LAC OUTLOOK: PLANTING IN GOOD TIMES? Guillermo Perry Chief Economist LAC IADB Annual Meetings Okinawa, Japan April 25
EXPORTS: Continue to lead? 2 Indices 1997-98=1 15 1 5 ARGENTINA BRAZIL MEXICO VENEZUELA 199 1992 1994 1996 1998 2 22 24 26f 2 2 Indices 1997-98=1 15 1 5 CHILE COLOMBIA PERU URUGUAY LAC Indices 1997-98=1 15 1 5 Costa Rica Guatemala Jamaica Dominican Republic 199 1992 1994 1996 1998 2 22 24 26f 199 1992 1994 1996 1998 2 22 24 26f Note: Indices calculated with exports of goods, FOB, billions of US$. World Bank LDB Working database, Consensus Forecasts and EIU country risk reports for Uruguay and the Central American and Caribbean countries.
in spite of currency appreciation? 125 (Nominal Exchange Rates) Mexico Venezuela Guatemala Costa Rica Uruguay 1 75 January-3 July-3 January-4 July-4 January-5 Index: Jan. 3 =1 15 Argentina Brazil Chile Colombia Peru 85 Source: Bloomberg 65 January-3 July-3 January-4 July-4 January-5
Real Effective Exchange Rates have 125 not changed much 1 Costa Rica Guatemala Mexico Uruguay Venezuela Index: Jan. 3 =1 75 23M1 23M5 23M9 24M1 24M5 24M9 25M1 125 1 Argentina Brazil Chile Colombia Peru Source: IMF. 75 23M1 23M5 23M9 24M1 24M5 24M9 25M1
Terms of Trade Indices (1997 = 1) 14 12 1 Argentina Colombia Mexico Chile Ecuador Peru 8 6 971 974 983 992 1 4 13 22 31 34 43 Source: National Sources via Haver database.
Trade Millions of US$ 4 3 2 1 Argentina Brazil Mexico Chile Peru Chile and Peru (Millions of US$ 1 75 5 25-1 -25 Jan-97 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5-2 -5-3 -75 Source: National sources via Haver database.
LAC: Current Account Balances 3 2 1 19 14 ARGENTINA VENEZUELA LAC weighted avg. Percent of GDP -1-2 -3-4 -5-6 1998 1999 2 21 22 23 24f 25f 26f BRAZIL CHILE COLOMBIA MEXICO PERU LAC weighted avg. Percent of GDP 9 4-1 1998 1999 2 21 22 23 24f 25f 26f -6 Source: Consensus Forecast and Economist Intelligence Unit.
INVESTMENT: Better prospects 12 1 8 6 4 Gross Fixed Capital Formation Index 1997=1 1997 1998 1999 2 21 22 23 24 e 25 f 26 f ARGENTINA COLOMBIA VENEZUELA 16 14 Gross Fixed Capital Formation Index 1997=1 12 1 8 6 1997 1998 1999 2 21 22 23 24 e 25 f 26 f BRAZIL CHILE MEXICO PERU Source: Consensus Forecast, March 31, 25.
7 6 5 GDP DOMESTIC ACTIVITY: Some slowdown? average % change on previous year 1 8 6 4 2-2 -4-6 Brazil Chile Colombia Mexico Peru IPI 21 22 23 24 25f growth in % 4 3 2 1 Brazil Chile Colombia Mexico Peru 21 22 23 24 25f Source: Consensus Forecasts.
DOMESTIC ACTIVITY: 3..and leveling off fast recoveries? 2 IPI 2 15 1 GDP average % change on previous year 1-1 -2 21 22 23 24 25f Argentina Uruguay Venezuela growth in % 5-5 -1 21 22 23 24e 25f Argentina Uruguay Venezuela
24/6 IN PERSPECTIVE: one of the best periods Real GDP growth in Latin America & Caribbean 1 8 6 24 5.9 Percent 4 2-2 -4 197 1973 1976 1979 1982 1985 1988 1991 1994 1997 2 23 26f Source: GDF & WDI database and DECPG for forecasts.
