Latin America’s Insertion in the
Post-Financial Crisis Global Order:
Opportunities, Risks and Challenges Ahead
Ernesto Talvi
Director Académico de CERES
Non-Resident Senior Fellow, Brookings Institution
November 7th, 2010
Prepared for Presentation at the XLIV FELABAN Annual Assembly
Punta del Este, Uruguay
OUTLINE
I. The Global Economy and Latin America in
the Aftermath of the Financial Crisis
 The Global Economy
 Latin America
II. Latin America’s Insertion in the New Global
Order
III. Policy Challenges for the New Global Order
OUTLINE
I. The Global Economy and Latin America in
the Aftermath of the Financial Crisis
 The Global Economy
 Latin America
II. Latin America’s Insertion in the New Global
Order
III. Policy Challenges for the New Global Order
THE GLOBAL ECONOMY
Industrial
Countries
70% of World Output
Emerging
Markets
30% of World Output
Aggregate Demand in the US
Private Consumption
Private Investment
(quarterly, seasonally adjusted, at
annual rates, in bn of US$)
(quarterly, seasonally adjusted, at
annual rates, in bn of US$)
2600
Exports
(quarterly, seasonally adjusted, at
annual rates, in bn of US$)
550
650
Lehman’s
Bankruptcy
Lehman’s
Bankruptcy
Lehman’s
Bankruptcy
500
2500
Pre-Gobal
Crisis Trend
600
2400
Pre-Gobal
Crisis Trend
Pre-Gobal
Crisis Trend
-9%
550
450
Beginning
of Global
Recovery
-15%
400
2300
350
500
-30%
2200
300
450
2100
250
Beginning
of Global
Recovery
2000
2003 2004 2005 2006 2007 2008 2009 2010
400
2003 2004 2005 2006 2007 2008 2009 2010
Beginning
of Global
Recovery
200
2003 2004 2005 2006 2007 2008 2009 2010
Aggregate Supply in the US
Gross Domestic Product
Imports
(quarterly, seasonally adjusted at
annual rates, in bn of US$)
(quarterly, seasonally adjusted at
annual rates, in bn of US$)
700
3700
Lehman’s
Bankruptcy
674
Lehman’s
Bankruptcy
3602
3600
650
-8%
3500
Pre-Global
Crisis Trend
Pre-Gobal
Crisis Trend
-23%
600
3400
550
3300
3304
3200
521
500
3100
Beginning
of Global
Recovery
3000
2900
450
Beginning
of Global
Recovery
400
2003
2004
2005
2006
2007
2008
2009
2010
2003
2004
2005
2006
2007
2008
2009
2010
Fiscal Accounts in the US
Fiscal Revenues
Primary Expenditure
Fiscal Balance
(seasonally adjusted at annual rates,
in bn of 2000 dollars)
(seasonally adjusted at annual rates,
in bn of 2000 dollars)
(in % of GDP, last 4 quarters)
0%
4200
4100
Lehman’s
Bankruptcy
3992
Beginning
of Global
Recovery
4027
3900
4000
-2%
-2%
Pre-Gobal
Crisis Trend
7.7%
3700
3800
-4%
-22%
3500
3738
3600
-6%
Pre-Gobal
3300
Crisis Trend
3400
-8%
3100
3109
3200
Lehman’s
Bankruptcy
Beginning
of Global
Recovery
-10%
3000
-11%
Mar-10
Aug-09
Jan-09
Jun-08
Nov-07
Apr-07
Sep-06
Feb-06
Jul-05
Dec-04
May-04
Oct-03
Mar-10
Aug-09
Jan-09
Jun-08
Nov-07
Apr-07
Feb-06
Sep-06
Jul-05
Dec-04
May-04
Oct-03
-12%
Mar-03
Mar-10
Aug-09
Jan-09
Jun-08
Nov-07
Apr-07
Sep-06
Feb-06
Jul-05
Dec-04
May-04
Oct-03
Mar-03
2700
Lehman’s
Bankruptcy
Beginning
of Global
Recovery
Mar-03
2900
Sectoral & External Balances in the US
Gross Private Saving*
Gross Private Investment
(in % of GDP, last 4 quarters)
(in % of GDP, last 4 quarters)
18%
18%
Current Account
