Americas Latinas: revisited

Transcription

1 Americas Latinas: revisited Global Insight World Economic Outlook Conference Manuel Balmaseda Chief Economist Boston, October 2007 Boston October

2 A New LatAm Sounder Economics Sounder Domestic Policy With some external help AmericaS LatinaS Boston October

3 LatAm is not what it used to be. Economic fundamentals are sounder and it has clearly learned from past mistakes Average 80s GDP Growth (% yoy) Average 90- current* Inflation (% yoy) Current Account Balance (% GDP) * Averages for Inflation are and 1994-Current Fiscal Balance (% GDP) Source: IMF and CEMEX Boston October

4 Advance not only at the aggregate level. Most countries have improved their macro stance 10% GDP Growth 8% 6% 4% 2% 0% 6% 4% Mex Bra Chi Col Per Arg Ven Current Account Balance (% GDP) Average Average since % 2% 0% -2% Source: IMF and CEMEX -4% -6% Mex Bra Chi Col Per Arg Ven Boston October

5 Though moderating somewhat, 2008 will still be another good year for the Region GDP growth in main LatAm countries (e) 2008 (e) Argentina Brazil Chile Colombia Mexico Peru Venezuela Total Ex Mexico Source: IMF and CEMEX Boston October

6 The end of Political Cycles for Financial Markets? 60 Political cycles & exchange rate (MXN/$, monthly % change) Tequila Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Source: Datastream and CEMEX The shaded areas indicate electoral year. Boston October

7 The end of Political Cycles for Financial Markets? EMBI+(b.p.) and elections in Latin America Oct-05 Argentina (Pa) Bolivia (Pr) Venezuela (Pa) Dec-05 Source: JP Morgan and CEMEX Chile (1st round Pr and Pa) Colombia (Pa) Feb-06 Chile (2nd round Pr) Peru (1st round Pr and Pa) Apr-06 Colombia (Pr) Jun-06 Peru (2nd round Pr) Mexico (Pr) Ecuador (Pa and Pr) Aug-06 Oct-06 Brazil (1st round Pr and Pa) Dec-06 Venezuela (Pr) Brazil (2nd round Pr) Feb-07 (Pr) Presidential (Pa) Parliamentary Apr-07 Jun-07 Aug-07 Oct-07 Boston October

8 Brazil: appearances can be misleading Run-up to Lula s election If we were in 2002 Left party candidate, union leader. Lula s possible election was perceived by markets as a move towards heterodoxy Case Study: Two stages for Lula Lula elected Brazilian Sovereign Spread-Total Emerging Sovereign Spread (b.p) Elections (2nd round) The policies implemented have been quite orthodox. No anti-market derive Meirelles (Wall Street executive) named President of the CB. Increased the autonomy of the CB. Reforms of social security and the tax system. Primary surplus above IMF target Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Source: BCB, JP Morgan and CEMEX Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Boston October

9 Second chance: Alan García, learning by doing 150 Peru: Inflation (% yoy) %!!! Peru: Fiscal Balance (% GDP) A. García I A. García II Source: IIF, IMF and CEMEX Boston October

10 Although higher and more stable, growth could/should be more dynamic GDP Growth 2006 (%) GDP Growth 2007 (%) Developing Asia 9.8 Developing Asia 9.8 FSU 7.7 FSU 7.8 Emerging Europe 6.3 Middle East 5.9 Middle East 5.7 Emerging Europe 5.8 Africa 5.6 Africa 5.7 LatAm 5.5 LatAm 5.0 World 5.4 World 5.2 Source: IMF Source: IMF Boston October

11 Cyclical momentum should be used to address medium term challenges Macroeconomic policies index (Variation 1997 vs. 2005) Brazil Uruguay Ecuador Peru Chile Argentina Venezuela Costa Rica Bolivia Panama Source: Talvi (2006) Microeconomic policies index (Variation 1997 vs. 2006) Costa Rica Chile Brazil Panama Peru Ecuador Uruguay Bolivia Argentina Venezuela Three challenges Human Capital Infrastructure Capital Institutional Framework Boston October

