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LATIN AMERICA 2006: Beyond Good Revolutionaries and Free Marketeers. Javier Santiso Chief Economist & Deputy Director OECD Development Centre. BBVA Japan Tokyo  May 30th 2006. LATIN AMERICA: IN THE GARDEN OF DELIGHTS?. THE FLOOD OF PARADIGMS IN LATIN AMERICA.

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LATIN AMERICA 2006:Beyond Good Revolutionaries and Free Marketeers

Javier Santiso

Chief Economist & Deputy Director

OECD Development Centre

BBVA Japan

Tokyo May 30th 2006


Latin america in the garden of delights l.jpg

LATIN AMERICA: IN THE GARDEN OF DELIGHTS?


The flood of paradigms in latin america l.jpg

THE FLOOD OF PARADIGMS IN LATIN AMERICA

Utopia in Latin America: from a spacial search to a temporal search.

A search which has impregnated the history of Latin American political economy: from structuralism to monetarism, from Marxism to Liberalism.

In the 20th Century the whole Continent was dancing a waltz of paradigms.


Democracy and the market the new alphabet l.jpg

DEMOCRACY AND THE MARKET: THE NEW ALPHABET

The transformations of the Latin American continent are now obvious.

In the region as a whole, the conceptual and practical framework of political economies have been transformed.

Democracy and the Market have taken over from Revolution and the State on the altar of references.

To sum up, a complete vocabulary and grammar have disappeared from the political and economic repertoire allowing a new ideology to emerge.


The emergence of the political economy of the possible l.jpg

THE EMERGENCE OF THE POLITICAL ECONOMY OF THE POSSIBLE

The strategy used by Ulysses: leaders know that they could be in danger of succumbing to the temptation of the sirens chanting the economic politics of the impossible.

They are cautious and they tie themselves to the masts of the fiscal and monetary institutions they have contribute to build.

Two strategies of development are being outlined – and sometimes combined-: one is an anchor of endogenous credibility, coming from within, and the other is an anchor of exognous credibility, coming from outside.


The political economy of the possible the silent transformation l.jpg

THE POLITICAL ECONOMY OF THE POSSIBLE:THE SILENT TRANSFORMATION

Javier Santiso, Latin America's Political Economy of the PossibleBeyond Good Revolutionaries and Free-Marketeers, Cambridge, Mass., MIT Press, 2006.


Slide7 l.jpg

1

1

Latin America’s Crusade

2

The Great Latin American Transformation

Conclusion

3


The big challenge the life after the washington consensus l.jpg

THE BIG CHALLENGE: THE LIFE AFTER THE “WASHINGTON CONSENSUS”

Index of Structural Reforms in Latin America

1.00

0.90

CEPAL

0.80

0.70

0.60

IDB

0.50

0.40

0.30

0.20

0.10

0.00

1970

1974

1976

1980

1982

1986

1988

1992

1994

1996

1998

2000

1972

1978

1984

1990

CEPAL: Latin American Economic Commission

IDB: Inter American Development Bank

Source: Based on ECLAC and IADB


A disappointing performance in the region l.jpg

A DISAPPOINTING PERFORMANCE IN THE REGION…

Not only was growth poor but it was also very volatile.

Source: Based on World Bank

Source: Based on World Bank


The consequence has been a divergence in the evolution of income per capita l.jpg

… during succeeding decades the income per capita gap between the developped regions

widened.

  • 29700

  • 8600

…THE CONSEQUENCE HAS BEEN A DIVERGENCE IN THE EVOLUTION OF INCOME PER CAPITA

With the exception of the 70s when Latin America attained an average growth rate of 6% ...


However an upward turn began with a new cycle in 2003 2006 l.jpg

1980

1997

1987

1983

2003

1991

8 años

8 años

11 años

Average Length

Expansions:5,3 years

Decelerations:4 years

HOWEVER AN UPWARD TURN BEGAN WITH A NEW CYCLE IN 2003-2006....

Latin American Cycles

The last cycle in the region was very long (11 years), especially compared to previous ones which lasted 8 years.