(in % of GDP, last 4 quarters)
-2%
18%
18%
Lehman’s
Bankruptcy
Beginning
of Global
Recovery
17%
-3%
17%
-3%
16%
16%
-4%
15%
14%
15%
-5%
13%
14%
-6%
14%
Beginning
of Global
Recovery
12%
Lehman’s
Bankruptcy
12%
11%
13%
2003
2004
2005 2006
2007
2008
2009 2010
* Includes consumption of fixed capital
-6%
Lehman’s
Bankruptcy
Beginning
of Global
Recovery
-7%
2003
2004
2005 2006
2007
2008
2009 2010
2003
2004 2005 2006 2007 2008
2009 2010
Aggregate Demand in China
Private Consumption
Total Investment
Exports
(bn of 1990 Yuans)
(bn of 1990 Yuans)
(bn of 1990 Yuans)
6000
4600
Lehman’s
Bankruptcy
5500
Lehman’s
Bankruptcy
6.5%
Lehman’s
Bankruptcy
14.1%
5500
5000
-19.9%
4200
5000
3800
4500
4500
Pre- Crisis
Global Trend
4000
4000
Pre- Crisis
Global Trend
3500
3400
3500
3000
3000
2500
Pre- Crisis
Global Trend
3000
2500
2600
2003
2004
2005
2006
2007
2008
2009
2000
2003
2004
2005
2006
2007
2008
2009
2003
2004
2005
2006
2007
2008
2009
Change in Sources of Growth in China
(Annual Growth)
2003-2007
2008-2009
21%
21%
19%
16%
14%
14%
14%
GDP: 11.7%
9%
9%
GDP: 9.3%
9%
8%
7%
7%
0%
0%
0%
Exports
Investment
Consumption
Public
Expenditure
Exports
Investment
Consumption
Public
Expenditure
Fiscal Accounts in China
Fiscal Revenues
Fiscal Balance
Primary Expenditure
(in bn of 2000 Yuan)
(in % of GDP)
(in bn of 2000 Yuan)
6500
5800
Lehman’s
Bankruptcy
1,0%
Lehman’s
Bankruptcy
1.9%
0.6%
24%
5150
5400
0,5%
0,0%
4500
-0,5%
4300
3850
-1,0%
Pre-Crisis
Global Trend
-1,5%
Pre-Crisis
Global Trend
3200
3200
-2,0%
2550
-2,5%
1900
Lehman’s
Bankruptcy
2100
2003
2004
2005
2006
2007
2008
2009
2003
2004
2005
2006
2007
2008
2009
-3,0% 2003
2004
2005
2006
2007
2008
-2.8%
2009
Sectoral & External Balances in China
Gross National Savings
Gross Investment
(in % of GDP)
Current Account
(in % of GDP)
(in % of GDP)
50%
55%
54%
12%
11%
54%
48%
10%
50%
45%
8%
6%
45%
6%
42%
40%
4%
40%
2%
Lehman’s
Bankruptcy
Lehman’s
Bankruptcy
Lehman’s
Bankruptcy
35%
Mar-10
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2009
2008
2007
2006
2005
2004
2003
2002
2001
0%
2000
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
35%
Unwinding of Global Imbalances
United States
China
(Current Account, in % of GDP)
(Current Account; in % of GDP)
12%
-2%
11.0%
Beginning of Global
Financial Crisis
-6.5%
-3.0%
10%
-3%
8%
-4%
6%
-5%
4.5%
4%
-6%
+3.2%
2%
Beginning of Global
Financial Crisis
-6.2%
0%
-7%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Mar-10
THE GLOBAL ECONOMY
World Output
Industrial
Countries
World Interest Rates
Risk Premia
Commodities
Prices
Emerging
Markets
World Output and Domestic Demand
Growth and Composition of
World Domestic Demand
Growth in World Output
(US$ PPP, annual rate, %)
(US$, annual rate, %)
6%
8%
7.8%
Emerging Economies
5.2%
Industrial Countries
4.8%
5%
Period Average:
4.7%
7%
6.2%
6%
4%
4.0%
Share
51%
1.6%
3.6%
Share
25%
5%
2.8%
3%
4%
Period Average:
2.3%
2%
3%
2%
1%
3.8%
Share
49%
4.7%
1%
0%
0%
2006
-0.6%
-1%
2003
2004
2005
2006
2007
2008
2009
2010
2010
Share
75%
Implications of the Shift in Composition of
World Demand
Import Composition
(% of total imports, 2009)
