Middle Income Country Cases: Discussion

Transcription

1 Middle Income Country Cases: Discussion César Calderón (The World Bank) Economic Growth in Latin America: What Have We Learned? IMF Western Hemisphere Department Workshop November 17, 26

2 I. Stylized Facts Features of Latin American Economic Performance Low growth per capita High macroeconomic volatility Persistent inequality All middle income countries in the session share the features of the region.

3 Stylized Fact: Low and Volatile Growth Average Growth in GDP per capita Argentina Brazil Mexico Peru East Asia Industrial Countries Standard Deviation of Growth in GDP per capita Argentina Brazil Mexico Peru East Asia Industrial Countries

4 Stylized Fact: High Inequality 7 Income Inequality 6 Gini Coefficient (-1) Argentina Brazil Mexico Peru Latin America East Asia Europe USA

5 II. Explaining Growth in LAC Lost Decade of the 198s Macroeconomic policy mismanagement Deterioration of the external environment Recovery of the 199s Constribution of structural reforms Considerable gain but not as large as expected

6 What explains the lost decade of the 198s? Modest progress in structural reforms was vastly overshadowed by deterioration in stabilization policies Disastrous in some cases: especially in Peru Chile was the only clear exception Convergence and, specially, cyclical reversion had a negative impact on growth This effect was sizable: up to 2.5 pp in Argentina and Brazil External factors played strongly against growth in the region The 198s marked a downward break for world growth conditions: 1-2 pp decrease in the growth rate

7 Explaining the Lost Decade Growth Changes due to Stabilization Policies in the 198s PER ARG BOL URY COL MEX BRA SLV ECU VEN DOM PRY CRI HND CHL

8 What explains the growth recovery of the 199s? The 199s was a reform decade. For most reforming countries, the growth contribution from structural and stabilization reforms amounted to pp This gain is considerable but not as initially expected: we were supposed to become the new tiger economies Cyclical recovery had a positive impact on growth This effect was sizable: In Argentina, it explains 25% of the growth increase, and in Brazil, 5% External factors again played against growth in the region but not substantially: less than.5 pp

9 Growth Recovery of the 199s 2.5 Growth Changes due to Structural Reforms in the 199s VEN HND ECU BRA URY ARG CRI COL DOM PER BOL MEX CHL PRY SLV

10 Has LAC s growth in the aftermath of the market-oriented reforms been disappointing? In general, the growth performance has not been disappointing: In 8% of LAC countries, the actual growth improvement was higher or equal to the expected change Post-reform growth has not been disappointing because countries that reformed the most, grew the most.

11 III. Forecasts Two Scenarios: Continuation of the trend: realistic Sharp-progress: upper bounds To Top Quartile of the World Distribution Structural reforms: Education and public infrastructure would be the main engines. Stabilization policies: Most gains would come from avoiding financial crises Warning: abandoning macro stability could produce massive losses

12 Projected Growth due to Advances in Structural Reforms, 21-1 vs Argentina Brazil Chile Mexico Peru Education Financial Depth Trade Openness Government Burden Public Infrastructure

13 Projected Growth due to Advances in Stabilization Policies, 21-1 vs Argentina Brazil Chile Mexico Peru Inflation Cyclical Volatility Real Exchange Rate Overvaluation Systemic Banking Crises

14 IV. Areas of Opportunity Simulations suggest LAC may have potential growth benefits from advances in: 1. Education 2. Infrastructure LAC needs to design policy responses to volatile shocks.

