Outlook for the World Economy:
Latin America
Ernesto Talvi
CERES – Uruguay
October 25th, 2004
Prepared for presentation at the XX Meeting of the Latin
American Network of Central Banks and Finance Ministries
IADB, Washington D.C.
OUTLINE
I. Back to the Future...?
II. Brazil: Riding on Leverage
III. Argentina: Riding on the “V”
OUTLINE
I. Back to the Future...?
II. Brazil: Riding on Leverage
III. Argentina: Riding on the “V”
Collapse in Capital Flows to LAC-7
(in millions of US dollars, last four quarters)
Mexican
Crisis
96000
Russian
Crisis
Asian
Crisis
Argentine
Crisis
76000
56000
36000
dec-02
Mar-02
Jun-01
Sep-00
dec-99
Mar-99
Jun-98
Sep-97
dec-96
Mar-96
Jun-95
Sep-94
dec-93
Mar-93
Jun-92
Sep-91
dec-90
-4000
Mar-90
16000
* LAC-7 includes the seven major Latin American countries, namely, Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela
Financial Flows and Economic Growth
(GDP in yoy % changes, financial flows in % of GDP, last four quarters)
Pre-Russian Crisis
7%
4.1%
1990.I-1998.II
Post-Russian Crisis
6%
2%
0.5%
1998.II-2002.IV
1%
GDP
5%
4%
-1%
3%
Financial Flows
-2%
2%
1%
-3%
-1%
-4%
Sep-02
Mar-02
Sep-01
Mar-01
Sep-00
Mar-00
Sep-99
Mar-99
Sep-98
Mar-98
-3%
Sep-97
-2%
Mar-97
Cumulative GDP (yoy var.)
3%
Average GDP Growth
-5%
Non FDI Capital Flows (% GDP)
8%
LAC-7: Economic Growth in the 90s
(GDP, annual growth in %)
Boom
7%
Boom?
Collapse
Russian Crises
Average: 3.8%
6%
5%
Average: 4.7%
4%
3%
2%
1%
Average: 0.7%
0%
-1%
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-2%
LAC-7: GDP Growth Forecasts
(GDP, annual variation in %)
By Country
LAC-7
7,0
11.9
Venezuela
Post-Collapse
Recoveries
6,0
Argentina
5,0
4,0
Chile
3,0
2004
2,0
Brazil
2005
1,0
Peru
0,0
Average 2004
-1,0
Colombia
-2,0
2002
2003
2004
2005
Mexico
2
Source: LatinFocus Consensus Forecasts
2,5
3
3,5
4
4,5
5
5,5
6
6,5
7
7,5
Growth Forecasts: USA, Europe & Japan
(GDP, annual growth in %)
4,0
3,5
Weighted by GDP
USA
Weighted by Exports
3,0
2,5
2004
2005
Japan
2,0
1,5
1,0
EU
0,5
0,0
2001
2002
2003
2004
Source: LatinFocus Consensus Forecasts
2005
0
1
2
3
4
5
Oil Prices and Industrial
Production in the US
Ind. Production variations*
(from peak to trough)
(USD per barrel in 2004 prices, saar in %)
OPEC oil
embargo
100
Iraq – Iran
war starts
Saudi production
increase
90
Dec 69 – Nov 70
-1.7%
Nov 73 – Mar 75
-11.5%
Jan 80 – Jul 80
-5.6%
Jul 81 – Nov 82
-8.7%
Jul 90 – Mar 91
-3.3%
Mar 01 – Nov 01
-3.3%
Invasion
of Iraq
17%
12%
80
2%
-3%
50
-8%
40
30
-13%
20
-18%
10
Invasion of
Kwait
-23%
OPEC production
restraint
-28%
* NBER recession dates.