BRICs
Industrial Countries
Raw materials
15%
Capital goods
30%
Intermediate
goods
Capital goods
36%
Raw materials
25%
19%
Intermediate
goods
Consumer goods
36%
BRICs includes Brazil, Russia, India and China
Consumer
goods
14%
25%
World Interest Rates and Capital Markets
FED Funds Rate
US Treasury Yield Curve
EMs Bond Yields
(reference rate, %)
(EMBI+, %)
6%
6%
7.5
Lehman’s
Bankruptcy
Beginning
of Global
Recovery
5%
4.9%
5% 4.8%
7.0
6.8
-1.4%
6.5
4%
2006
4%
6.0
4.1%
5.4
5.5
3%
3%
5.0
2%
2%
2%
4.5
2009
1%
4.0
1%
3.5
0.25%
0%
0.14%
Jun-10
Mar-10
Dec-09
Jun-09
Sep-09
Mar-09
Dec-08
Jun-08
Sep-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
0%
3.0
3m
6m
2y
3y
5y
10y
30y
2006
Aug-2010
Commodity Prices
(Annual Average, 2005=100)
Food
Oil
160
Metals
160
160
2%
150
150
150
140
140
140
130
130
20%
130
28%
120
120
120
110
110
110
100
100
100
2006
Source: IMF
2010
2006
2010
2006
2010
OUTLINE
I. The Global Economy and Latin America in
the Aftermath of the Financial Crisis
 The Global Economy
 Latin America
II. Latin America’s Insertion in the New Global
Order
III. Policy Challenges for the New Global Order
THE GLOBAL ECONOMY & LATIN AMERICA
World Output
Industrial
Countries
World Interest Rates
Risk Premia
Commodities
Prices
Mexico
Brazil
Emerging
Markets
Aggregate Demand in Mexico
Private Consumption
Total Investment
(quarterly, seasonally adjusted, bn
of Pesos of 2003)
(quarterly, seasonally adjusted, bn
of Pesos of 2003)
Exports
(quarterly, seasonally adjusted, bn
of Pesos of 2003)
3600
2500
7300
Lehman’s
Bankruptcy
Lehman’s
Bankruptcy
Lehman’s
Bankruptcy
3200
6700
-14.0%
Pre-Global
Crisis Trend
2100
Pre-Global
Crisis Trend
Pre-Global
Crisis Trend
-24.3%
-16.3%
2800
6100
2400
1700
5500
Beginning
of Global
Recovery
Beginning
of Global
Recovery
4900
Mar-03 May-04 Jul-05 Sep-06 Nov-07 Jan-09 Mar-10
1300
Mar-03 May-04 Jul-05 Sep-06 Nov-07 Jan-09 Mar-10
2000
Beginning
of Global
Recovery
1600
Mar-03 May-04 Jul-05 Sep-06 Nov-07 Jan-09 Mar-10
Aggregate Supply in Mexico
Gross Domestic Product
Imports
(quarterly, seasonally adjusted, in bn of Pesos of 2003)
(quarterly, seasonally adjusted, in bn of Pesos of 2003)
4000
9900
Lehman’s
Bankruptcy
Lehman’s
Bankruptcy
3700
9400
-29.2%
-10.1%
3400
8900
8400
3100
2800
Pre-Global
Crisis Trend
2500
Pre-Global
Crisis Trend
7900
2200
Beginning
of Global
Recovery
Beginning
of Global
Recovery
7400
Mar-03
1900
May-04
Jul-05
Sep-06
Nov-07
Jan-09
Mar-10
Mar-03
May-04
Jul-05
Sep-06
Nov-07
Jan-09
Mar-10
Aggregate Demand in Brazil
Private Consumption
Total Investment
(quarterly, seasonally adjusted,
average 1995=100)
Exports
(quarterly, seasonally adjusted,
average 1995=100)
170
(quarterly, seasonally adjusted,
average 1995=100)
340
180
Lehman’s
Bankruptcy
Lehman’s
Bankruptcy
Lehman’s
Bankruptcy
+0.2%
160
310
165
+3.2%
Pre-Global
Crisis Trend
150
150
280
135
250
-26%
140
130
Pre-Global
Crisis Trend
120
Pre-Global
Crisis Trend
220
120
105
110
190
Beginning
of Global
Recovery
90
100
2003
2004
2005
2006
2007
2008
2009 2010
Beginning
of Global
Recovery
Beginning
of Global
Recovery
160
