1 latin america in 2006: beyond the political cycle coface country risk conference paris january 24...
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Latin America in 2006:Latin America in 2006:Beyond the Political CycleBeyond the Political Cycle
COFACE Country Risk Conference
Paris January 24 2006
Javier SantisoChief Development Economist & Deputy Director
OECD Development Centre
2
VENEZUELA
ECUADOR
PERÚ
PARAGUAY
ARGENTINA
URUGUAY
MÉXICO
BRAZIL
COLOMBIA
CHILE
EL SALVADOR
NICARAGUA
HONDURAS
COSTA RICA
GUATEMALA
PANAMÁ
REPÚBLICA DOMINICANA
BOLIVIA
Next presidential elections
2007 - 200920062004 - 2005
Latin America 2006: The political cycle is Latin America 2006: The political cycle is backback
3
The timing game: Political cycles and crises The timing game: Political cycles and crises in Latin America used to be synchronized, in Latin America used to be synchronized,
1970-20001970-2000
Nominal exchange rate depreciationand government change
0,94
0,96
0,98
1
1,02
1,04
1,06
1,08
1,1
1,12
1,14
1,16
-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9
Source: Frieden, Ghezzi y Stein, 2001
Country`s Total Elections 1 Colombia 13 1989 172 Costa Rica 11 1990 143 Guatemala 11 1991 34 Ecuador 10 1992 05 Chile 10 1993 106Peru 10 1994 187 Honduras 10 1995 68 Paraguay 9 1996 89Brazil 9 1997 7
10 El Salvador 9 1998 1511Republica Dom. 9 1999 1212 Uruguay 9 2000 1113Mexico 9 2001 414 Argentina 8 2002 1315 Nicaragua 8 2003 816Panama 8 2004 617 Venezuela 8 2005 518 Bolivia 7 2006 11
4
During the period 2000-2005, some During the period 2000-2005, some countries achieved a decoupling: The case countries achieved a decoupling: The case
of Mexicoof Mexico
-30
-20
-10
0
10
20
30
40
50
60
7001
/01/
1975
01/1
0/19
76
01/0
7/19
78
01/0
4/19
80
01/0
1/19
82
01/1
0/19
83
01/0
7/19
85
01/0
4/19
87
01/0
1/19
89
01/1
0/19
90
01/0
7/19
92
01/0
4/19
94
01/0
1/19
96
01/1
0/19
97
01/0
7/19
99
01/0
4/20
01
Source: Jorge Blázquez and Javier Santiso, 2004.
Timing of Presidential Elections and Timing of Presidential Elections and Exchange Rate Depreciations in Mexico, Exchange Rate Depreciations in Mexico,
1975-20001975-2000 Election Year
Election Year
Election Year
5
While others had overcome the test of While others had overcome the test of fire more recently: The case of Brazilfire more recently: The case of Brazil
20%
25%
30%
35%
40%
45%
-180
-80
20
120
220
320
420
520
bp
Voter intention for Lula in the opinion polls
(left)
Spread Brazil-Emerging Countries and Electoral Polls1994
20%
22%
24%
26%
28%
30%
32%
-100
-50
0
50
100
150
200
pb.
Voter intention for Lula in the opinion polls
(left)
Spread Brazil-Emerging Countries and Electoral Polls1998
Source: Based on Juan Martínez and Javier
Santiso, 2003.
20%
25%
30%
35%
40%
45%
0
200
400
600
800
1000
1200
1400
Voter intention for Lula in the opinion polls
(left)
bp.Spread Brazil-Emerging Countries and Electoral Polls2002
Source: Datafolha, JP Morgan
6
1994 1997 2004
Inflation (end of year, %) 340,1 10,8 6,8
Fiscal budget (% GDP) -3,3 -3,2 -1,1
Current account (% GDP) -3,2 -3,2 1,2
Trade openness (% GDP) 28,8 36,3 44,6
Debt service (% of exports) 35% 37% 27%
External debt (% of exports) 274% 207% 154%
External public debt (% of exports)
170% 109% 84%
Source: BBVA
0
200
400600
800
1000
1200
14001600
1800
2000
dic-
91
sep-
92
jun-
93
mar
-94
dic-
94
sep-
95
jun-
96
mar
-97
dic-
97
sep-
98
jun-
99
mar
-00
dic-
00
sep-
01
jun-
02
mar
-03
dic-
03
sep-
04
jun-
05
Spread EMBI+ LatAmb.p.