abr-04
abr-02
abr-00
abr-98
abr-96
abr-94
abr-92
abr-90
abr-88
abr-86
abr-84
abr-82
abr-80
abr-78
abr-76
abr-74
abr-72
0
abr-70
Oil Price
60
Industrial Production
7%
70
Ene-04
Ene-03
Ene-02
Ene-01
Ene-00
Ene-99
100
Ene-04
Ene-03
Ene-02
Ene-01
Ene-00
Ene-99
Ene-98
Ene-97
109
Ene-98
Ene-97
100
Ene-96
Ene-95
Ene-94
(June 1997 = 100)
Ene-96
60
Ene-95
80
Ene-94
140
Ene-93
79
Ene-93
200
Ene-92
89
Ene-91
220
Ene-92
160
Ene-90
240
Ene-91
Ene-04
Ene-03
Ene-02
Ene-01
Ene-00
Ene-99
Ene-98
Ene-97
Ene-96
Ene-95
Ene-94
Ene-93
120
Ene-92
Ene-91
Petroleum
Ene-90
40
Ene-90
Commodity Prices
Metals
129
119
Average 1990-97: 95
99
180
69
Average 1990-97: 102
120
Food
115
110
105
Average 1990-97: 97
95
90
85
80
75
70
External Financial Conditions
(EMBI+ and US High Yield Bonds, bp over US Treasury bonds)
Fears of Fed
Tightening
Beginning of easing in
external financial conditions
ENRON Effect
1050
Variation
30-Sep-02 vs 18-Oct-04
950
Brazil
Chile
LAC-7
EMBI+
Colombia
Peru
Venezuela
Mexico
US HY
850
750
650
550
In bps
In %
-1930
-141
-705
-580
-670
-540
-703
-245
-121
-79.6%
-64.7%
-64.5%
-63.0%
-62.8%
-61.8%
-60.8%
-56.5%
-24.6%
US High
Yield Bonds
Emerging Markets
450
350
Pre- Asian Crisis EM Spreads
Note: Argentina is excluded from the survey since its bonds are in default
sep-04
jul-04
may-04
mar-04
ene-04
nov-03
sep-03
jul-03
may-03
mar-03
ene-03
nov-02
sep-02
jul-02
may-02
mar-02
ene-02
250
LAC-7 : Bond Spreads and FED Tightening
(bp over US Treasuries)
Variation
8-Apr vs 10-May
In bps
In %
Peru
Colombia
Mexico
Brazil
LAC-7
EMBI+
Chile
Venezuela
225
213
87
263
160
155
28
143
1,8
Variation
10-May vs 18-Oct
In bps
In %
69%
60%
52%
49%
46%
46%
34%
23%
Brazil
Venezuela
Peru
LAC-7
Chile
EMBI+
Colombia
Mexico
-339
-306
-215
-189
-34
-149
-171
-66
1,7
-42%
-40%
-39%
-37%
-31%
-30%
-30%
-26%
1,6
1,5
1,4
400
LAC - 7
1,3
1,2
350
1,1
EMBI +
Note: Argentina is excluded from the survey since its bonds are in default
07-oct-04
23-sep-04
09-sep-04
26-ago-04
12-ago-04
29-jul-04
15-jul-04
01-jul-04
17-jun-04
03-jun-04
06-may-04
22-abr-04
0,9
08-abr-04
25-mar-04
11-mar-04
26-feb-04
29-ene-04
15-ene-04
12-feb-04
Beginning of a string of
positive US economic data
300
1
Greenspan testifies in
Congress
20-may-04
FED Funds
Target Rate
FED Funds Target Rate (percentage points)
450
01-ene-04
EMBI+ Spread (bp over US Treasury)
500
FOMC
January
statement
FED Tightening Expectations
Target & 12- month FED Funds Rate
10 Years Treasury N/B
2,50
2,30
4,8
FOMC January
statement
FED Funds
12-month Rate
2,10
Greenspan testifies
in Congress
4,6
1,90
FED Funds
Target Rate
4,4
Beginning of a stream
of positive US
economic data
1,70
4,2
1,50
4
1,30
Oct-04
Sep-04
Ago-04
Jul-04
Jun-04
May-04
Abr-04
Ene-04
09/15/04
