chile 2007 : a pragmatist approach to global integration jacques de larosière advisor to the...
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Chile 2007 :A pragmatist approach to global
integration
Jacques de LarosièreAdvisor to the Chairman of BNP
Paribas and Former Managing Director of
the International Monetary Fund
Latin American Economic Outlook Conference
Vittorio CorboPresident, Central Bank of Chile
Paris 29th January 2007
2
The Chilean Economy I
The Chinese ConnectionII
ConclusionsIII
3
Chile is one of the few Latin-American countries converging with the US
0
5,000
10,000
15,000
20,000
25,000
1850 1870 1890 1910 1930 1950 1970 1990
1990 G
eary
-Kham
is in
tern
atio
nal
dolla
rs
Mexico
Brazil
Chile
USA
Average LA8
Source: OECD Development Centre, 2007.
Based on Angus Madison, Historical Statistics. The World Economy, Paris, OECD, 2003.
GDP per capita absolute terms
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1850 1870 1890 1910 1930 1950 1970 1990
% G
DP U
SA
Chile
Mexico
Brazil
Average LA8
GDP per capita relative to US
Plebiscite in Chile, 1988
4
Chile has also been able to take advantage of globalization by opening up and attracting
FDI
0
10
20
30
40
50
1980 1985 1990 1995 2000 2005
Mexico
USA
Chile
Brazil
Exports % GDP
Fuente: UNCTAD and World Development Indicators, World Bank, 2006.
• Chile is one of the most successful countries in the region attracting FDI
• It has also become a champion exporter
% G
DP
% G
DP
-1%
9%
19%
29%
39%
49%
59%
69%
1980 1985 1990 1995 2000 2005
Mexico
USA
Chile
Brazil
Foreign Direct Investment % GDP
5
0
20
40
60
80
100
120
140
160
Mala
ysia
Kore
a
Chile
Phili
ppin
es
Bra
zil
Mexic
o
%
Private credit/ GDP Stock market capitalization/ GDP
One of the strongest motors of growth for Chile has been its dynamic financial system
0
10
20
30
40
50
60
70
Chile
Mexic
o
Mala
ysia
Bra
zil
Kore
a
Phili
ppin
es
%
Financial strength index
Private bonds/ GDP
Source: Betancour, C. De Gregorio, J. Jara A. “Improving the Banking System: The Chilean Experience”. BIS Papers. No. 28, 2006.
Financial Development in Chile
• Chile’s financial system is one of the most dynamic in the region, but it still has to catch up with other emerging economies in some aspects
• In some aspects, e.g. stock market capitalization, Chile is doing even better than Korea
Financial Strength Index based on Moody’s index of financial system strength, based on a numerical scale assigned to weighted average bank ratings by country.
6
Pension reform in Chile has had a significant impact on growth rates and productivity
PENSION REFORM CONTRIBUTION TO GROWTH
3.14.1
0.5
0
1
2
3
4
5
6
GDP Growth 1960-1980 GDP Growth 1981-2001
(%)
Pensions reform contribution to growth
Growth rate
TOTAL FACTOR PRODUCTIVITY 1962-2002
80
90100
110120
130
140150
160
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
Base
year
1960=
100
Source: Vittorio Corbo, Klaus Schmidt-Hebbel. “Efectos Macroeconómicos de la Reforma de Pensiones en Chile”. Banco Central de Chile, Septiembre 2003. Based on data from Instituto Nacional de Estadística, Chile.
SAVING RATES (% TOTAL INVEST.)
75
80
85
90
95
100
105
110
115
120
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
% o
f In
vest
.
PENSION FUND ASSETS AND LABOUR FORCE ENROLMENT
0
10
20
30
40
50
60
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
% G
DP
0
2
4
6
8Pension Funds Assets (left axis)
Pension Workers Pension FundsAdmin. (right axis)
7
The Chilean Economy I
The Chinese ConnectionII
ConclusionsIII
8
China has become a major trading partner for Latin America and for Chile in particular
Source: Dirección General de Relaciones Económicas Internacionales de Chile, 2006.
0
2
4
6
8
10
12
Chile
Peru
Arge
ntin
a
Braz
il
Vene
zuel
a
Colo
mbi
a
Boliv
ia
Mex
ico
% o
f to
tal ex
por
ts
2000 2005
0
2
4
6
8
10
12
Chile
Peru
Mex
ico
Colo
mbi
a
Arge
ntin
a
Braz
il
Boliv
ia
Vene
zuel
a
% o
f tot
al im
port
s
2000 2005
Latin American exports to China (share of total exports)
Latin American Imports from China (share of total imports)
9
Chile’s exports destinations have diversified
North America (Nafta),
23%
Europe 25%
Asia36%
Latin America
12%
Others 4%
Regional distribution of Chilean exports to the world in 2005
Others13%
China31%
South Korea16%
India4%
Japan32%
Country distribution of Chilean exports to Asia in 2005
Source: Dirección General de Relaciones Económicas Internacionales de Chile, 2006.