15 4.1 EDUCATION

16 Deficit in Years of Education. Mean years of education, population aged Barbados Argentin PanamaMalaysia Chile Philippi Trinidad Peru Uruguay Mexico Ecuador Guyana Thailand Costa Ri China Paraguay Bolivia Venezuel Jamaica Dominica Colombia Indonesi Nicaragu El Salva Brazil Honduras Guatemal Haiti United S New Zeal Canada Sweden Korea Australi Finland Hong Kon Taiwan Singapor Log of per capita GDP, 2 Fuente: De Ferranti et al. (23) Closing the Gap in Education and Technology. The World Bank

17 The Deficit in Secondary. Enrollment Net secondary enrolment rate, Jamaica Malaysia Trinidad Argentin Chile Guyana Peru Philippi Thailand Mexico Dominica China Ecuador Colombia IndonesiParaguay Costa Ri El Salva Belize Nicaragu Brazil Venezuel Sweden Korea Canada Finland New Zeal Australi United S Hong Kon Log of per capita GDP, 1998 Fuente: De Ferranti et al. (23) Closing the Gap in Education and Technology. The World Bank

18 The Deficit in Tertiary Enrollment. Gross tertiary enrolment rate, Korea Argentin Finland Australi United S New Zeal Sweden Canada Singapor Panama Chile Thailand Costa Ri Barbados Philippi PeruVenezuel Hong Kon Bolivia Bahamas Dominica Ecuador El Salva Colombia Mexico Nicaragu Honduras Brazil Guyana IndonesiParaguay Malaysia Suriname Guatemal Jamaica China Trinidad Haiti Belize Log of per capita GDP, 1998 Fuente: De Ferranti et al. (23) Closing the Gap in Education and Technology. The World Bank

19 65. Quality of education is poor too Mathematics score of secondary level students Singapor Mathematics score, 1998 TIMSS Moldova Bulgaria Romania Macedoni Iran Indonesi Philippi Morocco Slovak Hungary R Russian Malaysia Czech Re Latvia Lithuani Thailand Tunisia Turkey CHILE Korea Hong Kon Japan Belgium Slovenia Netherla Canada Australi Finland New Zeal England USA Cyprus Italy Israel 2 nd best score in LAC South Af Log of per capita GDP, 1998 Fuente: De Ferranti et al. (23) Closing the Gap in Education and Technology. The World Bank

20 Education Inequality ARGENTINA BRAZIL % poorest 3% richest % poorest 3% richest % of Population MEXICO 2 3% poorest 3% richest Source: Perry, Arias, López, Maloney and Servén (26) Poverty Reduction and Growth: Virtuous and Vicious Circles. Washington, DC: The World Bank Latin American and Caribbean Studies

21 Education Agenda Must raise level of secondary enrollment Not just an issue of money, but institutions and incentives Must facilitate access to tertiary Improve credit markets, financing Improve quality of education systems Link training programs to productive sector

22 INFRASTRUCTURE

23 V. Infrastructure Need to close the Gap: Stock Quality Access Focus on sectors: Telecommunications Electric Power Roads Water and Sanitation

24 Infrastructure: Key to Growth 6 Businesses that see Infrastructure as Serious Problem 5 4 % of Firms EAP ECA LAC MENA SA SSA Dissatisfaction with Infrastructure Privatizations in LAC % of Population 4 2 Source: Fay and Morrison (26) Infrastructure in Latin America and the Caribbean: Recent Development and Key Challenges. Directions in Development: Infrastructure. Washington, DC: The World Bank. VEN MEX BRA CHL PER COL ARG BOL

25 Infrastructure Gap with EA7? Infrastructure stocks grew steadily but at a slower pace than EA7 countries. Only Telecom narrow the gap with EA7 in last 25 years. Median LAC / Median EAP7 A. Infrastructure Stocks Main Telephone Lines Main Lines + Mobiles Electricity Generating Capacity Road Network Paved Road Network Median LAC / Median EAP B. Quality of Infrastructure Services Quality of Telecom Quality of Electricity Road Quality Source: Calderón and Servén (24) Trends in Infrastructure in Latin America, The World Bank Policy Research Working paper 341.