08/15/04
07/15/04
06/15/04
05/15/04
04/15/04
03/15/04
02/15/04
01/15/04
3,6
Mar-04
0,90
Feb-04
3,8
1,10
LAC-7: Assets Prices
(Stocks & Bonds; Oct-02=100)
310
152
147
142
137
Stocks
Argentina
Brazil
Peru
87.0
279.8
257.1
39.0
238.1
Colombia
42.3
218.9
Venezuela
28.6
209.5
LAC-7
Chile
36.7*
200.6
7.5
130.4
Mexico
17.8
70.3
290
Bond Index
270
250
230
210
127
190
Beginning of easing
in external financial
conditions
122
170
117
150
112
Fears of Fed
Tightening
107
130
110
Stock Prices in US$
102
*excluding Argentina
Sep-04
Jul-04
May-04
Mar-04
Ene-04
Nov-03
Sep-03
Jul-03
May-03
Mar-03
Ene-03
Nov-02
Sep-02
Jul-02
May-02
90
Mar-02
97
Ene-02
Bonds
132
Bonds
Stocks
Oct-02 – Oct-04, %
LAC-7: Real Exchange Rate & International Reserves
Real Exchange Rate
International Reserves
(Oct-02 =100)
(millions of US$)
Jun-98 - Oct-02
105
Oct-02 – Sep-04
190000
%
Oct-02 – Sep-04
Brazil
116.6
-36.6
Argentina
197.9
-19.7
95
Colombia
63.8
-16.4
LAC-7
59.2
-16.0
LAC-7
31.5
90
Chile
Peru
Venezuela
Mexico
55.2
25.5
36.1
-13.5
-15.8
-7.7
-7.6
9.6
Mexico
28.8
Colombia
13.5
Peru
12.6
Chile
6.2
100
85
80
180000
170000
160000
Argentina
Venezuela
Brazil
90.0
40.6
38.1
75
70
65
150000
140000
60
130000
Ene-97
Jul-97
Ene-98
Jul-98
Ene-99
Jul-99
Ene-00
Jul-00
Ene-01
Jul-01
Ene-02
Jul-02
Ene-03
Jul-03
Ene-04
Jul-04
Ene-97
Jul-97
Ene-98
Jul-98
Ene-99
Jul-99
Ene-00
Jul-00
Ene-01
Jul-01
Ene-02
Jul-02
Ene-03
Jul-03
Ene-04
Jul-04
55
Exchange Rate
Intervention Policies

Direct Intervention in the FX Market

Sterilized Intervention

Use of Derivatives

Capital Controls
The Use of FX Options in Colombia
Nominal Exchange Rate
Put Option Auctions
(Colombian pesos/dollar & Deviation from 20-day mov. avg)
(Amount in million USD & option price in pesos/1000 USD)
2800
2750
2700
2650
2600
Expectations of
Fed Tightening
6,000
5,500
100
5,000
50
4,500
30-Ago-04
30-Jul-04
30-Jun-04
31-May-04
30-Abr-04
4,000
31-Mar-04
Sep-04
Ago-04
Jul-04
May-04
Abr-04
Mar-04
Ene-04
Dic-03
150
0
2500
Nov-03
6,500
13-Ene-04
2550
7,000
200
30-Dic-03
2850
Executed Amount
Option Price ($/USD 1000)
CB announces
Direct FX intervention
7,500
Option Price
09-Dic-03
2900
Executed Amount (millon of dollars)
250
Oct-03
Colombian pesos per dollar
2950
LAC-7: Investment
(s.a. 1990.I=100)
190
Russian Crisis
180
Annualized rate
2002.IV-2004.II: 8.0%
Annualized rate
170
1990.I-1998.II: 7.2%
160
150
140
Annualized rate
1998.II-2002.IV: -3.8%
130
120
110
100
2004.II
2003.III
2002.IV
2002.I
2001.II
2000.III
1999.IV
1999.I
1998.II
1997.III
1996.IV
1996.I
1995.II
1994.III
1993.IV
1993.I
1992.II
1991.III
1990.IV
1990.I
90
LAC-7: Economic Growth
(s.a. GDP, 1990.I=100)
Annualized growth rate
2002.IV-2004.II: 3.8%
155
Russian Crisis
145
135
Annualized growth rate