Re c e s s io ns in Latam
Source: BBVA using JP Morgan data
average
+sd
-sd
But, above all, the macroeconomic But, above all, the macroeconomic starting point is very different: 1994 vs starting point is very different: 1994 vs
20042004
7
The stars have been lined up for Latin The stars have been lined up for Latin America:America:
Global growth boosted exportsGlobal growth boosted exports
-2
-1
0
1
2
3
4
5
6
7
8
9
1019
70
197
3
197
6
197
9
198
2
198
5
198
8
199
1
199
4
199
7
200
0
200
3
GDP GrowthGDP Growth (%)(%)
World
Source: WEO 2005
US
Southeast Asia
8
Venezuela 83.1%
Peru 70.7%
Chile 59.1%
Colombia 46.3%
Argentina 38.0%
Brazil 29.6%
Mexico 14.6%
Latam 31.2%
Source: BBVA
over total exports (2004)
Exports of commodities
60
70
80
90
100
110
120
130
140
150
160
170
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Source: BBVA
BBVA-MAP Index of Latin America commodity prices (100 =jan03)
TOTAL
Without oil
The stars have been lined up for Latin The stars have been lined up for Latin America:America:
Commodity boom has been a bonanzaCommodity boom has been a bonanza
9
Source: Based on domestic sources
Figures for 2004 and 2005 are forecasts
0
1
2
3
4
5
6
7
8
9
10
1997 1999 2001 2003 2005
Growth of GDB in China(Annual Percentage variation)
0
1
2
3
4
5
6
7
8
9
10
Chile
Arg
enti
na
Perú
Bra
sil
Uru
guay
Venezu
ela
Colo
mbia
Méxic
o
Exports to China in 2003(Percentage of total)
The stars have been lined up for Latin The stars have been lined up for Latin America:America:
China became a major trading partnerChina became a major trading partner
10
Latin America
0
10
20
30
40
50
60
70
80
90
100Ecu
ad
or
Para
gu
ay
Boliv
ia
Ven
ezu
ela
Ch
ile
Arg
en
tin
a
Uru
gu
ay
Colo
mb
ia
Peru
Ind
on
esi
a
Bra
zil
Can
ad
a
Neth
erl
an
ds
Ind
ia
Th
aila
nd
Sp
ain
Mala
ysi
a
Mexic
o
Belg
ium
UK
Fran
ce
US
Sin
gap
ore
Italy
Ch
ina
Germ
an
y
Sou
th K
ore
a
Taiw
an
Hon
g K
on
g
Jap
an
Source: WTO
Exports of agricultural, energy and minery productsExports of agricultural, energy and minery products(in % over the total) (2003)(in % over the total) (2003)
The stars have been lined up for Latin The stars have been lined up for Latin America:America:
Asia is becoming a major growth pilarAsia is becoming a major growth pilar
11
3429004121.0481.440520
0
50
100
150
200
25019
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
05(f
)20
06(f
)
Source: BBVA; (f) forecast
Inflation in Latin America (in %)
1997-2005 average: 8%
1980-1996average:
350%
The emergence of the political economy The emergence of the political economy of the possible: The monetary anchorof the possible: The monetary anchor
12
-10
-8
-6
-4
-2
0
219
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05(f
)20
06(f
)
Source: BBVA; (f) forecast
Fiscal balance in Latin America (% GDP)Fiscal balance in Latin America (% GDP)
average 1981-1989
average1990-2002
The emergence of the political economy The emergence of the political economy of the possible: The fiscal anchorof the possible: The fiscal anchor
13
0
5
10
15
20
25
30
35
40
451
98
01
98
11
98
21
98
31
98
41
98
51
98
61
98
71
98
81
98
91
99
01
99
11
99
21
99
31
99
41
99
51
99
61
99
71
99
81
99
92
00
02
00
12
00
22
00
32
00
4
Source: OECD, WTO and IMF
Trade openness (trade flows over GDP; %)Trade openness (trade flows over GDP; %)
The emergence of the political economy The emergence of the political economy of the possible: The trade anchorof the possible: The trade anchor
14
Brazil: trade openness and catching-up Brazil: trade openness and catching-up processprocess
Successful Asian emerging countries were able to simultaneously combine growth with a trade openness proccess.