2003 2004 2005 2006 2007 2008 2009 2010
2003 2004 2005 2006 2007 2008 2009 2010
Aggregate Supply in Brazil
Gross Domestic Product
Imports
(quarterly, seasonally adjusted, average 1995=100)
(quarterly, seasonally adjusted, average 1995=100)
160
0%
Lehman’s
Bankruptcy
270
Lehman’s
Bankruptcy
-2.2%
240
150
210
140
Pre-Global
Crisis Trend
180
130
Pre-Global
Crisis Trend
150
120
120
Beginning
of Global
Recovery
Beginning
of Global
Recovery
90
110
2003
2004
2005
2006
2007
2008
2009
2010
2003
2004
2005
2006
2007
2008
2009
2010
Change in Sources of Growth in Brazil
(Annual Growth)
2003-2007
2009
9%
9%
7.7%
7.7%
7%
6.9%
5.6%
5%
GDP: 4.4%
6%
3.5%
3%
4.4%
GDP: 4.2%
1%
3.1%
3%
-1%
-3%
0%
-5%
Exports
Investment
Consumption
Public
Expenditure
-4.1%
Exports
Investment
Consumption
Public
Expenditure
Jan-04
Source: INEGI
30
Source: Getulio Vargas Foundation
Jan-08
120
04-07 Average: 52
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
(Jan-03=100)
May-08
Mexico
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
51
Jan-05
Sep-04
35
May-04
55
Jan-04
50
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Forward Looking Indicators:
Consumer Confidence
Brazil
(Sep-05=100)
116
-2%
110
04-07 Average: 105
12%
100
45
90
40
80
70
60
Forward Looking Indicators:
Business Confidence
Mexico
Brazil
(Producer Confidence Index, Jan-03=100)
(Business Confidence Index, Sep-05=100)
110
125
105
122
120
03-07 Average: 101
100
115
15%
-15%
90
110
05-07 Average: 106
105
86
Source: INEGI
Source: Getulio Vargas Foundation
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Sep-06
Sep-05
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
90
Jan-04
75
Jul-03
95
Jan-03
80
May-06
100
Jan-06
85
Jan-07
95
95
70
90
65
85
60
Jun-10
75
Mar-10
100
Dec-09
9%
Sep-09
110
109
Jun-09
90
Mar-09
Mexico
Dec-08
(Dec-06=100)
Sep-08
115
Jun-08
95
Mar-08
120
Dec-07
100
Sep-07
125
Jun-07
105
Mar-07
130
Dec-06
105
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Forward Looking Indicators:
Real Exchange Rate
Brazil
(Dec-06=100)
-26%
85
80
74
The Aftermath of the Global Financial Crisis:
Two Latin Americas?
‘Brazilian Type’ Cluster
‘Mexican Type’ Cluster
• Net Exporters of Commodities
• Net Importers of Commodities
• Low Exposure of Exports of Goods
and Services to Industrial Countries
• High Exposure of Exports of Goods
and Services to Industrial Countries
• High Weight of Interest-Sensitive
Components in Aggregate Demand
• Low Weight of Interest-Sensitive
Components in Aggregate Demand
The Aftermath of the Global Financial Crisis:
Two Latin Americas?
Cluster Analysis
Clusters
2.5
2
“Brazilian Type” Cluster
“Brazilian Type”
“Mexican Type”
Brazil
Mexico
Bahamas
Barbados
Belize
Costa Rica
Dominican Rep.
El Salvador
Guatemala
Guyana
Honduras
Jamaica
Nicaragua
Panama
Suriname
Net Commodity Exports
(% of GDP)
Argentina
Bolivia
1.5
Chile
1
Colombia
Ecuador
0.5
Paraguay
Peru
0
Trinidad and Tobago
Uruguay
-0.5
Venezuela
-1
“Mexican Type” Cluster
-1.5
-1.5
-1
-0.5
0
0.5
1
1.5
Investment / Exports to Industrial Countries
2
2.5
The Aftermath of the Global Financial Crisis:
Two Latin Americas?