26 Infrastructure Gap with EA7? Main Telephone Lines per 1 workers Main Lines and Mobile Phones per 1 workers 8 8 Median LAC country / Median EAP ARG BRA MEX PER Median LAC country / Median EAP Argentina Brazil Mexico Peru Electricity Generating Capacity (MW per 1 workers) 4 Road Network (km. per sq.km. of surface area) Median LAC country / Median EAP Median LAC country / Median EAP Argentina Brazil Mexico Peru ARG BRA MEX PER Source: Calderón and Servén (24) Trends in Infrastructure in Latin America, The World Bank Policy Research Working paper 341.

27 Infrastructure Gap with EA7? 1 Quality of Infrastructure in Telecommunications 1 Quality of the Provision of Electric Energy Median LAC country / Median EAP Median LAC country / Median EAP Argentina Brazil Mexico Peru ARG BRA MEX PER Road Quality Median LAC country / Median EAP ARG BRA MEX PER Source: Calderón and Servén (24) Trends in Infrastructure in Latin America, The World Bank Policy Research Working paper 341.

28 Access to Infrastructure 1 Coverage of Piped Water Connections (% of Population) Bolivia Brazil Chile Colombia Ecuador El Salvador Nicaragua Paraguay Urban - Bottom 2% Urban - Top 2% Rural - Bottom 2% Rural - Top 2% Source: Fay and Morrison (25)

29 Infrastructure and Productivity Productivity Gains from Infrastructure (from 2% improvement of investment climate variables) Brazil Ecuador El Salvador Guatemala Honduras Indonesia Nicaragua Average Duration of Power Outages Loss in sales due to Transport Interruptions Average duration of Water Outages Average time to clear customs Source: Escribano, Peltier-Thiberge, Garrido and Singh (25) The Impact of Infrastructure on Competitiveness in Latin America: A Firm-Level Analysis based on Investment Climate Assessments. Washington, DC: The World Bank

30 POLICY VOLATILITY AND FINANCIAL MARKETS

31 Policy Volatility and Growth Volatility of Discretionary Fiscal Policy vs. Growth in Real GDP per capita CHL Growth in GDP per capita (%) 2. TTO CRI PAN COL 1. MEX URY ECU BRA JAM ARG GTM PER. HND BOL SLV PRY VEN NIC DOM -2. y = x R 2 =.46 HTI -3. Volatility of Fiscal Policy

32 Pro-Cyclical Fiscal Policies Cyclical Fiscal Policies and Domestic Investment 3.3 Gross Fixed Capital Formation as % of GDP (log) DOM y = x R 2 =.1773 PRY HND BRA CHL ECU COL JAM NIC.532 TTO CRI ARG PAN BOL GTM PER MEX URY Cyclicality of General Government Consumption Procyclical Fiscal Policies may have an anti-investment bias in LAC

33 Pro-Cyclical Fiscal Policies Cyclicality of Fiscal Policies and Access to International Credit Cyclical Fiscal Policies and Political Constraints.9.9 Cyclicality of Fiscal Policy JAM TTO BRA GTM HND NIC VEN MEX PER PAN ARG CHL COL ECU URY CRI BOL Cyclicality of Fiscal Policy PAN NIC TTO PRY JAM BRA MEX PER GTM VEN CHL ECU HND ARG CRI URY COL BOL.3 y =.3719x PRY R 2 = Cyclicality of Capital Flows.1 y = -.351x R 2 =.217 SLV. DOM Index of Political Constraints Procyclical Fiscal Policies are associated with: Access to international capital markets, and Weak governments

34 Developing Domestic Currency Markets 7 Brazil: Debt Composition Percent Jan- Sep- May-1 Jan-2 Sep-2 May-3 Jan-4 Sep-4 May-5 Jan-6 Sep-6 Floating Debt (Selic Linked) Inflation Linked Fixed Int. rate USD Exchange rate linked Source: Bloomberg

35 Developing Domestic Currency Markets In US$ Mexico: Private Bond Issuance (in billions) In 23 pesos Q1 98.Q1 99.Q1.Q1 1.Q1 2.Q1 3.Q1 4.Q1 5.Q1 6.Q1 5 External Market Domestic Market Source: BIS

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