Brazil has recently started to open up its economy. It is also obtaining record trade surpluses: nearly 45 billion dollars in 2005; up 25% from the previous year.
-1,0
-0,8
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
0,0 0,2 0,4 0,6 0,8 1,0 1,2
Thailand Taiwan South Korea Japan India China
2001-04
1951-55
2001-04
1951-55
Trade openness and development
Real tradeopenness(as a % of GDP)
Dev
iation
ofRea
l GDP pe
rcap
ita with
resp
ectt
owor
ldav
erag
e(in
loga
rith
ms)
Source: BBVA using Penn World Tables and IMF data
1951-55
2001-04
0%
5%
10%
15%
20%
25%
30%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Brazilian Real Trade Openness(as a % of GDP)
Source: BBVA
15
Top 100 firms in Latin-America
45
40
8
31 1 1 1
0
10
20
30
40
50
Brazil Mexico Chile Argentina Ecuador Colombia Peru Venezuela
Source: America Economia 2005
Brazil: Firms began to expand overseasBrazil: Firms began to expand overseas
Rk Firm Sector Exports04 (US$ Mill) % of sales % of sales
3 Petrobras Petroleum 6.728,7 16,5 11,212 Vale do Rio Doce Mining 2.433,5 23,5 30,632 Grupo Votorantim Holding 1.544,6 26,6 18,948 Usiminas Steel 1.137,3 24,7 9,121 Gerdau Steel 1.066,7 14,4 11,663 Gerdau Açominas Steel 935,6 24,5 22,440 Telesp Telecom 821,7 16,4 -66 CSN Steel 746,6 20,2 20,2
144 CST Steel 611,9 31,9 53,594 Cemig Electricity 521,7 19,4 -20 Electrobras Electricity 487,2 6,5 -62 Embraer Aerospace 473,1 12,3 86,952 Ambev-CBB Drinks 437,6 9,7 -
208 Aracruz Celulose Paper 402,5 31,3 61,8102 Balgo Mineira Steel 391,6 15,5 -143 Cosipa Steel 363,2 18,8 33,531 Telemar Norte Leste Telecom 345,5 5,9 -16 Odebrecht Holding 320,2 3,9 -
Utility
16
Number of firms in Forbes 2000
0
5
10
15
20
25
30
35
India Spain China Brazil Mexico Chile
Source: Forbes 2000
Brazil: Firms rallied the Mexican Brazil: Firms rallied the Mexican multilatinasmultilatinas
The 50 more profitable firms
19
16
7
3
1 1 1 1 1
0
5
10
15
20
Brazil Mexico Chile Argentina Colombia Ecuador Panama Peru Venezuela
Source: America Economia 2005
17
“In dealing with the multiple and complex problems of development, we have learnt that we must be deaf, like Ulysses, to the seductive chant of the unique paradigm”.
Albert Hirschman
The political economy of the possible:The political economy of the possible:The Latin American silent great The Latin American silent great
transformationtransformation
18
Thank youThank youfor your attention!for your attention!
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