Source : BBVA


China and asia contribute also to growth in latin america l.jpg

CHINA AND ASIA CONTRIBUTE ALSO TO GROWTH IN LATIN AMERICA

Growth of GDP in China

(Annual percentage variation)

Exports to China in 2004

(Percentage of total)

Source: Based on domestic sources, before the revised figures released in Jnauary 2006.


Commodity boom has been a bonanza l.jpg

COMMODITY BOOM HAS BEEN A BONANZA

Exports of commodities

BBVA-MAP Index of Latin America commodity prices

(100 =jan03)

over total exports (2004)

170

160

Venezuela

83.1%

150

Peru

70.7%

140

Without oil

130

Chile

59.1%

120

Colombia

46.3%

110

TOTAL

100

Argentina

38.0%

90

Brazil

29.6%

80

70

Mexico

14.6%

60

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Latam

31.2%

Source: Based on BBVA

Source: Based BBVA


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1

1

Latin America’s Crusade

The Great Latin American Transformation

2

Conclusion

3


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THE GREAT TRANSFORMATION:

THE MONETARY MAST

Inflation (%)

250

200

150

100

50

0

Latin America

Total Emerging Markets

Source: Based on IMF


Slide16 l.jpg

Chile*

Argentina*

Venezuela*

México

Peru*

Colombia

Brasil

-4%

-2%

0%

2%

4%

6%

THE GREAT TRANSFORMATION:

THE FISCAL ANCHOR

By Country (2005)

+0.3%

0.5%

0.0%

-0.5%

-1.0%

-1.5%

-2.0%

-2.5%

-3.0%

-3.0*%

-3.5%

-4.0%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

*Central Government

LAC-7: FISCAL BALANCE

(SPNF, in % of GDP)


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THE GREAT TRANSFORMATION:

THE EXTERNAL ANCHOR

Trade openness in Latin America

Trade openness in 2005

50%

45%

Brazil

40%

Peru

35%

Colombia

30%

Argentina

25%

Uruguay

20%

15%

Venezuela

10%

Chile

5%

Mexico

0%

0%

10%

20%

30%

40%

50%

60%

70%

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

1974

1976

1978

1980

2004 (e)

Source: OECD Development Centre

Source: Based on BBVA


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The political economy of the possible: Chile


Slide19 l.jpg

Evolution of the Pension System in Latin America (in % of GDP)

Return of Democracy

30%

25%

20%

15%

10%

5%

0%

1

2

3

4

5

6

7

8

9

1

11

Num. periods

ARGENTINA

BOLIVIA

COLOMBIA

COSTA RICA

CHILE

EL SALVADOR

MEXICO

PERU

URUGUAY

GRADUALISM AND CONTINUISM: PENSIONS REFORMS


Gradualism and continuism pensions reforms l.jpg

Evolution of Pension Funds in Latin America (in % of GDP)

70%

60%

Retorno a democrácia

50%

40%

30%

20%

10%

0%

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

Num. periods

ARGENTINA

BOLIVIA

COLOMBIA

COSTA RICA

CHILE

EL SALVADOR

MEXICO

PERU

URUGUAY

GRADUALISM AND CONTINUISM: PENSIONS REFORMS


Chile a major performer in latin america in terms of policy stability l.jpg

CHILE: A MAJOR PERFORMER IN LATIN AMERICA IN TERMS OF POLICY STABILITY

Average

Source: IADB Politics of Policies Report, 2006


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The political economy of the possible: Mexico


External anchor the emergence of a global trader l.jpg

EXTERNAL ANCHOR: THE EMERGENCE OF A GLOBAL TRADER

Total Exports

... Which has resulted in a greater degree of openness

200

180

160

140

120

100

80

Degree of Openness

60

((X+M)/PIB)

40

60

20

55

0

1980/12

1984/12

1988/12

1992/12

1996/12

2000/12

2004/12

50

45

Mexican exports increased on average by 17% each year between 1989 and 2004 ...

40

35

30

25

20

China

Chile

Mex

Tur

Col

Arg

Perú

Bra

Ind

Source: INEGIand Banxico


The country now depends a lot less on raw materiales l.jpg

THE COUNTRY NOW DEPENDS A LOT LESS ON RAW MATERIALES

Exports

200

1,0

180

0,9

160

0,8

0,7

140

0,6

120

Non Oil

0,5

100

0,4

80

0,3

60

0,2

40

0,1

20

0,0

Oil

0

1980/12

1984/12

1988/12

1992/12

1996/12

2000/12

2004/12

The export of manufactured goods grew on average between 1990 and 2000, about 28% per year and now accounts for 90% of total exports.