Cluster Analysis
Average Growth 2010-2011*
(GDP, annual rates)
2.5
5.0%
Net Commodity Exports
(% of GDP)
2
“Brazilian Type” Cluster
4.9%
4.5%
4.0%
1.5
Latin America Average:
3,4%
3.5%
1
3.0%
2.7%
0.5
2.5%
0
2.0%
1.5%
-0.5
1.0%
-1
0.5%
“Mexican Type” Cluster
-1.5
-1.5
0.0%
-1
-0.5
0
0.5
1
1.5
Investment / Exports to Industrial Countries
* Source: Latin Focus and WEO
** Excludes Venezuela
2
2.5
“Brazilian Type”
Cluster**
“Mexican Type”
Cluster
OUTLINE
I. The Global Economy and Latin America in
the Aftermath of the Financial Crisis
 The Global Economy
 Latin America
II. Latin America’s Insertion in the New Global
Order
III. Policy Challenges for the New Global Order
THE NEW GLOBAL ECONOMIC ORDER:
RISKS TREATHENING GLOBAL COOPERATION
Political Risks
 Nationalism
 Populism
 Extreme Right Movements
 Xenophobia
Economic Risks
 Currency Wars
(Competitive Devaluations)
 Trade Wars
(Protectionism)
 Financial Panic
THE NEW GLOBAL ECONOMIC ORDER
2010-2020: LATIN AMERICA´S DECADE?
Under the assumption that global cooperation prevails, Latin America
will likely face very favorable conditions due to:
 A New Global Economic Order emerging after the global crisis with the
following features:
•
Change in trade patterns due to a reallocation of world output and world demand
from industrial countries to emerging markets that have a high propensity to
consume primary commodities
Change in Latin America's Trade Patterns
Exports by Destination
Variation 2006-2009
(LAC-7)
(LAC-7)
2006
80%
72%
BRICs
70%
11%
Rest of EMs
Industrial
Countries
60%
24%
50%
65%
40%
2009
30%
BRICs
20%
13%
17%
10%
Industrial
Countries
Total Exports: 1%
57%
26%
Rest of EMs
0%
-10%
BRICs
Rest of
Emerging
Markets
BRICs includes Brazil, Russia, India and China
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 93% of Latin America’s GDP.
-7%
Industrial
Countries
Trade Patterns in Brazil
Exports by Destination
Variation 2006-2009
2006
113%
BRICs
110%
9%
Rest of EMs
Industrial
Countries
90%
42%
49%
70%
2009
50%
BRICs
30%
18%
Industrial
Countries
Total Exports: 11%
42%
41%
Rest of EMs
8%
10%
-10%
BRICs
BRICs includes Brazil, Russia, India and China
Rest of
Emerging
Markets
-5%
Industrial
Countries
Trade Patterns in Mexico
Exports by Destination
2006
Variation 2006-2009
70%
BRICs
1.4%
63%
Rest of EMs
60%
5%
50%
Industrial
Countries
40%
93.6%
2009
30%
20%
BRICs
2.6%
Rest of EMs
5.8%
8%
10%
0%
Industrial
Countries
Total Exports: -7.8%
-10%
-10%
91.6%
-20%
BRICs
BRICs includes Brazil, Russia, India and China
Rest of
Emerging
Markets
Industrial
Countries
Change in Latin America's Trade Patterns:
Looking Ahead
Exports & External Demand
Exports by Destination
(LAC-7, ED and Exports Variation, in %)
15%
(LAC-7)
5%
2009
4%
10%
BRICs
17%
3%
Industrial
Countries
5%
57%
Exports Variation
(left axis)
26%
Rest of EMs
2%
0%
1%
-5%
R2=
External Demand
Variation
(right axis)
70%
2013*
0%
BRICs
2006
2007
2008
2009
2004
2005
1998
1999
2000
2001
2002
2003
1997
1995
1996
1993
1994
-10%
1991
1992
23%
∆ Ext. Demand =  a j * ∆ GDP j
-1%
Industrial
Countries
52%
a = Exports to Country j / Total Exports
j
∆ GDP j = GDP Variation of country j
BRICs includes Brazil, Russia, India and China
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 93% of Latin America’s GDP.
25%
Rest of EMs
THE NEW GLOBAL ECONOMIC ORDER
2010-2020: LATIN AMERICA´S DECADE?
