Determinantes de los flujos de capitales. a las economías emergentes

Transcription

1 Determinantes de los flujos de capitales a las economías emergentes XCV Reunión de Gobernadores de Bancos Centrales del CEMLA Jose Juan Ruiz Aide memoir CEMLA Seminar Based on Capital Flows in South America. An Overview by Fabiano Bastos, Eduardo Borensztein, Julian Caballero y Bernardita Piedrabuena

2 Do we need capital inflows? Costs are well known (sudden stops, vola3lity, balance sheet problems, periods of real apprecia3on) But there are also benefits (FDI, long- term financing) Figure 2. Saving (Average 2s) and Investment (Required to Converge) Figure 1. Capital Stock per Worker in the Labor Force in 25 PPP US dollars/head 35, 3, % of nominal GDP 6% Required Investment 5% Average Domestic Saving 25, 2, 15, 4% 3% 1, 5, 2% BOL PRY COL PER BRA ECU URY VEN ARG CHL NZL GBR GER NLD CAN KOR FRA USA IRL HKG AUT DNK ITA AUS JPN BEL SGP NOR 1% Source: Own calculations based on IMF and WPT7.1. % ARG BOL BRA CHL COL ECU PER PRY URY VEN Source: Own calculations based on IMF and WPT7.1. At current Investment rates, it will take 3 to 15 years to converge to Capital/Labor raoos in the US

3 Too Much, Too litle, or just as always Figure 3. Gross Capital Inflows to SA1 countries % of GDP 8% 7% 6% 5% 4% 3% 2% 1% % Source: Own calculations based on IFS-IMF and WDI-WB Cross- country Simple Average

4 ComposiOon maters benchmarking too Figure 5. FDI and Non-FDI Inflows to SA1 countries US$ billion Non FDI Inflows FDI Source: Own calculations based on IFS-IMF and WDI-WB Mercados financieros muy favorables pero selectivos FDI Inflows Non FDI Inflows Annual average, billions of 25 US dollars 198s 199s 2s 198s 199s 2s SA ASIA China MEA ECA OECD In constant 25 US dollars

5 OuWlows Also Increasing Sharply Figure 7. FDI and Non-FDI Outflows to SA1 US$ B Non FDI Outflows FDI Outflows Source: Own calculations based on IFS-IMF and WDI-WB Need to focus on Net Flows

6 Determinants and Effects Determinants Commodity Prices Interest Rate Differen3als Risk Aversion (VIX) Macroeconomic Effects Growth Infla3on Current Account Real Exchange Rate

7 VolaOlity, Surges and Sudden stops Net Flows (as % of GDP) Decade SA1 ASIA China ECA 2.3% 2.5% 1.3% 4.9% 3.% 2.8% 2.6% 2.7% 1.2% 1.% 2.9% 2.5% Number of Episodes detected Surges Sudden Stops 199s s Total 25 2 In 2s, Net Flows average of 1.2 percent of GDP, Standard Devia3on of 1.7. Somewhat higher than other regions Vola3lity of FDI about half of that of non- FDI Figure 9. Surge and Sudden Stop Episodes Surges Arg Bol Bra Chi Col Ecu Par Per Uru Ven 1 1 Sudden Stops Arg Bol Bra Chi Col Ecu Per Ven 199.Q Q Q Q Q Q Q Q Q Q1 2.Q1 21.Q1 22.Q1 23.Q1 24.Q1 25.Q1 26.Q1 27.Q1 28.Q1 29.Q1 199.Q Q Q Q Q Q Q Q Q Q1 2.Q1 21.Q1 22.Q1 23.Q1 24.Q1 25.Q1 26.Q1 27.Q1 28.Q1 29.Q1

8 Surges: Determinants and Effects Integrated Countries Commodity Prices Non Integrated Countries Commodity Prices Median Deviation Entire Episode Median Deviation from Prior Median Deviation Entire Episode Median Deviation from Prior t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9 t+1 t+11 t+12 t+13 t+14-2 t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8

9 Surges: Determinants and Effects Integrated Countries GDP Growth Non Integrated Countries GDP Growth 6 Median Deviation Entire Episode Median Deviation from Prior 6 5. Median Deviation Entire Episode 3.4 Median Deviation from Prior t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9 t+1 t+11 t+12 t+13 t+14 t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8

10 Surges: Determinants and Effects Integrated Countries Real Effective Exchange Rate Depreciation Non Integrated Countries Real Effective Exchange Rate Depreciation Median Deviation Entire Episode Median Deviation from Prior Median Deviation Entire Episode Median Deviation from Prior t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9 t+1 t+11 t+12 t+13 t t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8

11 Sudden Stops: Determinants and Effects Commodity Prices VIX Index Median Deviation Entire Episode Median Deviation from Prior Median Deviation Entire Episode.7 Median Deviation from Prior t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t - 1 t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8

