies in systemically and monetary internal andexternalequilibrium,maychangewithdifferent conditionsinglobalmarkets, such It shouldbenotedthattheequilibriumlevel ofthereal ER,definedastheonethatattainsboth to endinwidespread economic,financialandbalance–of–payment crises. forthewholeeconomybecause,asnoted, ER. Thisisalsocrucial exchangeovervalued ratestend toavoid overvaluation substitutes,itisimportant orimport ofthe products, eitherasexportable In particular, for the operation of the agricultural sector, which has a large component of tradable with amanagedERthatisallowed todepreciate withinflation(asinthe real ERapproach). damaging adjustmentslater. Countries wouldfare better intermsofgrowth, andequity exports concerns aboutthepoorandvulnerabletendstoincrease theimbalancesandforce even more policy priority. Therefore, iftheERisbecoming delayinganadjustmentbecauseof overvalued, about poorandvulnerablepopulationsshouldmakeavoiding macroeconomic crisesthefirst and damagingadjustmentsinparity, andincreases poverty andfoodinsecurity. Concerns The mainconclusion is theneed toavoid an ofthe ER,which leads toabrupt overvaluation the Bolivarian Republic of Venezuela almost17timeslarger. extreme, Argentinahasavolatility almostfive timeslargerthanthecountriesconsidered and countries aswell asdifferent upper–middleandmiddle–incomecountries). On theother lower thantheaverage andthemedianforsampleof61countries(whichincludedeveloped Only Chileand Peru, countriesthat stabilized their macroeconomic variables, show a volatility hile misalignedERsinthedirection ofovervaluation appearto bebadfor theeconomy ingeneral, ithas W countries (Rodrik, 2008;Berg andMiao, 2010). Adiscussion isinDíaz–Bonilla,2015. been argued that undervalued exchange rates are associated withhigher growth, particularly for developing 19 9 2030 / Food, Agriculture and rural development in Latin America and the Caribbean also, inmanycases,thedismantlingofagricultural sectorpoliciesofprevious decades). international organizations(theyincludednotonly changesinmacroeconomic policiesbut suggested by thoseearlystudies,through “structural adjustmentprograms” by supported In the eighties and nineties many countries in the region implemented the policy reforms working againstthesector. 10 Schiff and Valdés 1988;Schiffand Valdés,1992) and sectoralagriculturalpolicies,even though,asarguedby someearlyanalysis(seeKrueger, The sectorgrew inthesixtiesandseventies buoyed globaleconomicconditions by supportive Source: World Development Indicators (World Bank), andFAOSTAT (2019). Figure 3.AnnualGrowth ofAgriculturalGDPand Total AgriculturalProduction GDP (from the World Bank) andfortotalagriculturalproduction (from FAOSTAT). Figure 3 shows theannual average growth rates forLatin America and theCaribbean’s agricultural 4. hose studies looked at aggregate relative price incentives resulting from direct trade policy measures (taxes cussion inDíaz–Bonilla andRobinson, 2010; Díaz–Bonilla,2015; see also Bértola andOcampo, 2012). which missed important interactions andcould notproperly definetheequilibrium ER(there isalongerdis- 2002) criticized theanalyticalunderpinnings ofthosestudies becauseoftheirpartialequilibrium nature, tural production thusaffecting theperformance ofthe sector. Later analyses (Jensen, Robinson and Tarp, these studies argued that the general macroeconomic framework imparted a negative bias against agricul- protected. However, addingtheindirect effects ofindustrial protection and exchange rate overvaluation, goods to beimplicitlytaxed withrespect to free market prices, whilethedomestic importablegoodswere and calculated that thepoliciesfollowed causedthedomestic prices received by producers ofexportable Caribbean countries (such asArgentina, Brazil, Mexico, Costa RicaandtheBolivarian Republic ofVenezuela) tion industrialization, andtheovervaluation oftheexchange rate. They includedseveral Latin Americanand and subsidiesonexport andimportsoffood products) andtheindirect effect of strategy of importsubstitu- T A brief historical perspective 20 10 , thegeneralmacroeconomic framework was 2030 / Food, Agriculture and rural development in Latin America and the Caribbean acknowledging ontheonehandthatexcessive levels ofprotection onfoodand agricultural Having aproperly valued exchange ratealsoallows the useofmore neutral commercial policies, financial inclusion. updated vision of financial markets, that emphasize andapproaches a variety for of instruments agriculture mostlikelyneedsspecificcredit withan programs, institutionsandinstruments