1990.I-1998.II: 4.1%
Annualized growth rate
1998.II-2002.IV: 0.5%
125
115
2004.I
2003.I
2002.I
2001. I
2000.I
1999.I
1998.I
1997.I
1996.I
1995.I
1994.I
1993.I
1992.I
1991.I
95
1990.I
105
LAC-7: Current Account
(% of GDP)
3%
2%
1%
3.5%
0%
-1%
Adjusted Current
Account at
March-02 TOT
-2%
-3%
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
Mar-01
Sep-00
Mar-00
Sep-99
Mar-99
Sep-98
Mar-98
Sep-97
-5%
Mar-97
-4%
Terms of Trade & the Current Account:
The Case of Chile
Terms of Trade
Current Account
(Mar-02 = 100)
(% of GDP)
2%
142
1%
138
134
0%
130
-1%
5.7%
126
122
-2%
118
-3%
114
110
-4%
106
Adjusted Current
Account at
March-02 TOT
-5%
102
98
-6%
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
Mar-01
Sep-00
Mar-00
Sep-99
Mar-99
Sep-98
Mar-98
Sep-97
90
Mar-97
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
Mar-01
Sep-00
Mar-00
Sep-99
Mar-99
Sep-98
Mar-98
Sep-97
-7%
Mar-97
94
LAC-7: Fiscal Balance & Inflation
Fiscal Balance
Inflation
(% of GDP)
(CPI, annual variation)
0,5%
0,0%
40%
-0,5%
35%
-1,0%
30%
-1,5%
25%
-2,0%
1990-1997: -1.1%
20%
-2,5%
15%
-3,0%
2003-2005: -1.7%
10%
5%
-4,0%
Ene-04
Ene-03
Ene-02
Ene-01
Ene-00
Ene-99
Ene-98
Ene-97
Ene-96
Ene-95
Ene-93
Ene-92
Ene-91
Ene-90
2005
2004
0%
2003
2002
2001
2000
1999
1997
1996
1995
1994
1993
1992
1991
1990
1998
1998-2002: -3.0%
-4,5%
Rusian Crisis
Ene-94
Rusian Crisis
-3,5%
LAC-7:Public Debt
(% of GDP)
55%
Russiian Crisis
50%
LAC-7
45%
LAC-7 excluding Argentina
40%
35%
30%
25%
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
20%
LAC-7:Public Debt
(% of GDP)
55%
Russiian Crisis
50%
LAC-7
45%
LAC-7 excluding Argentina
40%
35%
30%
25%
Note: After Argentina’s Debt Restructure
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
20%
OUTLINE
I. Back to the Future...?
II. Brazil: Riding on Leverage
III. Argentina: Riding on the “V”
External Financial Conditions
(EMBI+, US High Yield Bonds and EMBI+ Brazil, bp over US Treasury bonds)
Enron Effect +
Political Uncertainty
2700
1000
30-Sep-02 Current Var. in %
2396
466
-80%
EMBI+
921
341
-63%
US HY Bonds
994
372
-62%
Brazil EMBI+
US High
Yield Bonds
2200
800
1700
700
600
Emerging Markets
1200
500
700
400
sep-04
jul-04
may-04
mar-04
ene-04
nov-03
sep-03
200
jul-03
may-03
mar-03
ene-03
sep-02
jul-02
may-02
mar-02
300
nov-02
Beginning of easing in
external financial
conditions
Brazil
ene-02
US High Yial Bonds & EMBI +
900
EMBI Brazil
1100
External Financial Conditions
and Domestic Interest Rates
(C-Bond Spread in bp, Selic rate and domestic 360-day interest rate in %)
38
End of Enron Effect +
Political Uncertainty
Enron Effect +
Political Uncertainty
2300
33
1800
28
1300
Domestic
interest rate
23
800
18
Selic rate
C-Bond
Spread
sep-04
jul-04
may-04