12 Sudden Stops: Determinants and Effects GDP Growth Real Effective Exchange Rate Depreciation Median Deviation Entire Episode Median Deviation from Prior Median Deviation Entire Episode Median Deviation from Prior t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t - 1 t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t- 8 t- 7 t- 6 t- 5 t- 4 t- 3 t- 2 t- 1 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8

13 Topics Most countries in South America will need significant net capital inflows to finance investment in the coming decade but the volatility of the flows poses a substantive policy challenge. Commodity prices stand out among the international determinants of volatility and extreme capital flow episodes: surges in inflows occur when commodity prices are high and the economies of the region are booming, while flows may suddenly stop when commodity prices fall and countries face slowdowns. Moreover, in the past few years, unconventional liquidity expansion in advanced economies (Quantitative Easing) has appeared to reinforce the procyclicality of international capital flows. The experience of South American economies suggests a few lessons : composition of external finance: priority to equity, debt in domestic currency and long maturities efficient and well-supervised financial system; robust exchange rate system, such as a managed float supported by a large stock of reserves; ensuring that the central bank establishes an anti-inflationary reputation and operates a well-understood policy rule; achieving a robust fiscal balance sheet, with a safe margin of fiscal solvency, gaining fiscal space through the application of fiscal restraint during booms in order to be able to implement counter-cyclical measures during busts.

14 Topics The surge in net capital inflows may be the reflection of a widening current account deficit, the flip side of reserve accumulation. It also makes a difference if the capital inflows respond to expectations of future productivity growth (a pull factor) or, on the contrary, they result from lower international interest rates (a push factor). Another warnings for policymakers collateral damage may show up in unexpected places the effectiveness of policies should be monitored over time, especially as it may tend to decline. The risks from surges in capital inflows are exacerbated by the tendency of bank intermediation to be procyclical. Empirical evidence shows that the probability of a banking crisis in response to a contagion shock increases with short-term bank debt, banking sector leverage, low international liquidity, strong credit growth, and rapid housing price increases.

15 Topics In terms of monetary policy, dealing with capital inflows may require to broaden the scope of central bank policy to include macro-prudential objectives. These complex issues raise the question of whether central banks should limit themselves to inflation targeting or in addition consider explicitly financial stability objectives in the conduct of monetary policy. (use of an interest rate rule which responds to deviations in credit from its reference value in addition to the standard linkages to inflation and growth?). Recent experiences in the region have shown that well designed policies succeeded in preventing capital flow swings from causing financial dislocations. Different countries applied different policies according to their circumstances. Brazil and Peru applied macro-prudential and other tools to deal with recent surges in capital inflows. The policies included foreign exchange interventions, the accumulation of international reserves, taxes on non-resident investors, management of reserve requirements in the banking system, and limits to foreign exchange and derivative positions of banks and institutional investors. Chile and Colombia, that had applied unremunerated reserve requirements on capital inflows in the past, concluded that capital controls were not necessary to manage inflows this time. In the former case, inflows were offset by outflows from the government s stabilization fund, and from pension funds and insurance companies that were building up portfolios of foreign assets. In the latter, there was a large increase in debt inflows but, thanks to hedging in the forward market, neither banks nor the corporate sector were exposed to exchange rate risk, and there was no appreciation pressure on the spot exchange rate.

16 Topics For Central Banks: how to pursue several different objectives with the available instruments. To operationalize a financial stability objective, an avenue to be explored is to monitor credit growth relative to what is considered a safe rate of expansion, combined with an aggregate measure of the degree of vulnerability of bank balance sheets. Macro-prudential instruments can help to deal with short-term capital inflows without affecting macroeconomic stability. Old weaknesses need to be addressed, including improving credibility, institutions and communication, financial market depth reducing dollarization.

17 Gracias Obrigado!

18 FDI Country by Country FDI Inflows (as % of GDP) Decade Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela.7%.8%.7% 2.% 1.3%.8%.3%.1%.5%.2% 2.6% 5.2% 1.5% 4.8% 2.1% 2.6% 1.9% 3.1%.5% 2.8% 2.2% 3.7% 2.9% 6.4% 3.4% 1.4% 1.3% 3.7% 4.2% 1.3%

19 Financial Flows Concentrated in Five Countries Non FDI Inflows (as % of GDP) Decade Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela Mea n 2.1% 5.7% 1.8% 4.9% 2.8% 4.5% 2.4% 6.6% 6.2%.2% 3.9% 4.1% 1.7% 3.5% 2.% 1.9%.8% 3.5% 3.4% 1.3% -.2% -.3% 1.5% 3.8% 1.5%.3%.7% 1.3% 2.%.6%

20 Net Flows Less PosiOve Than Previous Decades Net Flows (as % of GDP) Decade Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela Mea n 2.4% 4.% - 1.1% % 8.7% 1.8% % 2.4% 2.6% % 5.1%.9% % 2.7% 2.7% % 3.2% - 1.2% % 2.1% 2.9% % 6.3% 3.7% %.8% 3.8% % -.2% - 6.7%