inflows capital,anddollarizationofthebanking system. of volatile short-term Regarding credit, lowvery levels of inflation with high interest rates that lead to exchange rate overvaluation, be flexible enough to accommodates external shocks without overreacting, to force and not try frameworkthatmaintainssingle-digitinflationlevels isalso needed,butithasto A monetary many agricultural products side) are are, or the import not placed at a disadvantage. on the export which reduces significantlythepossibilityofcrisesandensures thattradableproducts (which economy) isonethatmaintainsfiscalbalancesandavoids the oftheexchangeovervaluation rate, A macroeconomic policyappropriate fortheagricultural sector (andinfactforthewhole is avast topicthatwasonlybrieflydiscussedhere. such assustainablegrowth, poverty andinequalityreduction, andfoodsecuritysafety. This effects onagriculture andfoodsecurity, affectinginturntheachievement ofpolicyobjectives a componentofthatbroader rangeofgovernment but theycanhave significant interventions, the value chains,plusdifferent aspectsofthe overall economy. Macroeconomic policiesare just governments covering usuallyadoptanarrayofinterventions thefarmer, settingand therural Given ofagriculturalproduction andfoodsecurity, theimportance developing–country 5. world thatisemerging. complex anduncertain calibrated macroeconomic policies.But itremains tobeseenhow theywillfare inthemore Latin American and Caribbeancountries have achieved, with some glaring exceptions, better geopolitical risks(Díaz–Bonilla, 2015,2016). globalperiodmaybeopeningwithretreatsthat anew ineconomicintegrationandincreases in and 2009.Theworldhasmoved toaperiodof relative low growth sincethen,withindications by theglobalfinancial crisisofpeaking in2008and 2008 2011. This periodwasinterrupted rates andbiofuelsmandates,allofwhichledtostronger demandandhighercommodityprices, changesinChinaandotherdeveloping countries,thedeclineinworldinterestthe structural Since the2000sagriculturalgrowth ratespickedupagainduetoamore dynamicglobaleconomy, 2010; Díaz–Bonilla, 2015). eighties andalsothefinancialshocksofmid–tolatenineties)(Díaz–Bonilla and Robinson, collapse ofcommoditypricesandtheincrease ininterest rates,whichledtothedebtcrisesof as thedismantlingofsectoralpoliciesanddeteriorationglobalconditions(with framework mayhave turnedmore ofagriculture, supportive otherfactorsworked against,such However, growth because,althoughthemacroeconomic ratesdeclinedduringthatperiod,inpart Final thoughts 21 2030 / Food, Agriculture and rural development in Latin America and the Caribbean be understoodandconsidered inpolicymaking. the incomedistributionimpactsandpoliticaleconomyofmacroeconomic policiesneedto domestic andglobalconditions.Second, allpolicieshave distributive consequences.Therefore, global economy. Thesamemacroeconomic policymayhave different effectsdependingonthose with thecountry’s conditions(includingissueslikelandtenure) structural andthestateof Two final points. First, policymakersshouldconsiderhow macroeconomic policiesinteract account thenetwelfare andemployment consequences. the needsofconsumers,ononehand,andproducers andworkers, ontheother, takinginto incomesduringthatprocess. In andsupport tobalance opportunities general,itisimportant available tofacilitatethe(probablypolicy instruments long)transitiontootheremployment factors ofproduction thatare noteasilytransferred tootheractivitiesandthere are noother may notnecessarilyincrease nationalwelfare ifitleadstoincreases inunemployment of practices. On theotherhand,apolicyofcompletefree tradeinagriculture andfoodproduction adoptionofimprovednets, whichcanbeexpandedtosupport technologiesandsustainable producers, then,ratherthanprotection foraspecificcrop, itisbettertoimplementsafety are investments inhumancapital,infrastructure andtechnology. If theconcernisaboutpoor in Díaz–Bonilla andDe Salvo, 2019).In thecaseofindividualproducts, thebestinstruments items represent ataxonconsumers(affectingmore thepoor)(seeestimatesoftradeprotection 22 2030 / Food, Agriculture and rural development in Latin America and the Caribbean Series 2.Rome. FAO. Agricultural Policy andEconomic Development America. New Directions and New Challenges. FAO Agricultural and Rural Development Policy inLatin De Janvry, A., Key, N. and Sadoulet, E. 1997. Working Paper 412. Washington, DC. World Bank. Developing Countries. World Bank Policy Research Corden, W.M. 1990.Exchange RatePolicy in Paper. Switzerland.BIS. 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