Under the assumption that global cooperation prevails, Latin America
will likely face very favorable conditions due to:
 A New Global Economic Order emerging after the global crisis with the
following features:
•
Change in trade patterns due to a reallocation of world output and world demand
from industrial countries to emerging markets that have a high propensity to
consume primary commodities
•
Ample availability of relatively cheap credit and capital due to a reallocation of
world savings towards EMs in general and Latin America in particular
Capital Flows to Latin America
250
Capital Inflows
Main Capital Inflows Recipients
(LAC-7, Cumulative quarterly capital inflows,
billions of US$)
(LAC-7, Mar-10)
GDP Shares
Pre Global -Crisis Maximum Level: 237
205
200
150
204
Mexico
24%
Billions of US$
Dec-2006
Mar-2010
LAC-7
97
204
Brazil
52
112
Argentina
8%
Brazil
45%
Inflows Shares
Pre-Global
Crisis Trend
100
Others
22%
Others
22%
63
50
Mexico
22%
Lehman Brothers
Bankruptcy
Beginning
of Global
Recovery
Brazil
55%
0
2003
2004
2005
2006
2007
2008
2009
2010
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia,
Mexico, Peru and Venezuela. These countries represent 91% of Latin America’s GDP.
Argentina
1%
Composition of Capital Flows to Latin America
Financial Inflows
FDI Inflows
(LAC-7, Cumulative quarterly capital inflows,
billions of US$)
(LAC-7, Cumulative quarterly capital inflows,
billions of US$)
150
Inflows by Type
(LAC-7)
120
Dec-06
138
Pre Global -Crisis Maximum Level: 134
Pre Global -Crisis Maximum Level: 110
125
103
102
103
Financial
Inflows
37%
100
Billions of US$
Billions of US$
75
Dec-06 Mar-10
FDI
Inflows
63%
Dec-06 Mar-10
86
LAC-7
36
138
LAC-7
61
65
50
Brazil
34
85
Brazil
19
26
25
Pre-Global
Crisis Trend
Mar-10
65
69
Pre-Global
Crisis Trend
0
52
-25
-30
Lehman’s
Bankruptcy
-50
Lehman’s
Bankruptcy
Beginning
of Global
Recovery
Beginning
of Global
Recovery
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
35
Financial
Inflows
68%
FDI
Inflows
32%
Capital Flows to Latin America:
FDI by Country of Origin
(% of total FDI)
Brazil
BRICs
0.1%
Rest of EMs
Mexico
BRICs
Rest of EMs
0.3%
1.0%
8.7%
2006
Industrial
Countries
Industrial
Countries
98.7%
92%
Rest of EMs
BRICs
0.3%
2009
1.1%
Rest of EMs
0.6%
6.8%
Industrial
Countries
93%
BRICs includes Brazil, Russia, India and China
BRICs
Industrial
Countries
98.8%
Capital Flows to Latin America:
FDI by Sector
(% of total FDI)
Peru
Mexico
Agriculture
0%
Agriculture
8%
Extractive
Activities
2%
Services
19%
2006
Manufacturing
Industries
30%
Extractive
Activities
43%
Agriculture
0%
Services
42%
2009
Extractive
Activities
57%
Manufacturing
Industries
0%
Services
48%
Agriculture
0%
Services
57%
Manufacturing
Industries
50%
Extractive
Activities
5%
Manufacturing
Industries
38%
THE NEW GLOBAL ECONOMIC ORDER
2010-2020: LATIN AMERICA´S DECADE?
Under the assumption that global cooperation prevails, Latin America
will likely face very favorable conditions due to:
 A New Global Economic Order emerging after the global crisis with the
following features:
•
Change in trade patterns due to a reallocation of world output and world demand
from industrial countries to emerging markets that have a high propensity to
consume primary commodities
•
Ample availability of relatively cheap credit and capital due to a reallocation of
world savings towards EMs in general and Latin America in particular
•
A new financial architecture that will reduce the risk of contagion and the
probability of liquidity crises in EMs in general and Latin America in particular
TOWARDS A NEW FINANCIAL ARCHITECTURE
FOR EMERGING MARKETS: KEY FEATURES*
 At the multilateral level, institutionalization and improvement of ILOLR
mechanisms used during the global crisis, with the following features:
•
Ex-ante eligibility
•
•
Automaticity
Speed
•
Power
 At the country level, adoption of macroeconomic policy frameworks to
promote stability and gain ex-ante access to ILOLR facilities
 The IMF and MDBs are endowed with adequate resources for the task
 These features would constitute the basis for a de facto incentivecompatible ‘Long-Term Stability Pact’ for EMs
* 1. Izquierdo, A. and Talvi, E. 2009. “A Stability Pact à la Maastricht for Emerging Markets” , www.voxEU.org
2. Izquierdo, A. and Talvi, E. (coords.), 2009. “Policy Trade-offs for Unprecedented Times: Confronting the Global
Crisis In Latin America”, Inter-American Development Bank, Washignton DC.