PLANTING IN GOOD TIMES? 6 Modest Increases in Primary Surplus 5 4 3 2 1 Primary Balance of the General Government (% of GDP) 21 22 23 24f Argentina Brazil Ecuador Mexico 4 3 2 1 21 22 23 24f -1 Source: FITCH data and National Sources Chile Colombia Costa Rica Peru Venezuela -2
111 19 PLANTING IN GOOD TIMES? Debt ratios fall with appreciation Debt/GDP 3 25 17 15 2 13 11 135 15 1 Exchange rate 35 99 97 95 13 125 Brazil Chile Colombia Mexico Peru Argentina 12 (rhs) Uruguay (rhs) 115 21 22 23 24 5 3 25 2 11 15 15 Index: 21=1 1 95 9 Brazil Chile Colombia Mexico Peru Argentina (rhs) Uruguay (rhs) 1 5 85 21 22 23 24
PLANTING IN GOOD TIMES? Advances in debt composition: Brazil % of total 7 6 5 4 3 Selic-Indexed Exchange Rate-Indexed Fixed 2 1 Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb 22 23 24 25
PLANTING IN GOOD TIMES? Domestic capital markets revival? Banking Creditto to the Private Sector in and Foreign PublicCurrency Debt in Foreign and Public Currency Foreign Debt (Percent) (Percent) 45 4 35 3 25 2 1995-1 1996-1 Bank Credit in foreign currency / total credit Foreign public debt / total debt 1997-1 1998-1 1999-1 2-1 21-1 22-1 23-1 9 8 7 6 5 4 3 Jan-97 Private Sector Bond Issuance Bonds Issued by the Private Sector Stocks (in billions) in Billions Pesos of Domestic market Dollars 23 External market 14 22 13 12 2 11 1 18 9 8 16 7 14 6 5 12 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Source: Central Bank of Mexico Jan-3
SOME STILL VULNERABLE Brazil: Debt dynamics under a 3 bp increase in US interest rates.55 3bp Combined Impact Base Case.5.45.4.35 24 25 26 27 28 29 21
SOME NOT ANY LONGER Mexico: Debt dynamics under a 3 bp increase in US interest rates.25.2 3bp Combined Impact Base Case.15.1.5 24 25 26 27 28 29 21
International Reserves: Increasing 2 LAC: Reserves and Imports Coverage Billions of US$ 15 Reserves excl. gold Imports coverage Argentina 18.9 1.2 Brazil 52.7 1.1 Chile 16. 7.7 Colombia 12.8 9.4 Mexico 64.1 3.9 Peru 11.9 14.9 Venezuela 18.2 15.1 1 97 Q1 98 Q2 99 Q3 Q4 2 Q1 3 Q2 4 Q3 Source: IMF via Haver database. Countries included are Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela
PLANTING IN GOOD TIMES? Trade negotiations Can we expect real advances in Doha? Will CAFTA and US/Andean Group TLC s go promptly through US Congress? Can Mercosur/EU TLC revive? Some effects from Mercosur/Andean Group and other bilaterals? Are countries pushing the complementary agenda?
PLANTING IN GOOD TIMES? Structural Reform: how stalled? CHILE: Education, innovation, financial sector ARGENTINA: Back to the future? BRAZIL: Progress in microeconomic reforms? COLOMBIA: Will reelection politics continue to delay reforms? PERU: Will political uncertainty finally affect the economy? ECUADOR: Can we avoid reversals? BOLIVIA: Is there a way out? VENEZUELA: Towards command and control?
PLANTING IN GOOD TIMES? Structural Reform: how stalled? MEXICO: Can Fox still deliver some? Future? CENTRAL AMERICA: Is CAFTA pushing up? COSTA RICA: Any hope for fiscal reform? NICARAGUA: Paralyzing politics? OTHERS: Better prospects? CARIBBEAN: DR: light out of the tunnel? JAMAICA: just enough to keep going? CARICOM/OECS: Coming to grips with reality?
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