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BBVA Japan Tokyo  May 30th 2006 Javier Santiso Chief Economist & Deputy Director OECD Development Centre LATIN AMERICA 2006: Beyond Good Revolutionaries and Free Marketeers

LATIN AMERICA: IN THE GARDEN OF DELIGHTS?: 

LATIN AMERICA: IN THE GARDEN OF DELIGHTS?

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. THE FLOOD OF PARADIGMS IN LATIN AMERICA

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. DEMOCRACY AND THE MARKET: THE NEW ALPHABET

THE EMERGENCE OF THE POLITICAL ECONOMY OF THE POSSIBLE: 

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.

THE POLITICAL ECONOMY OF THE POSSIBLE:THE SILENT TRANSFORMATION: 

THE POLITICAL ECONOMY OF THE POSSIBLE: THE SILENT TRANSFORMATION Javier Santiso, Latin America's Political Economy of the Possible Beyond Good Revolutionaries and Free-Marketeers, Cambridge, Mass., MIT Press, 2006.

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1 Latin America’s Crusade The Great Latin American Transformation 2 1 3 Conclusion

THE BIG CHALLENGE: THE LIFE AFTER THE “WASHINGTON CONSENSUS”: 

CEPAL: Latin American Economic Commission THE BIG CHALLENGE: THE LIFE AFTER THE “WASHINGTON CONSENSUS” Index of Structural Reforms in Latin America 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 CEPAL IDB IDB: Inter American Development Bank Source: Based on ECLAC and IADB

A DISAPPOINTING PERFORMANCE IN THE REGION…: 

A DISAPPOINTING PERFORMANCE IN THE REGION… Source: Based on World Bank Not only was growth poor but it was also very volatile. Source: Based on World Bank

…THE CONSEQUENCE HAS BEEN A DIVERGENCE IN THE EVOLUTION OF INCOME PER CAPITA: 

…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% ...

HOWEVER AN UPWARD TURN BEGAN WITH A NEW CYCLE IN 2003-2006....: 

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

CHINA AND ASIA CONTRIBUTE ALSO TO GROWTH IN LATIN AMERICA: 

CHINA AND ASIA CONTRIBUTE ALSO TO GROWTH IN LATIN AMERICA Source: Based on domestic sources, before the revised figures released in Jnauary 2006. Growth of GDP in China (Annual percentage variation) Exports to China in 2004 (Percentage of total)

COMMODITY BOOM HAS BEEN A BONANZA: 

Venezuela 83.1% Peru 70.7% Chile 59.1% Colombia 46.3% Argentina 38.0% Brazil 29.6% Mexico 14.6% Latam 31.2% Source: Based BBVA over total exports (2004) Exports of commodities 60 70 80 90 100 110 120 130 140 150 160 170 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: Based on BBVA BBVA-MAP Index of Latin America commodity prices (100 =jan03) TOTAL Without oil COMMODITY BOOM HAS BEEN A BONANZA

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1 Latin America’s Crusade The Great Latin American Transformation 2 1 3 Conclusion

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THE GREAT TRANSFORMATION: THE MONETARY MAST 0 50 100 150 200 250 Latin America Total Emerging Markets Inflation (%) Source: Based on IMF

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*Central Government By Country (2005) -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 -3.0*% +0.3% LAC-7: FISCAL BALANCE (SPNF, in % of GDP) THE GREAT TRANSFORMATION: THE FISCAL ANCHOR

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THE GREAT TRANSFORMATION: THE EXTERNAL ANCHOR 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 (e) Trade openness in Latin America Source: Based on BBVA 0% 10% 20% 30% 40% 50% 60% 70% Mexico Chile Venezuela Uruguay Argentina Colombia Peru Brazil Trade openness in 2005 Source: OECD Development Centre

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The political economy of the possible: Chile

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GRADUALISM AND CONTINUISM: PENSIONS REFORMS

GRADUALISM AND CONTINUISM: PENSIONS REFORMS : 

GRADUALISM AND CONTINUISM: PENSIONS REFORMS

CHILE: A MAJOR PERFORMER IN LATIN AMERICA IN TERMS OF POLICY STABILITY: 

CHILE: A MAJOR PERFORMER IN LATIN AMERICA IN TERMS OF POLICY STABILITY Source: IADB Politics of Policies Report, 2006 Average