3. Izquierdo, A. and Talvi, E. (coords.), 2010. “The Aftermath of the Crisis. Policy Lessons and Challenges Ahead for
Latin America and the Caribbean”, Inter American Development Bank, Washignton DC.
THE NEW GLOBAL ECONOMIC ORDER
2010-2020: LATIN AMERICA´S DECADE?
Under the assumption that global cooperation prevails, Latin America
will likely face very favorable conditions due to:
 A New Global Economic Order emerging after the global crisis with the
following features:
•
Change in trade patterns due to a reallocation of world output and world demand
from industrial countries to emerging markets that have a high propensity to
consume primary commodities
•
Ample availability of relatively cheap credit and capital due to a reallocation of
world savings towards EMs in general and Latin America in particular
•
A new financial architecture that will reduce the risk of contagion and the
probability of liquidity crises in EMs in general and Latin America in particular
 An initial situation in Latin America characterized by a combination of relatively
strong macroeconomic fundamentals and a gradual process of increasing
democratization and institutionalization, which place the region in a favorable
position to become a preferred destination for capital inflows
Capital Inflows to EMs
Variation 2006- 2009
Main Capital Inflows Recipients
(% variation)
60%
(share in total capital inflows to EMs)
2006
52%
Rest EMs
16%
China
17%
40%
EM Europe
25%
19%
20%
India 5%
2%
0%
0%
LAC
12%
Middle East
23%
-20%
2009
Losers
Capital Inflows to EMs: -30%
-40%
Rest of EMs 12%
(Share of GDP 13%)
-48%
-60%
EM Europe 9%
(Share of GDP 9%)
-67%
-80%
EA-5
7%
Winners
China 25%
(Share of GDP 27%)
India 8%
(Share of GDP 7%)
-76%
LAC
EA-5
India
China
Rest of
EMs
EM
Europe
Middle
East
Middle East 8%
(Share of GDP 16%)
EA-5 12%
(Share of GDP 7%)
Source: WEO
EA-5 includes Indonesia, Malaysia, Thailand, The Philippines and Vietnam.
EM Europe refers to Central and Eastern Europe as defined by WEO
LAC 25%
(Share of GDP 20%)
OUTLINE
I. The Global Economy and Latin America in
the Aftermath of the Financial Crisis
 The Global Economy
 Latin America
II. Latin America’s Insertion in the New Global
Order
III. Policy Challenges for the New Global Order
THE NEW GLOBAL ECONOMIC ORDER:
POLICY CHALLENGES FOR LATIN AMERICA
 Avoid financial bubbles caused by strong capital inflows that may make
countries prone to crisis
 Rethink international trade policy for the new global context
 Remove distortions to facilitate intra-firm and intra-sector restructuring that
will be necessary to accommodate the change in trade patterns and the new
constellation of relative prices
 Take advantage of the bonanza to develop physical, technological and
institutional infrastructure and to invest in human capital in order to lay a
sound foundation for self-sustained, productivity-induced growth when
favorable external conditions subside
 Respond efficiently to the legitimate social claims for redistribution that will
emerge in a context in which, a high-commodity-price/low–cost-of-capital driven
expansion, is likely to produce a deterioration in the distribution of income
 Protect political institutions from the potential corrosive effects of commodity
price booms
Latin America’s Insertion in the
Post-Financial Crisis Global Order:
Opportunities, Risks and Challenges Ahead
Ernesto Talvi
Director Académico de CERES
Non-Resident Senior Fellow, Brookings Institution
November 7th, 2010
Prepared for Presentation at the XLIV FELABAN Annual Assembly
Punta del Este, Uruguay