mar-04
ene-04
nov-03
sep-03
jul-03
may-03
mar-03
ene-03
nov-02
sep-02
jul-02
may-02
13
mar-02
ene-02
300
External Financial Conditions
and the Real Exchange Rate
(C-Bond spread and RER vis-à-vis the US dollar, Sep 02=100)
Enron Effect +
Political Uncertainty
2200
102
2000
97
1800
Real Exchange
Rate
87
1400
82
1200
77
1000
72
800
67
End of Enron Effect +
Political Uncertainty
600
62
C-bond
Spread
sep-04
jul-04
may-04
mar-04
ene-04
nov-03
sep-03
jul-03
may-03
mar-03
ene-03
nov-02
sep-02
jul-02
may-02
57
mar-02
400
ene-02
C-Bond Spread
1600
Real Exchange Rate
92
Industrial Production & Real Interest Rate
(s.a. index, quarterly moving average, Feb-99=100, exante real interest rate)
40%
124
35%
119
30%
Industrial Production
25%
114
20%
109
15%
10%
104
5%
Interes Rate
ago-04
abr-04
dic-03
ago-03
abr-03
dic-02
ago-02
abr-02
dic-01
ago-01
abr-01
dic-00
ago-00
abr-00
dic-99
ago-99
abr-99
dic-98
ago-98
abr-98
dic-97
ago-97
abr-97
dic-96
99
ago-96
0%
Economic Growth
(s.a. GDP, 1998.II=100)
Annualized growth rate
2003.II-2004.II: 5.6%
115
110
Annualized growth rate
105
1991.I-1998.II: 3.6%
100
95
Annualized growth rate
1998.II-2003.II: 1.3%
90
85
80
Russian Crisis
I-2004
I-2003
I-2002
I-2001
I-2000
I-1999
I-1998
I-1997
I-1996
I-1995
I-1994
I-1993
I-1992
I-1991
75
Public Debt
Public Debt Level and Exchange Rate
Public Debt Structure
66%
4,5
64%
4,0
62%
60%
Fixed
Rate
12%
3,5
Others
13%
58%
Public Debt / GDP
56%
3,0
Indexed to the
Interest Rate
40%
54%
External or FX
indexed Public
Debt
27%
2,5
52%
54.1%
50%
2,0
Exchange Rate
48%
ago-04
mar-04
oct-03
may-03
dic-02
jul-02
feb-02
sep-01
abr-01
nov-00
jun-00
1,5
ene-00
46%
Repos
8%
The Fisc and the Financial System
Banks’ Exposure to the Public Sector
Primary Surplus
5,5%
(Public bond holdings, June 2004)
300%
278%
5.0%
5,0%
250%
% GDP
4,5%
4.5%
Fiscal
Cushion
200%
4,0%
3,5%
150%
3.5%
100%
3,0%
50%
2,5%
0%
Required
Observed*
Target
*Last twelve months to August 2004
Assumptions
• Average real interest rate on public debt: 8.9% (includes monetary base)
• Growth rate: 2.5%
• Initial debt ratio in August 2004: 54.1%
26%
In % of Total
Assets
In % of Net
Worth
Monetary Policy
Selic Rate
Inflation Expectations
( IPCA )
7.2%
7,3%
28
26
6,8%
24
6,3%
22
5,8%
20
COPOM Target: 5.5%
sep-04
jun-04
mar-04
dic-03
sep-03
jun-03
mar-03
*Central Bank has decided to calibrate monetary policy in order to pursue
2005 IPCA inflation of 5.1% (instead of the target of 4.5%) due to
inflationary inertia resulting from higher inflation in 2004. The upper and
lower bounds have been mantained.
14
dic-02
oct-04
sep-04
7.2%
5.8%
16
oct-02
8.0%
7.0%
ago-04
jul-04
jun-04
3.0%
2.0%
Market
Expectations
jul-02
5.5%
5.1*%
Upper
bound
16.75%
abr-02
2004:
2005:
