XL Meeting of the Network of Central Banks and Finance Ministries: Latin America Roundtable

XL Meeting of the Network of Central Banks and Finance Ministries: Latin America Roundtable Ernesto Talvi Academic Director, CERES (Uruguay) Nonresident Senior Fellow & Director Economic and Social Policy in Latin America Initiative (ESPLA), Brookings Institution Visiting Professor, Columbia University IDB, October 8 th 2014

References Talvi E. 2014. Latin America Macroeconomic Outlook: A Global Perspective. Macroeconomic Vulnerabilities in an Uncertain World: One Region, Three Latin Americas. The Brookings Global- CERES Economic & Social Policy in Latin America Initiative (ESPLA). http://www.brookings.edu/research/reports/2014/09/latin-america-macroeconomic-outlook-talvi Talvi E. 2014. "Latin America's Decade of Delopmentless Growth." in K. Dervis and H. Kharas (editors) "The Growth, Convergence and Divergence Debate.", forthcoming. Talvi E. 2014. A New Trans-American Partnership. Project Syndicate. http://www.project- syndicate.org/commentary/ernesto-talvi-calls-for-renewed-cooperation--beginning-with-trade-- between-north-and-south-america Talvi, E., and H. Trinkunas. 2013. The Upcoming Electoral Cycle in Latin America in the Midst of Social Unrest: What Lies Ahead? The Brookings Global-CERES Economic & Social Policy in Latin America Initiative (ESPLA). http://www.brookings.edu/blogs/up-front/posts/2013/10/28-electoralcycle-latin-america-talvi-trinkunas

OUTLINE I. The Global Outlook: Implications for Latin America II. Macroeconomic Challenges III. Development Challenges IV. Political Economy Challenges

Growth Phases in Latin America 2004-2014 Regional Growth Rates (LAC-7 annual GDP growth) 8% 7.8% Cooling-Off 7% 6.8% 6.7% 6% 5% 6.2% 4.5% 5.5% 5.5% Avg. 2004-2011 5.3% 4% 3.9% 3% 3.0% Avg. 2012-2014: 3.0% 2% 2.0% 1% 0% -1% -1.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* * FocusEconomics

Brookings Global-CERES External Conditions Index (BGC-ECI) (LAC-7 BGC-ECI, max = 1, min = 0) External Factors Growth in G-7 Countries 0.9 0.8 Very Favorable Russian Crisis Dot-Com Crisis 0.7 Favorable Growth in China 0.6 0.5 Neutral Commodity Prices 0.4 0.3 Unfavorable International Financial Conditions 0.2 Very Unfavorable Lehman s Bankruptcy 0.1 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 LAC-7 refers to the seven biggest economies in Latin America (Argentina, Brazil, Chile, Colombia, Mexico, Peru y Venezuela). They represent 93% of Latin America s GDP. Talvi, E., and I. Munyo. 2013. Latin America Macroeconomic Outlook: A Global Perspective. Are the Golden Years for Latin America Over?

The Global Outlook 2014-2018 Economic Activity in the G7 (Annual GDP growth and forecasts*, GDP weighted average) Economic Activity in China (Annual GDP growth and forecasts) 3.0% 2.5% 2.0% 1.5% 2.8% Historical Average: 2.5% 1.5% 1.4% 1.5% 2.2% 2.2% 2.2% 2.2% 2.0% 12% 10% 8% 6% 10.4% 9.3% Historical Average: 10.5% 7.7% 7.7% 7.5% 7.3% 7.0% 6.8% 6.6% 1.0% 4% 0.5% 2% 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 Primary Commodity Prices (All commodities, actual prices and forecasts, Jan-04 = 100) International Financing Costs (10 year U.S. treasury bonds yield and forecasts) 340 290 240 5.2% 4.2% 4.9% 190 3.2% 140 2.2% 2.6% 90 2004 2006 2008 2010 2012 2014 2016 2018 1.2% 2004 2006 2008 2010 2012 2014 2016 2018 Source: IMF, Bloomberg, and Federal Reserve.