12 Cyclical momentum should be used to address medium term challenges 4,5 Regulatory Framework 7 Infrastructure Index 6 3,0 5 LatAm & Caribbean 1,5 Trade and Labor 4 3 East Asian Tigers 0,0 Legal Rest 2 1-1,5 OECD Asia ex- China China Eastern Europe LatAm Source: Balmaseda & Melguizo (2006) on Doing Business in 2006 (World Bank) data The index is calibrated to a value of one for the East Asian tigers in 1980 and is a regional median. Source: World Bank Boston October

13 A New LatAm Sounder Economics Sounder Domestic Policy With some external help AmericaS LatinaS Boston October

14 The exogenous change: short or long lived? 1 Vigorous world economy, driven primarily by Southeast Asian economies 2 Positive Terms of Trade shock How permanent? 3 Strong rent-seeking behavior has helped EMs and favorable external financing conditions 4 Globalizing LatAm: Free Trade Agreements (FTAs) Boston October

15 1. Vigorous world economy: the Chinese engine World Economic growth by regions (% yoy) West East India China Rest U.S. Europe LatAm Middle East Emerging Asia World Source: IMF and CEMEX Boston October

16 2. Positive Terms of Trade shock: the Chinese engine LatAm Terms of Trade Index (1997=100) 35% (5,9% annual average) The Winners: Metals and Oil Exporters Terms of Trade by Country: growth since 2001 Ven Chile Per Col Arg Mex Bra Source: CEMEX using IMF and National Sources 0% 20% 40% 60% 80% 100% 120% 140% 160% Boston October

17 2. Positive Terms of Trade shock: the Chinese engine 450 Commodity Price Index ( =100) Oil Metals Foods 0 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Source: Datastream, CRB and CEMEX Boston October

18 3. Favorable financing conditions: high global liquidity and rent-seeking 300 Latin and Non-Latin Sovereign Spreads (EMBI +) 250 Latin Non Latin Latin and Non-Latin Sovereign Spreads (EMBI +) Latin Non Latin 0 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jun-07 Jun-07 Jun-07 Jul-07 Jul-07 Aug-07 Aug-07 Sep-07 Sep-07 Oct-07 Source: JP Morgan Boston October

19 A New LatAm Sounder Economics Sounder Domestic Policy With some external help AmericaS LatinaS Boston October

20 Americas Latinas Pro-market model Mexico, Brazil, Colombia, Chile, Peru Independent institutions. Orthodox monetary and fiscal policies. Existing reform agenda. Appropriate management of recent boom allows for the smoothing of future shocks. Interventionist model Argentina, Venezuela, Bolivia, Ecuador Concentration of power, presidentialist government. Bilateral agreements with economic agents (price controls, subsidies, etc.). No independent monetary policy. Long-term growth risks: anti-market reforms, interventionism. Boston October

21 Americas Latinas Venezuela Argentina Alternative route The financial paradox Worse LT Outlook Brasil The giant with feet of of clay Peru Colombia New kids on the block Mexico Chile The U.S. anchor Known quality Better LT Outlook Boston October

22 Investors seem to differentiate among Americas Latinas Attractive opportunities in the long run FDI 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% FDI and Portfolio Inflows over the last four quarters (% of Regional or Country GDP) Chi Col Per Mex LatAm Bra Arg Ecu Ven Bol -2% -1% 0% 1% 2% 3% 4% Porfolio FDI outflows from Venezuela (4% inflows in 2000, 8% in 1998). Rent-seeking behavior Source: CEMEX using IMF, IIF and National Sources Boston October

23 But they did not differentiate much in the recent past FDI and Portfolio Inflows in 2003 (% of Regional or Attractive opportunities in the long run FDI 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% Arg Country GDP) Bol Ven Mex LatAm BraCol Ecu -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% Porfolio Per Chi Default in Rent-seeking behavior Source: CEMEX using IMF, IIF and National Sources Boston October

24 As a conclusion Though moderating somewhat, 2008 will be another year above potential growth, sustained by both domestic and external dynamics In spite of the US woes, the external environment for the Region will still be supportive (commodities and China ) In the short run the economic momentum will be maintained in all countries in the Region but in the long run, the present path of economic policy should be reflected in diverging performances Boston October

25 Americas Latinas: revisited Global Insight World Economic Outlook Conference Manuel Balmaseda Chief Economist Boston, October 2007 Boston October