Latin America goes global

Transcription

1 Latin America goes global

2 2 Latin America Today 2014 Number of Countries 32 Total GDP (US$ BN) 5,800 Total Population (MM) 525 Toal Imports (US$ BN) 1092 Total Exports (US$ BN) 958 Poverty headcount ratio at $2 a day (% of population) Cities over 5 MM Pop 8 Source: IMF and World Bank */ Poverty in 2011; based on 1990 income classification 9*

3 Latin America in Many countries were governed through military dictatorships. Nationalism and prevailing economic theory favored protecting domestic markets and inward development. State intervention was intense, and state-owned corporations flourished Populist policies were frequently present In many cases, macroeconomic stability was lost Terrorism and armed rebel groups further damaged economies Rising population generated high poverty levels 3

4 Latin America s 1970s and 1980s showed virtually no progress Real Per Capita GDP, (in thousands of 2005 US$, adjusted by Power Parity Purchase PPP) Brazil Colombia Mexico Peru Chile China Barbados Source: University of Pennsylvania/Penn World Tables 4

5 Colombia Most countries showed a downward trend and a collapse of their economic growth Paraguay Jamaica Chile Honduras Costa Rica Brazil Ecuador Mexico Barbados Uruguay Panama Guatemala Venezuela Bolivia Peru Argentina Trinidad and Tobago Cumulative real GDP Growth in Latin America, (in percentage) Source: IMF 5

6 Peru Brazil Mexico Uruguay Ecuador Paraguay Costa Rica Colombia Venezuela Dom. Republic Chile Jamaica Guatemala Trinidad and Tobago Barbados Panama Mismanagement caused high inflation Average inflation between (in percentage) Source: IMF */ Simple average inflation for Peru and Brazil 6

7 : Structural reforms and a new era Latin American countries carried out significant structural reforms to overcome the lost decade. The primary objective was to replace the development model based on protection of the domestic markets and state intervention. The policies were oriented to: Macroeconomic stability: Improve fiscal conditions and control inflation rates. Integration: Increase export volume and foreign direct investment. Privatizations: Reduce the number of state-owned enterprises and its influence in production, promoting competitive markets. 7

8 Liberalization of trade regimes and productivity gains in the infrastructure sector Import tariff liberalization in Latin America, (in percentage) Share of privatizations by infrastructure sector, Source: Eduardo Lora (2012) Inter-American Development Bank 8

9 Policies to strengthen the banking system and to provide financial intermediaries market freedom Year of generalized liberalization of interest rates Freedom of financial contracts Have authorities interfered with the following aspects of financial contracts? Duration of loans Amortization scheme of loans Interest payment scheme Maximum interest rate of loans Maximum interest rate for loans in arrears Mandatory loans to selected sectors? Brazil 1989 Yes Yes Yes Yes Chile 1985 Yes Yes Colombia 1992 Yes Yes Yes Yes Yes Yes Ecuador 1994 Yes Yes Yes Yes Yes Guatemala 1995 Yes Yes Mexico 1988 Yes Yes Yes Yes Panama Before 1985 Yes Yes Peru 1991 Yes Yes Yes Uruguay 1985 Yes Yes Venezuela 1989 Yes Yes Yes Yes Source: Eduardo Lora (2012) Inter-American Development Bank 9

10 Chile Dom. Republic Panama Costa Rica Trinidad and Tobago Peru Bolivia Guatemala Argentina Honduras Mexico Colombia Brazil Ecuador Uruguay Venezuela Paraguay Jamaica Barbados Economic growth exceeded figures from previous decades 91.6 Cumulative real GDP Growth in Latin America, (in percentage) Source: IMF 10

11 Venezuela Jamaica Dom. Republic Costa Rica Uruguay Paraguay Ecuador Trinidad and Tobago Brazil Guatemala Bolivia Colombia Mexico Barbados Chile Panama Peru and significantly lower levels of inflation Average inflation between, Source: IMF 11

12 Uruguay Reforms contributed to achieve higher productivity levels Trinidad and Tobago Argentina Chile Guatemala Brazil Peru Bolivia Venezuela Latin America Dom. Republic Costa Rica Mexico Ecuador Jamaica Barbados Colombia St. Lucia 3.12 Productivity average growth rate, (var.% of Total Factor Productivity) Source: Conference Board 12

13 Ample fiscal stability and discipline generates confidence and attracts foreign investment Debt stock reduction in Latin America, (Current US$ BN) Foreign direct investment in Latin America, net inflows (Current US$ BN) Source: World Bank Source: World Bank 13

14 Notorious progress in poverty reduction Poverty headcount ratio at $2 a day in PPP, (in percentage of population) Bolivia Chile Mexico Brazil Colombia Peru Source: World Bank 14

15 Unemployment rate exhibits a trend decline, providing productive sectors with additional workforce Unemployment rate in Latin America and the Caribbean, (in percentage) Exports of good and services in Latin America and the Caribbean, (in billions of constant dollars 2005) Source: OIT Source: World Bank 15

16 and contributed to the emergence of Latin Multinationals Company Country Industry Aje group Peru Alcoholic and nonalcoholic beverages JBS-Friboi Brasil Meat processing Vale Brasil Ore carrier Lan Chile Airlines Sigdo Koppers Source: Companies Chile Construction, petrochemical and automobile Cemex Mexico Building materials Telmex Mexico Telecommunications Alfa group Major Latin Multinationals Mexico Auto components, petrochemicals, refrigerated foods, oil and natural gas ISA Colombia Energy and telecommunications Tenaris Argentina Manufacturing 16

