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Latin America in 2006: Beyond the Political Cycle. Javier Santiso Chief Development Economist & Deputy Director OECD Development Centre. COFACE Country Risk Conference Paris  January 24 2006. Latin America 2006: The political cycle is back. MÉXICO. REPÚBLICA DOMINICANA. HONDURAS.

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Latin america in 2006 beyond the political cycle l.jpg

Latin America in 2006:Beyond the Political Cycle

Javier Santiso

Chief Development Economist & Deputy Director

OECD Development Centre

COFACE Country Risk Conference

Paris January 24 2006


Slide2 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 2005 some countries achieved a decoupling the case of mexico l.jpg
During the period 2000-2005, 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.


But above all the macroeconomic starting point is very different 1994 vs 2004 l.jpg
But, above all, the macroeconomic starting point is very different: 1994 vs 2004

1994

1997

2004

Inflation

340,1

10,8

6,8

(end of year, %)

Fiscal budget

-3,3

-3,2

-1,1

(% GDP)

Current account

-3,2

-3,2

1,2

(% GDP)

Trade openness

28,8

36,3

44,6

(% GDP)

Debt service

35%

37%

27%

(% of exports)

External debt

274%

207%

154%

(% of exports)

External public debt

170%

109%

84%

(% of exports)

Source: BBVA


The stars have been lined up for latin america global growth boosted exports l.jpg
The stars have been lined up for Latin America: different: 1994 vs 2004Global growth boosted exports

Southeast Asia

US

GDP Growth

(%)

10

9

8

7

6

5

World

4

3

2

1

0

-1

-2

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

Source: WEO 2005


The stars have been lined up for latin america commodity boom has been a bonanza l.jpg
The stars have been lined up for Latin America: different: 1994 vs 2004Commodity 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: BBVA

Source: BBVA


The stars have been lined up for latin america china became a major trading partner l.jpg
The stars have been lined up for Latin America: different: 1994 vs 2004China became a major trading partner

Growth of GDB in China

(Annual Percentage variation)

Exports to China in 2003

(Percentage of total)

Source: Based on domestic sources

Figures for 2004 and 2005 are forecasts


The stars have been lined up for latin america asia is becoming a major growth pilar l.jpg
The stars have been lined up for Latin America: different: 1994 vs 2004Asia is becoming a major growth pilar

Exports of agricultural, energy and minery products

(in % over the total) (2003)

100

90

Latin America

80

70

60

50

40

30

20

10

0

India

Chile

UK

China

Bolivia

Italy

Peru

US

Ecuador

Spain

Uruguay

Brazil

Japan

Colombia

Paraguay

Indonesia

Argentina

Taiwan

France

Venezuela

Mexico

Canada

Thailand

Malaysia

Belgium

Germany

Singapore

Hong Kong

Netherlands

South Korea

Source: WTO


The emergence of the political economy of the possible the monetary anchor l.jpg
The emergence of the political economy of the possible: The monetary anchor

1980-1996

average:

350%

1997-2005 average: 8%


The emergence of the political economy of the possible the fiscal anchor l.jpg
The emergence of the political economy of the possible: The fiscal anchor

Fiscal balance in Latin America (% GDP)

2

0

-2

-4

1990-2002

average

-6

-8

1981-1989

average

-10

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005(f)

2006(f)

Source: BBVA; (f) forecast


The emergence of the political economy of the possible the trade anchor l.jpg
The emergence of the political economy of the possible: The trade anchor

Trade openness (trade flows over GDP; %)

45

40

35

30

25

20

15

10

5

0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source: OECD, WTO and IMF


Brazil trade openness and catching up process l.jpg
Brazil: trade openness and catching-up process trade anchor

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.


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Brazil: Firms began to expand overseas trade anchor

Top 100 firms in Latin-America

50

45

40

40

30

20

8

10

3

1

1

1

1

0

Brazil

Mexico

Chile

Argentina

Ecuador

Colombia

Peru

Venezuela

Source: America Economia 2005


Slide16 l.jpg

Brazil: Firms rallied the Mexican trade anchormultilatinas

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


The political economy of the possible the latin american silent great transformation l.jpg
The political economy of the possible: trade anchorThe Latin American silent great transformation

“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


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Thank you trade anchorfor your attention!


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