1. LAC’s Trade: Crisis and Prospects Mauricio Mesquita Moreira. Economista Principal VPS/INT XXX Meeting of the Latin American Network of Central Banks and Finance Ministries October 21-23, 2009 Room CR2 Enrique V. Iglesias Conference Center 1330 New York Avenue, N.W., Washington, DC

2. Advanced economies’ falling demand and the sudden stop in trade finance have hit global trade hard, including LAC’s exports… Source: Integration and Trade Sector, IDB based on US Census Bureau

3. All subregions suffered, but some more than others Source: Integration and Trade Sector, IDB based on US Census Bureau

4. Global and LAC trade slowed sharply as of 4Q ’08. Trade plunged even further in the 1Q ’09. The figures for the 2Q suggest that the trade collapse has stopped worsening Change in Total Exports Over Corresponding Month from the Previous Year (%) Sources: Integration and Trade Sector, IDB based on country’s statistical offices and IMF

5. Both volumes and prices contribute to the world’s trade collapse with volumes contributing slightly more in the advanced economies while prices relatively more in the emerging economies Change in Total Exports, 2Q ’09 Over Corresponding Quarter from the Previous Year (%) Sources: Integration and Trade Sector, IDB based on CBP Netherlands Bureau of Economic Analysis, “World Trade Monitor”

6. For the overall region’s exports to the U.S. both prices and volume have been falling for manufacturing goods, whereas for non-manufacturing goods, prices have been the driving the fall.

8. China’s “decoupling” is engineering a big shift in the region’s direction of trade, notably in the Southern cone Change in LAC’s Exports, 1st Semester ’09 over Corresponding Semester from the Previous Year (%) Sources: Integration and Trade Sector, IDB based on US Census Bureau, Eurostat and ECLAC

9. Looking ahead: Will trade rebound? When and How? As in previous crisis, trade is likely to rebound quickly (income elasticity >3, Freund 2009) as soon as the world economy resumes growth. Yet, a slow recovery is expected for 2010 (slow or no growth in the US and the Euro Area). Demand from Asia, and particularly China, will continue to be much stronger Source: Integration and Trade Sector, IDB, based on IMF (WEO)

10. Business as Usual for LAC? Challenges ahead  the protectionist and activist threat  a shift to Asia  finding comparatives advantages in a congested manufacturing market

11. The Protectionist and Activist Threat Source: Simon Evenett. “What can be learned from crisis-era protectionism: an initial assessment.” CEPR Discussion Paper 7494. October 2009.

12. A Shift to Asia For South America the challenge is to diversify beyond basic commodities. For Mexico, the Caribbean and Central America, the challenge is to find opportunities to export, where complementarity is not obvious. Promoting inflows of Asian FDI might be a strategy to benefit.

13. Facing ever tough competition in manufacturing Crisis likely to intensify the competitive pressure from Asia (China & India), with comparative advantages being boosted by activist measures (subsidies, exch. rates, SEZs, etc..) Safe heavens? Resource-intensive and “transport- intensive” goods are the best bets (endowments + proximity to the regional and U.S. markets) Police agenda range from addressing non-traditional trade costs to more activist supply-side policies