1. 1 BBVA Japan Tokyo May 30th 2006 Javier Santiso Chief Economist & Deputy Director OECD Development Centre LATIN AMERICA 2006: Beyond Good Revolutionaries and Free Marketeers

2. 2 LATIN AMERICA: IN THE GARDEN OF DELIGHTS?

3. 3 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

4. 4 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

5. 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. 6 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.

7. 7 1 Latin Americas Crusade The Great Latin American Transformation 2 1 3 Conclusion

8. 8 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 19741976 1978 19801982 1984 19861988 1990 19921994199619982000 CEPAL IDB IDB: Inter American Development Bank Source: Based on ECLAC and IADB

9. 9 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

10. 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%... … during succeeding decades the income per capita gap between the developped regions widened. 8600 29700

11. 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 8 años 11 años 1980 1987 1997 1983 1991 2003 Average Length Expansions:5,3 years Decelerations:4 years

12. 12 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)

13. 13 Venezuela 83.1% Peru 70.7% Chile 59.1% Colombia 46.3% Argentina 38.0% Brazil 29.6% Mexico 14.6% Latam31.2% Source: Based BBVA over total exports (2004) Exports of commodities 60 70 80 90 100 110 120 130 140 150 160 170 1996199719981999200020012002200320042005 Source: Based on BBVA BBVA-MAP Index of Latin America commodity prices (100 =jan03) TOTAL Without oil COMMODITY BOOM HAS BEEN A BONANZA

14. 14 1 Latin Americas Crusade The Great Latin American Transformation 2 1 3 Conclusion

15. 15 THE GREAT TRANSFORMATION: THE MONETARY MAST 0 50 100 150 200 250 Latin AmericaTotal Emerging Markets Inflation (%) Source: Based on IMF

16. 16 *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% 1996199719981999200020012002200320042005 -3.0*% +0.3% -4%-2%0%2%4%6% Brasil Colombia Peru* México Venezuela* Argentina* Chile* LAC-7: FISCAL BALANCE (SPNF, in % of GDP) THE GREAT TRANSFORMATION: THE FISCAL ANCHOR

17. 17 THE GREAT TRANSFORMATION: THE EXTERNAL ANCHOR 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 1974197619781980 19821984198619881990199219941996199820002002 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

18. 18 The political economy of the possible: Chile

19. 19 Evolution of the Pension System in Latin America (in % of GDP) 0% 5% 10% 15% 20% 25% 30% 123456789111 Num. periods ARGENTINABOLIVIACOLOMBIA COSTA RICACHILEEL SALVADOR MEXICOPERUURUGUAY Return of Democracy GRADUALISM AND CONTINUISM: PENSIONS REFORMS

20. 20 GRADUALISM AND CONTINUISM: PENSIONS REFORMS

21. 21 CHILE: A MAJOR PERFORMER IN LATIN AMERICA IN TERMS OF POLICY STABILITY Source: IADB Politics of Policies Report, 2006 Average

22. 22 The political economy of the possible: Mexico

23. 23 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 1980/121984/121988/121992/121996/122000/122004/12 Degree of Openness ((X+M)/PIB) 20 25 30 35 40 45 50 55 60 ChinaChileMexTurColArgPerúBraInd... Which has resulted in a greater degree of openness Source: INEGI and Banxico

24. 24 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 1980/121984/121988/121992/121996/122000/122004/12 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

25. 25 The political economy of the possible: Brazil

26. 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. Source: Based on BCB figures 0% 5% 10% 15% 20% 25% 30% 19771979198119831985198719891991199319951997199920012003 Trade Opennes (Exports + Imports) / GDP

27. 27 Number of firms in Forbes 2000 0 5 10 15 20 25 30 35 IndiaSpainChinaBrazilMexicoChile Source: Forbes 2000 BRAZILIAN FIRMS RALLIED MEXICAN MULTILATINAS The 50 more profitable firms 19 16 7 3 11111 0 5 10 15 20 BrazilMexicoChileArgentinaColombiaEcuadorPanamaPeruVenezuela Source: America Economia 2005

28. 28 1 Latin Americas Crusade The Great Latin American Transformation 2 1 3 Conclusion

29. 29 VENEZUELA ECUADOR PERÚ PARAGUAY ARGENTINA URUGUAY MÉXICO BRAZIL COLOMBIA CHILE EL SALVADOR NICARAGUA HONDURAS COSTA RICA GUATEMALA PANAMÁ REPÚBLICA DOMINICANA BOLIVIA Next presidential elections 2007 - 2009 2006 2004 - 2005 Latin America 2006: The political cycle is back

30. 30 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 -9-8-7-6-5-4-3-20123456789 Source: Frieden, Ghezzi y Stein, 2001 Country`s Total Elections 1Colombia13 198917 2Costa Rica11 199014 3Guatemala11 19913 4Ecuador10 19920 5Chile10 199310 6Peru10 199418 7Honduras10 19956 8Paraguay9 19968 9Brazil9 19977 10El Salvador9 199815 11Republica Dom.9 199912 Uruguay9 200011 13Mexico9 20014 14Argentina8 200213 15Nicaragua8 20038 16Panama8 20046 17Venezuela8 20055 18Bolivia7 200611

31. 31 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

32. 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. 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. 34 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

35. 35 BBVA Japan Tokyo May 30th 2006 Javier Santiso Chief Economist & Deputy Director OECD Development Centre LATIN AMERICA 2006: Beyond Good Revolutionaries and Free Marketeers