Growth Forecasts for Latin America 2014-2018 Regional Growth Rates (LAC-7 annual GDP growth) 8% 7% 7.8% 6.8% 2004-2011: 5.3% 6.7% Projection 2014-18: 3.3% 6% 6.2% 5.5% 5.5% 5% 4% 3% 4.5% 3.9% 3,.% 3.1% 3.6% 3.9% 4.0% 2% 2.0% 1% 0% -1% -1.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015* 2016* 2017* 2018* *FocusEconomics

OUTLINE I. The Global Outlook: Implications for Latin America II. Macroeconomic Challenges III. Development Challenges IV. Political Economy Challenges

Banking Vulnerability Banking Vulnerability Ratio (BVR, Mar-14) 1.0 Fragile System Sound System 0.8 0.8 0.6 0.6 0.5 0.5 0.3 0.3 0.3 0.2 0.0 Venezuela Chile Brazil Peru Argentina Colombia Mexico

One Region, Three Latin Americas International Liquidity Ratio (ILR, Dec-13) 1,8 1,4 0,9 0,5 0,0 Cluster III 1.7 1.5 Cluster II 1.1 0.8 Cluster I 0.5 0.5 Argentina Venezuela Brazil Mexico Chile Colombia Peru 0.2 Weak Position Strong Position 12,3 10.7 Inflation Vulnerability Ratio (IVR, quadratic scale, May-14) 6,9 3,1 0,8 7.0 1.4 0.8 0.8 0.8 0.6 Negative Outlook Positive Outlook 0,0 Venezuela Argentina Brazil Mexico Colombia Chile Peru 9,0 7.4 Fiscal Vulnerability Ratio (FVR, quadratic scale, Dec-13) 5,1 2,3 0,6 0,0 2.7 2.5 1.0 0.5 0.3 0.0 Venezuela Argentina Brazil Mexico Colombia Chile Peru Weak Position Strong Position

The Growth Outlook for Latin America 2014-2018 Annual GDP Growth Forecasts (2014-2018 average*) 6,0% Cluster III Cluster II Cluster I 5,4% 4,7% 4,5% LAC-7: 3.3% 3,7% 4,0% 3,0% 2,0% 2,2% 1,5% 1,3% 0,0% Venezuela Argentina Brazil Mexico Chile Colombia Peru *FocusEconomics

OUTLINE I. The Global Outlook: Implications for Latin America II. Macroeconomic Challenges III. Development Challenges IV. Political Economy Challenges

Income Convergence in Latin America 1950-2013 Latin America s Relative Income to the U.S. (PPP-adjusted per capita real GDP.*) 43% Boom Period 41% 39% 37% 35% 33% 31% 30% 29% 27% 25% 23% 24% 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 *LAC-7 is the simple average of Argentina, Brazil, Chile, Colombia, Mexico, Peru y Venezuela. Source: The Conference Board Total Economy Database.

*LAC-7 is simple average average of Argentina, Brazil, Chile, Colombia, Mexico, Peru y Venezuela. Source: WEF, Barro Lee, World Bank, NetIndex Speedtest., OECD- WTO and WIPO. The Economics of Convergence Convergence of Income and Growth Drivers in Latin America 2004-2013 (LAC-7*, 2004=100) 125 Growth Drivers Income and Global Index 122 120 2004 115 2013 110 105 100 100 100 102 100 102 100 104 100 100 99 100 95 95 93 90 85 80 Trade Intregration Quality of Public Services Physical & Technological Infraestructure Human Capital Innovation Growth Drivers Index Relative Income

OUTLINE I. The Global Outlook: Implications for Latin America II. Macroeconomic Challenges III. Development Challenges IV. Political Economy Challenges

Political Economy Challenges: Social Discontent Social Protests in Latin America Presidential Approval Ratings at the End of the Term Cooling Off Boom 50% 83% 2010-2014 2006-2010 2011-2014 35% 2007-2010 75% 2010-2014 46% 2006-2010 70% 32% 64% 2011-2015 2007-2011 0% 20% 40% 60% 80% Source: National polls.

Quality of Democracy in Latin America: A Comparative Perspective Democracy Index (The Economist, 2013) Autoritharian Regime Hybrid Regime Flawed Democracy Full Democracy Advanced Economies 8.4 Latin America 6.7 Emerging Asia 6.1 Emerging Europe 5.9 Sub-Saharan Africa 5.1 Middle East And Nort Africa 4.0 2 3 4 5 6 7 8 9

A New Trans-American Partnership? The TAP in Figures 620 million consumers 22 trillion USD of combined GDP 45% of Latin America s population 46% of Latin America s GDP