1. 1 Latin America in 2006: Beyond the Political Cycle COFACE Country Risk Conference Paris January 24 2006 Javier Santiso Chief Development Economist & Deputy Director OECD Development Centre

2. 2 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

3. 3 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

4. 4 During the period 2000-2005, 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

5. 5 While others had overcome the test of fire more recently: The case of Brazil Source: Based on Juan Martínez and Javier Santiso, 2003.

6. 6 19941997 2004 Inflation (end of year, %) 340,110,86,8 Fiscal budget (% GDP) -3,3-3,2-1,1 Current account (% GDP) -3,2 1,2 Trade openness (% GDP) 28,836,344,6 Debt service (% of exports) 35%37%27% External debt (% of exports) 274%207%154% External public debt (% of exports) 170%109%84% Source: BBVA But, above all, the macroeconomic starting point is very different: 1994 vs 2004

7. 7 The stars have been lined up for Latin America: Global growth boosted exports -2 0 1 2 3 4 5 6 7 8 9 10 197019731976197919821985198819911994199720002003 GDP Growth (%) World Source: WEO 2005 US Southeast Asia

8. 8 Venezuela 83.1% Peru 70.7% Chile 59.1% Colombia 46.3% Argentina 38.0% Brazil 29.6% Mexico 14.6% Latam31.2% Source: BBVA over total exports (2004) Exports of commodities 60 70 80 90 100 110 120 130 140 150 160 170 1996199719981999200020012002200320042005 Source: BBVA BBVA-MAP Index of Latin America commodity prices (100 =jan03) TOTAL Without oil The stars have been lined up for Latin America: Commodity boom has been a bonanza

9. 9 Source: Based on domestic sources Figures for 2004 and 2005 are forecasts Growth of GDB in China (Annual Percentage variation) Exports to China in 2003 (Percentage of total) The stars have been lined up for Latin America: China became a major trading partner

10. 10 Latin America 0 10 20 30 40 50 60 70 80 90 100 Ecuador Paraguay Bolivia Venezuela Chile Argentina Uruguay Colombia Peru Indonesia Brazil Canada Netherlands India Thailand Spain Malaysia Mexico Belgium UK France US Singapore Italy China Germany South Korea Taiwan Hong Kong Japan Source: WTO Exports of agricultural, energy and minery products (in % over the total) (2003) The stars have been lined up for Latin America: Asia is becoming a major growth pilar

11. 11 1997-2005 average: 8% 1980-1996 average: 350% The emergence of the political economy of the possible: The monetary anchor

12. 12 -10 -8 -6 -4 -2 0 2 198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004 2005(f)2006(f) Source: BBVA; (f) forecast Fiscal balance in Latin America (% GDP) average 1981-1989 average 1990-2002 The emergence of the political economy of the possible: The fiscal anchor

13. 13 0 5 10 15 20 25 30 35 40 45 1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004 Source: OECD, WTO and IMF Trade openness (trade flows over GDP; %) The emergence of the political economy of the possible: The trade anchor

14. 14 Brazil: trade openness and catching-up process Successful Asian emerging countries were able to simultaneously combine growth with a trade openness proccess. Brazil has recently started to open up its economy. It is also obtaining record trade surpluses: nearly 45 billion dollars in 2005; up 25% from the previous year.

15. 15 Top 100 firms in Latin-America 45 40 8 3 1111 0 10 20 30 40 50 BrazilMexicoChileArgentinaEcuadorColombiaPeruVenezuela Source: America Economia 2005 Brazil: Firms began to expand overseas

16. 16 Number of firms in Forbes 2000 0 5 10 15 20 25 30 35 IndiaSpainChinaBrazilMexicoChile Source: Forbes 2000 Brazil: Firms rallied the Mexican multilatinas The 50 more profitable firms 19 16 7 3 11111 0 5 10 15 20 BrazilMexicoChileArgentinaColombiaEcuadorPanamaPeruVenezuela Source: America Economia 2005

17. 17 In dealing with the multiple and complex problems of development, we have learnt that we must be deaf, like Ulysses, to the seductive chant of the unique paradigm. Albert Hirschman The political economy of the possible: The Latin American silent great transformation

18. 18 Thank you for your attention!