Daniel Titelman, Director of the Financing for Development Division:
Middle-income Countries and a New Agenda for Financing for Development

Photo: Lorenzo Moscia/ECLAC

Over half of the world's countries currently belong in the middle-income category, and this group represents more than 70% of the world population and 26% of world GDP. The vast majority of Latin American and Caribbean countries come under this category according to the per capita income criterion. Out of the region's 33 countries, 28 are considered middle income, 4 are considered high income and one low income.

Income per capita is the main criterion used to allocate the financial resources of cooperation for development. The combination of this criterion with the decision to concentrate international cooperation resources on the fight against poverty and its most immediate effects has meant that resources have been channelled to the lowest income countries, to the detriment of middle-income countries.

The official development assistance (ODA) received by the region has plummeted since the 1960, both in terms of gross national income and in comparison with other developing regions. ODA for Latin America went from over 1% of the region's gross national income in the 1960s to 0.4% in the 1990s and 0.22% at present: between 2003 and 2010, the region's countries as a whole received just over 7.0 billion dollars per year in net ODA payments.

There are two major problems with allocating resources according to this rationale. First, overcoming poverty is both cause and effect of the development process, as it is a multifaceted process that not only involves improving living standards but also tackling a huge variety of structural gaps that constrain and hamper inclusive growth capable of dealing with the problems of poverty and inequality. Second, this rationale presupposes that the categories of low middle or high middle income countries reflect a relatively homogenous situation. However, the reality is typified by a huge variation in countries' conditions in terms of poverty, social inclusion and productive, institutional and financial capacity.

ECLAC is therefore arguing that constraints and challenges associated with development must not be treated as related in a linear fashion to countries' per capita income levels, but rather that the approach should be fine-tuned to assess development needs based on the structural needs that limit it. In that context, the Commission produced the document Middle-income countries: a structural gap approach.

To boost the participation of Latin American and Caribbean countries (and middle-income countries in general) in the international cooperation system, ECLAC proposes complementing the per capita income criterion with a new perspective that addresses the structural gaps that constrain the development of countries. What is proposed here is an approach that is both an alternative and a complement to the per capita income approach, one that entails explicitly incorporating into the development cooperation agenda an evaluation of needs and shortcomings that are not captured by income indicators but are reflected in other types of gaps.

The gaps considered in this new approach are income per capita, inequality and poverty, investment and saving, productivity and innovation, infrastructure, education, health, fiscality, gender and the environment.

For ECLAC, these gaps are the starting point for measuring needs and locating the main challenges for the region's economies. In this context, recipient countries of ODA must take an active role in establishing their development objectives and fostering a political dialogue at various levels (national, regional and global) to prioritize the cooperation areas and arrangements that are most appropriate in each case, such as programme aid, triangular cooperation and aid for trade.

The gap-based approach does not ignore the global efforts to achieve MDGs, but rather places them in a broader context of the obstacles in the way of countries' development processes.

Lastly, it should be emphasized that support for middle-income countries is systemically important in several key areas, such as international economic growth, economic and financial stability, environmental protection and increased social well-being. For this reason, the mindset governing the current international cooperation agenda should be revised, to incorporate the structural problems being experienced by most countries that are known as middle-income economies.