BBVA Japan

1
LATIN AMERICA 2006Beyond 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 POSSIBLETHE 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 Americas Crusade
The Great Latin American Transformation
2
3
Conclusion
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
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000

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
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
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 Americas 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
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
20
Uruguay
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
GRADUALISM AND CONTINUISM PENSIONS REFORMS
20
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
((XM)/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 INEGI and 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
5
1
1
1
1
1
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
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Latin Americas Crusade
The Great Latin American Transformation
2
3
Conclusion
29
Latin America 2006 The political cycle is back
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
Countrys Total
and government 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
0,98
2003
8
15
Nicaragua
8
2004
6
16
Panama
8
0,96
2005
5
17
Venezuela
8
Source Frieden, Ghezzi y Stein, 2001
0,94
2006
11
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 Americas
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 2006Beyond Good Revolutionaries
and Free Marketeers
Javier Santiso Chief Economist Deputy
Director OECD Development Centre
BBVA Japan Tokyo ? May 30th 2006