17 MILA: Subregional integrated market The Latin American Integrated Market (MILA) began operating in May, 2011*. The integration of stock exchanges markets of Chile, Colombia, Mexico and Peru aims to promote growth of trading activity and a better exposure of their combined markets. Further alignment of trade, tax, and regulatory environments is being actively pursued. */ In december 2014, entry of Mexico to MILA became official. 17

18 18 MILA: integrated market MILA Brazil Number of Countries 4 1 Total GDP (US$ BN) 2,353 2,129 Total Population (MM) Toal Imports (US$ BN) Total Exports (US$ BN) Cities over 5 MM Pop 4 2 Stock Market Cap. (US$ BN) Source: IMF, World Bank, MILA, BOVESPA

19 The top Latin American performers in the Doing Business Index are the members of MILA Market capitalization in MILA, 2014 (in billions of dollars) Colombia Chile Peru Mexico Ease of doing business World Bank Index, 2015 (rank among 189 countries) Singapore New Zealand Hong Kong Colombia Peru Mexico Chile Jamaica Guatemala Trinidad & Tobago Uruguay Costa Rica Dominican Barbados Ecuador Brazil Argentina Bolivia Venezuela Source: MILA Source: World Bank 19

20 Their competitiveness has improved but its performance is stagnating Evolution in the Global Competitiveness Index-WEF, (ranking among the countries) N countries Perú Chile México Brazil Colombia Source: World Economic Forum 20

21 21 The pending agenda: more structural reforms Deceleration in China in recent years and less attractiveness for FDI may lower growth in Latin America. The need to implement further structural reforms to enhance economic prospects becomes imperative. Pending policies address developing labor markets and education, establish inclusive economic and political institutions and increase foreign direct investments. Finally, informality is a distinctive characteristic of the Latin America economy. It is necessary to implement reforms that effectively reduce informality and boost productivity and growth.

22 There is considerable space to implement further reforms, especially in the labor market 100% How much of the reform margin has been used 90% 80% 70% 60% Until 1994 Until 1999 Until 2004 Until % 40% 30% 20% 10% 0% Total Trade Financial Tax Privatizations Labor Source: Eduardo Lora (2012) Inter-American Development Bank */ The reform margin is calculates as (Xt-X85)/(1-X85), where Xt is the average of the reform index in year t and X85 is the average of the reform index in

23 The last years, Latin America has shown a slowdown in productivity Total Factor Productivity by emerging and developing economies (index 1990=100) Latin America China Other Developing Asia Middle East & North Africa Sub-Saharan Africa Russia, Central Asia and Southeast Europe Source: Conference Board 23

24 Europe and Central Asia Sub-Saharan Africa East Asia & Pacific Latin America and the Caribbean South Asia Middle East, North Africa, and Pakistan WEF: There is a sense of urgency for the region to overcome its productivity challenges to enhance competitiveness Global competitiveness index, (ranking among 140 countries) Average change in distance to frontier score between Switzerland Singapore 2 United States Chile Costa Rica Mexico Colombia Peru Uruguay 73 Brazil 75 Guatemala 78 Jamaica 86 Trinidad & 89 Dominican 98 Argentina 106 Bolivia 17 Venezuela 132 Source: World Economic Forum Source: World Bank-Doing Business 24

25 Informality transforms into less-efficient firms, high worker turnover and a less-educated workforce Bolivia Panama Peru Uruguay Guatemala Brazil Colombia Jamaica Venezuela, Trinidad and tobago Ecuador Mexico Costa rica Argentina Chile Average size of the shadow economy, (in % of total economy) Source: Schneider 2012, The Shadow Economy and Work in the Shadow: What do we (not Know? 25

26 That explains the drops in the Labor Market Efficiency Pillar of the WEF and the slowdown in job creation Labor Market Efficiency Pillar, (gains and drops in positions) Mexico Uruguay Venezuela Argentina Trinidad and Tobago Dom. Republic Colombia Bolivia Guatemala Jamaica Peru Costa Rica Chile Brazil Expected employment growth by regions in Latin America, (in percentage) Source: World Economic Forum Source: OIT 26

27 THIS WEEK: The Trans-Pacific Partnership (TPP) After five years of negotiations, the United States, Mexico, Chile, Peru and 8 other pacific rim nations reached a free trade agreement. The TPP ties together roughly 40 percent of the global economy and it s estimated that will see more than 18,000 tariffs on American products reduced to zero. Also, will establish minimum standards for the protection of intellectual property, workers and the environment. However, the TPP still needs to be ratified by US Congress 27

28 e The Trans-Pacific Partnership (TPP) 8.0 Exports of goods and services in Latin America and the Caribbean, e (in percent change) Mexico, Chile and Peru total exports of good and services, 2014 (% of total exports in Latin America and the Caribbean) Mexico Chile Peru Source: IMF Source: World Bank 28

29 New challenges for LatAm: 2016 and the future From its average 4% growth in the golden decade, 2015 will probably result in less than 1% growth rate. The China/commodity pull factors seem to be out of the game for a long cycle. Further development will demand better education, productivity, and overall competitiveness. Social and political instability may threaten the economy when fiscal policies tighten to adjust to the new normal. Progress of MILA and other regional integration efforts will have to endure an adverse cycle. 29

30 Thanks