Lower
bound
18
ene-02
COPOM
Target
may-04
abr-04
mar-04
feb-04
ene-04
5,3%
jul-04
feb-04
oct-03
may-03
dic-02
8,5
2,5
6,5
1,5
US Fed Funds rate
0,5
7%
1%
4%
3%
2%
Ene-03
Sep-02
May-02
Ago-04
May-04
Feb-04
Sep-04
May-04
Ene-04
Sep-03
5%
Nov-03
6%
May-03
Chile
Ago-03
May-03
3,5
Ene-02
10,0
Feb-03
Mexico
Nov-02
12,5
2,0
Ago-02
4,5
Sep-01
5,5
May-02
16,5
Feb-02
6,5
May-01
18,5
Ene-01
7,5
Nov-01
14,5
Fed Funds Rate
Mexico
Ago-01
10,5
jul-02
feb-02
sep-01
4,5
abr-01
nov-00
Mexico Interbank Rate
Monetary Policy Tightening in LAC-7
Peru
9,0
8,0
7,0
6,0
5,0
4,0
3,0
OUTLINE
I. Back to the Future...?
II. Brazil: Riding on Leverage
III. Argentina: Riding on the “V”
Sample of Post Sudden Stop Collapses
GDP Variation
LAC-80s
LAC-90s
South East Asia
Argentina
Chile
Mexico
Uruguay
-10,1%
Argentina 94
Argentina 98
Colombia
Ecuador
Mexico
Uruguay
-5,7%
-19,2%
-6,5%
-7,3%
-23,2%
Indonesia
Korea
Malaysia
Thailand
-16,1%
-9,1%
-11,2%
-13,3%
Mean
-12%
Max
(Uruguay 98)
Min
(Argentina 94)
Sample Size
-11,8%
-6,0%
-20,6%
-6,5%
-23%
-6%
14
Dynamics of Post Collapse Recoveries
(seasonally adjusted quarterly GDP index)
Collapse
112
Recovery
Pre-Crisis
Peak
Full Recovery to
Pre-Crisis Level
110
108
106
104
102
Trough
100
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Dynamics of Post Collapse Recoveries
(seasonally adjusted quarterly GDP index)
114
Collapse
Recovery
LAC-90s
112
110
South East Asia
Average
108
106
104
LAC-80s
102
100
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Argentina’s Recovery in Perspective
(seasonally adjusted quarterly GDP index)
126
Collapse
Pre-Collapse
114
Recovery
123
120
112
IIIQ 98
117
IQ 01
114
108
111
106
108
104
105
102
Argentina
102
99
100
-15
-13
-11
-9
-7
-5
-3
-1
1
3
5
7
Average
Argentina 98
110
Average
The Restructuring Proposal
Proposal
% of Defaulted Debt
•
AFJP
Banks and
Domestic
Bond Holders
External
Bond Holders
20%
Letes (16%)  Boden 2014
Dec. 530/03 USD Bonds (74%)  Quasi-Par
Others (10%)  Discount Bonds
•
•
Accounting Valuation
90-day period without transfer
between AFJPs
20%
• Negotiations in process
60%
• The offer will be officially
launched in mid-November
Menu of Bonds Offered in the Proposal
(with participation exceeding 70%)
AR$ + CER
USD
Par Bond
Discount Bond
Quasi-Par Bond*
Nominal Haircut
0%
75%
30%
Coupon (average)
3.6
8.5
6.0
Maturity (years)
35
30
42
Grace Period (years)
25
20
32
Size (bn)
15.0
19.9
8.3
GDP-linked
yes
yes
yes
* only available for AFJP
Profiles of Interest Payments and Amortizations
Amortizations
Par Bond
Discount Bond
16
12
14
10
12
8
10
6
8
4
6
4
2
2
0
0
Interest Payments
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
5,5%
6 8 10 12 14 16 18 20 22 24 26 28 30
9,0%
5,0%
8,0%
4,5%
7,0%
4,0%
3,5%
3,0%
2 4
Total Interest
6,0%
Average interest
Cash Interest
5,0%
2,5%
4,0%
2,0%
1,5%
Capitalized Interest
3,0%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
years
2 4
6 8 10 12 14 16 18 20 22 24 26 28 30
years
Implied NPV Haircut of Argentina’s Proposal*
(Discount Bond)
Effective
Haircut**
(%)
(bp)
Discount
Rate
(%)
EMBI+ (Adj for Argentina)
352
8,4
75
102
74
Brazil EMBI+
488
9,8
75
86
79
Uruguay EMBIG
532
10,2
75
82
80
Ecuador EMBI+
800
12,9
75
61
85
Boden 2012
839
13,3
75
58
86
Spread
Nominal
Haicut
(%)
Bond Price
Post Restructuring
(% of Face Value)
* Underlying assumptions: More than 70% acceptance and full recognition of PDI.
** The GDP-linked unit contributes to improve NPV. Estimates range from 1.5% to 4.0% depending on
assumptions on the discount rate and the volatility of the GDP.
Yield Curve of Expected Losses on
Defaulted Bonds
Expected Loss
(October 2004)
81%
80%
79%
78%
77%
76%
75%
74%
73%
72%
71%
70%
80.1%
74.0%
2010
2027
Global Bonds
Argentina’s Post Restructuring
Debt Sustainability
Public Debt Stock
Pre Haircut
Public Debt Sustainability
(required primary surplus)
Post Haircut
140%
130%
RER
130%
120%
100%
Growth Rate
110%
100%
90%
80%
87%
70%
1.5
2.0
2%
3.0%
3.7%
3%
2.3%
2.8%
72%
60%
Average Interest Rate: 6.3%
50%
Current RER
RER=1,5
Current RER
RER=1,5
Argentina’s Proposal in the Eyes of Marzano
Outlook for the World Economy:
Latin America
Ernesto Talvi
CERES – Uruguay
October 25th, 2004
Prepared for presentation at the XX Meeting of the Latin
American Network of Central Banks and Finance Ministries
IADB, Washington D.C.