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BBVA Japan Tokyo  May 30th 2006

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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BBVA Japan Tokyo  May 30th 2006

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  1. LATIN AMERICA 2006:Beyond Good Revolutionaries and Free Marketeers Javier Santiso Chief Economist & Deputy Director OECD Development Centre BBVA Japan Tokyo May 30th 2006

  2. LATIN AMERICA: IN THE GARDEN OF DELIGHTS?

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 1 1 Latin America’s Crusade 2 The Great Latin American Transformation Conclusion 3

  8. 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

  9. 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

  10. … 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% ...

  11. 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

  12. 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.

  13. 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

  14. 1 1 Latin America’s Crusade The Great Latin American Transformation 2 Conclusion 3

  15. THE GREAT TRANSFORMATION: THE MONETARY MAST Inflation (%) 250 200 150 100 50 0 Latin America Total Emerging Markets Source: Based on IMF

  16. 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)

  17. 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

  18. The political economy of the possible: Chile

  19. 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

  20. 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

  21. CHILE: A MAJOR PERFORMER IN LATIN AMERICA IN TERMS OF POLICY STABILITY Average Source: IADB Politics of Policies Report, 2006

  22. The political economy of the possible: Mexico

  23. 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

  24. 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.

  25. The political economy of the possible: Brazil

  26. 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

  27. 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

  28. 1 1 Latin America’s Crusade 2 The Great Latin American Transformation Conclusion 3

  29. 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

  30. 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

  31. 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.

  32. While others had overcome the test of fire more recently: The case of Brazil Source: Based on Juan Martínez and Javier Santiso, 2003.

  33. 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

  34. 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

  35. 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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