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The political economy of the possible: Brazil


External transformation l.jpg

EXTERNAL TRANSFORMATION

Following the 1999 devaluation which give way to the floating of the real, the economy has gradually opened up, making it less vulnerable to external shocks.

Trade Opennes

(Exports + Imports) / GDP

30%

25%

20%

15%

10%

5%

0%

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Source: Based on BCB figures


Slide27 l.jpg

BRAZILIAN FIRMS RALLIED MEXICAN MULTILATINAS

The 50 more profitable firms

19

20

Number of firms in Forbes 2000

16

35

15

30

25

10

20

7

15

5

10

3

1

1

1

1

1

5

0

0

Brazil

Mexico

Chile

Argentina

Colombia

Ecuador

Panama

Peru

Venezuela

India

Spain

China

Brazil

Mexico

Chile

Source: America Economia 2005

Source: Forbes 2000


Slide28 l.jpg

1

1

Latin America’s Crusade

2

The Great Latin American Transformation

Conclusion

3


Slide29 l.jpg

Latin America 2006: The political cycle is back

MÉXICO

REPÚBLICA DOMINICANA

HONDURAS

GUATEMALA

VENEZUELA

NICARAGUA

EL SALVADOR

COSTA RICA

PANAMÁ

COLOMBIA

ECUADOR

BRAZIL

PERÚ

BOLIVIA

PARAGUAY

CHILE

URUGUAY

ARGENTINA

Next presidential elections

2007 - 2009

2006

2004 - 2005


The timing game political cycles and crises in latin america used to be synchronized 1970 2000 l.jpg

The timing game: Political cycles and crises in Latin America used to be synchronized, 1970-2000

Elections

Nominal exchange rate depreciation

Country`s Total

andgovernment change

1989

17

1

Colombia

13

1,16

1990

14

2

Costa Rica

11

1991

3

3

Guatemala

11

1,14

1992

0

4

Ecuador

10

1,12

1993

10

5

Chile

10

1994

18

6

Peru

10

1,1

1995

6

7

Honduras

10

1,08

1996

8

8

Paraguay

9

1997

7

9

Brazil

9

1,06

1998

15

10

El Salvador

9

1,04

1999

12

11

Republica Dom.

9

2000

11

1,02

12

Uruguay

9

2001

4

13

Mexico

9

1

2002

13

14

Argentina

8

2003

8

0,98

15

Nicaragua

8

2004

6

16

Panama

8

0,96

2005

5

17

Venezuela

8

Source: Frieden, Ghezzi y Stein, 2001

2006

11

0,94

18

Bolivia

7

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9


During the period 2000 2006 some countries achieved a decoupling the case of mexico l.jpg

During the period 2000-2006, some countries achieved a decoupling: The case of Mexico

Timing of Presidential Elections and Exchange Rate Depreciations in Mexico, 1975-2000

Election Year

Election Year

Election Year

Source: Jorge Blázquez and Javier Santiso, 2004.


While others had overcome the test of fire more recently the case of brazil l.jpg

While others had overcome the test of fire more recently: The case of Brazil

Source: Based on Juan Martínez and Javier Santiso, 2003.


Emerging democracies in latin america trends and issues l.jpg

Emerging Democracies in Latin America: Trends and issues

Average

Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.

MIT Press. Cambridge, Massachusetts, 2006

Based on the Inter-American Development Bank


The quality of policy making a pending issue for latin american l.jpg

The quality of policy making: A pending issue for Latin American

Key features of Public Policies: Inter-regional comparison

Source: IADB Politics of Policies Report, 2006 and World Economic Forum, 2005


Slide35 l.jpg

LATIN AMERICA 2006:Beyond Good Revolutionaries and Free Marketeers

Javier Santiso

Chief Economist & Deputy Director

OECD Development Centre

BBVA Japan

Tokyo May 30th 2006


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