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The political economy of the possible: Mexico

EXTERNAL ANCHOR: THE EMERGENCE OF A GLOBAL TRADER: 

EXTERNAL ANCHOR: THE EMERGENCE OF A GLOBAL TRADER Mexican exports increased on average by 17% each year between 1989 and 2004 ... Total Exports 0 20 40 60 80 100 120 140 160 180 200 1980/12 1984/12 1988/12 1992/12 1996/12 2000/12 2004/12 Degree of Openness ((X+M)/PIB) 20 25 30 35 40 45 50 55 60 China Chile Mex Tur Col Arg Perú Bra Ind ... Which has resulted in a greater degree of openness Source: INEGI and Banxico

THE COUNTRY NOW DEPENDS A LOT LESS ON RAW MATERIALES : 

THE COUNTRY NOW DEPENDS A LOT LESS ON RAW MATERIALES The export of manufactured goods grew on average between 1990 and 2000, about 28% per year and now accounts for 90% of total exports. Exports 0 20 40 60 80 100 120 140 160 180 200 1980/12 1984/12 1988/12 1992/12 1996/12 2000/12 2004/12 Non Oil Oil 0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0

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The political economy of the possible: Brazil

EXTERNAL TRANSFORMATION : 

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. Source: Based on BCB figures 0% 5% 10% 15% 20% 25% 30% 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 Trade Opennes (Exports + Imports) / GDP

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Number of firms in Forbes 2000 0 5 10 15 20 25 30 35 India Spain China Brazil Mexico Chile Source: Forbes 2000 BRAZILIAN FIRMS RALLIED MEXICAN MULTILATINAS The 50 more profitable firms 19 16 7 3 1 1 1 1 1 0 5 10 15 20 Brazil Mexico Chile Argentina Colombia Ecuador Panama Peru Venezuela Source: America Economia 2005

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1 Latin America’s Crusade The Great Latin American Transformation 2 1 3 Conclusion

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Next presidential elections 2007 - 2009 2006 2004 - 2005 Latin America 2006: The political cycle is back

The timing game: Political cycles and crises in Latin America used to be synchronized, 1970-2000: 

The timing game: Political cycles and crises in Latin America used to be synchronized, 1970-2000 Nominal exchange rate depreciation and government change 0,94 0,96 0,98 1 1,02 1,04 1,06 1,08 1,1 1,12 1,14 1,16 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 Source: Frieden, Ghezzi y Stein, 2001 Country`s Total Elections 1 Colombia 13 1989 17 2 Costa Rica 11 1990 14 3 Guatemala 11 1991 3 4 Ecuador 10 1992 0 5 Chile 10 1993 10 6 Peru 10 1994 18 7 Honduras 10 1995 6 8 Paraguay 9 1996 8 9 Brazil 9 1997 7 10 El Salvador 9 1998 15 11 Republica Dom. 9 1999 12 12 Uruguay 9 2000 11 13 Mexico 9 2001 4 14 Argentina 8 2002 13 15 Nicaragua 8 2003 8 16 Panama 8 2004 6 17 Venezuela 8 2005 5 18 Bolivia 7 2006 11

During the period 2000-2006, some countries achieved a decoupling: The case of Mexico: 

During the period 2000-2006, some countries achieved a decoupling: The case of Mexico Source: Jorge Blázquez and Javier Santiso, 2004. Timing of Presidential Elections and Exchange Rate Depreciations in Mexico, 1975-2000 Election Year Election Year Election Year

While others had overcome the test of fire more recently: The case of Brazil: 

While others had overcome the test of fire more recently: The case of Brazil Source: Based on Juan Martínez and Javier Santiso, 2003.

Emerging Democracies in Latin America: Trends and issues: 

Emerging Democracies in Latin America: Trends and issues Average Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”. MIT Press. Cambridge, Massachusetts, 2006 Based on the Inter-American Development Bank

The quality of policy making: A pending issue for Latin American: 

The quality of policy making: A pending issue for Latin American Source: IADB Politics of Policies Report, 2006 and World Economic Forum, 2005 Key features of Public Policies: Inter-regional comparison

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BBVA Japan Tokyo  May 30th 2006 Javier Santiso Chief Economist & Deputy Director OECD Development Centre LATIN AMERICA 2006: Beyond Good Revolutionaries and Free Marketeers