10
This is very good news and a wise strategic bet
Source: OECD Development Centre, Agnus Madison database, and DIRECON, 2006.
0
2
4
6
8
10
12
Chin
a
Mal
aysi
a
Thai
land
Phill
ipin
es
Kor
ea
Indo
nes
ia
Avera
ge G
DP G
row
th r
ate
2000-2
005
The Asian drivers0%
5%
10%
15%
20%
25%
30%
1950 1960 1970 1980 1990 2000
% W
orl
d G
DP USA
China
Japan
% of World GDP
• Asia is a good bet for the future
• Other alliances with Asian economies are a bigger opportunity for Chile
11
Chile openness to trade and investment is remarkable, but export specialization is still
high
Share of Main Chilean Exported Goods2005
0
5
10
15
20
25
30
35
Copper Ores, slag Fish andderivatives
Fruits Wood related
Pulp ofwood,fibrous
materials
%
Source: OECD Development Centre, 2007.Based on: Intracen, Economist Intelligence Unit and Index of Economic Freedom (Wall Street Journal).
Share of Chilean Exports to China
0
2
4
6
8
10
12
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
% o
f Tota
l Export
s
12
A potential pitfall is that Chile’s exports to China are becoming more concentrated in
mining
0
10
20
30
40
50
60
70
80
90
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
% o
f to
tal e
xpor
ts t
o Chi
na
Agriculture Mines Industry
Chile: exports to China, by sector
Source: Dirección General de Relaciones Económicas Internacionales de Chile y Banco Central de Chile, 2006.
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Mill
ions
USD
Agriculture Mines Industry
Chile: exports to the world excluding China, by sector
13
The Chilean Economy I
The Chinese ConnectionII
ConclusionsIII
14
Conclusion: Chile is looking towards Asia
19961993-
94 1998 1999
Economic Agreements
BoliviaColombiaEcuador
VenezuelaFTA CanadaAssociation
with Mercosur
FTA MexicoEconomic
Agreement Peru
FTA Central America
2002
Economic Association
EU
2003
FTA USA EFTA
South Korea
2005
FTA ChinaEconomic
Association P-4
2006
Partial Scope Agreement
India
Current negotiations with India and JapanStudy for an
FTA with Thailand
2007
Western Hemisphere Asia
Source: Dirección General de Relaciones Económicas Internacionales de Chile, 2006.
EFTA: European Free Trade Association: Iceland, Liechtenstein, Norway, Switzerland.Note: TheP-4 group are: Brunei Darussalam, Chile, New Zealand, Singapore.
15
Concluding Remarks
Chile has made significant improvements to become a leading model for the region:
Financial sector development. Pension Reform. Trade openness and international insertion.
New trading partners, particularly Asia, have become increasingly important for Chile.
Chile 2007 :A pragmatist approach to global
integration
Jacques de LarosièreAdvisor to the Chairman of BNP
Paribas and Former Managing Director of
the International Monetary Fund
Latin American Economic Outlook Conference
Vittorio CorboPresident, Central Bank of Chile
Paris 29th January 2007
17
ANNEX
18
The good news is that Chile need not fear competition with China on a global level
Source: Blázquez, Rodríguez and Santiso, 2006.
Chinese trade competition with Latin America
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.0 0.1 0.2 0.3 0.4 0.5 0.6
Mexico
Brazil
Colombia
VenezuelaChile
Argentina
Peru
Costa Rica
Chinese global trade competition
0.2
0.3
0.4
0.5
0.6
0.7
0.30 0.35 0.40 0.45 0.50 0.55 0.6
Mexico
ThailandHungary
USA Czech R.
Spain
Poland
Japan
High specialisationCoefficient of specialisation
Coeffi
cien
t of
con
form
ity
Coeffi
cien
t of
con
form
ity
Note: Both CS and CC coefficients are indicators of trade competition, based on the export structure of each country. As coefficients approach to zero, competition between countries tends to be small, due to export complementarities. When coefficients increase, competition increases.
Low specialisation
19
Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: Blázquez, Rodríguez and Santiso, 2006.
China’s demand for commodities: a bonanza or a threat?
*Value of exports to US from China in same product categories as country´s exports, as % of country´s total exports to US
*Arithmetic average of the following indexes: CC= and CS=
where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in time t.
å --n
njt
nit aa
2
11
åå
å
n
njt
n
nit
n
njt
nit
aa
aa
22 )()(
Asian countries competition*
vs. Chinese exports to US, %
010203040506070
Thailand
Taiw
an
Indo
nesia
Mal
aysia
Philipp
ines
Sout
h Ko
rea
Sing
apor
e
Japa
n
Latin American countries competition* vs. Chinese main export products
0%
10%
20%
30%
40%
50%
60%
Méx
ico
Brazil
Colom
bia
Argen
tina
Peru
Urugu
ay
Chile
Venez
uela
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