Presentation to EPI - Washington Antonio Prado Deputy Executive - PowerPoint PPT Presentation

Presentation to EPI - Washington Antonio Prado Deputy Executive Secretary Economic Commission for 19 May 2010 Latin America and the Caribbean

The magnitude of the global crisis led to a contraction of GDP not seen in the 1980s in the region … LATIN AMERICA AND THE CARIBBEAN : GDP GROWTH (Percentages) 8 Debt Tequila Argentine 6 4 2 0 -2 Savings Asian- Current and loans Russian -4 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Growth Trend Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Economic Outlook, IMF, October 2009

The growth rate fell more steeply than it had in other crises LATIN AMERICA AND THE CARIBBEAN : GROWTH RATES BEFORE AND DURING CRISIS EPISODES (Average growth rates before and during the crisis) Latin America and the Caribbean 6 5 4.6 5 4 Pre ‐ crisis averages 2.7 3 2.2 correspond to: 2 •Tequila: 1990 ‐ 1993 0.5 1 0.4 •Asian ‐ Russian: 1996 ‐ 1997 0 •Argentine: 2000 ‐ 2001 -1 -0.4 •Current: 2003 ‐ 2007 -2 -1.9 -1.8 -3 Tequila Asian-Russian Argentine Current Pre-crisis average Growth during the crisis Mexico and Central America South America 4.7 7 4.5 5 5.8 4.2 6 4 3.5 5 4.2 4.0 3.7 4 3 2.5 2.5 3 1.6 2 1.5 2 1 1 0 0 0.1 -1 -1 -1.2 -2 -1.0 -3 -2.3 -2 Tequila Asian-Russian Argentine Current Tequila Asian-Russian Argentine Current Pre-crisis average Growth during the crisis Pre-crisis average Growth during the crisis Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Economic Outlook, IMF, October 2009

The effects of financial crises are associated with deteriorating external conditions • Tightening of external financing – Sudden stops – The tightening of external financing has translated into a domestic credit crunch • Interruption of trade flows – Fall in exports

The international crisis shifted the dynamics of financial flows into the region… Net financial flows Net financial inflows and outflows (Percentages of GDP) (Percentages of GDP) 1% 5% 4% 1% 3% 0% 2% -1% 1% -1% 0% -2% -1% -2% -2% -3% -3% I-2007 II-2007 IV-2007 I-2008 II-2008 IV-2008 I-2009 II-2009 IV-2009 III-2007 III-2008 III-2009 I-2007 II-2007 IV-2007 I-2008 II-2008 IV-2008 I-2009 II-2009 IV-2009 III-2007 III-2008 III-2009 Inflows Outflows Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information. Note: Simple average, includes Argentina, Brazil, Chile, Colombia, Mexico and Peru. Does not include FDI.

Remittances also decreased… LATIN AMERICA AND THE CARIBBEAN : REMITTANCES (QUARTERLY DATA) (Annualized growth rates) 40% 30% 20% 10% 0% -10% Guatemala El Salvador Mexico Nicaragua Dominican Rep. Ecuador -20% Colombia Jamaica -30% 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information.

And the crisis has also damaged the region’s trade flows… LATIN AMERICA AND THE CARIBBEAN (SIX COUNTRIES): EXPORTS AND IMPORTS (Percentage annual variation in total value) 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Nov-07 Nov-08 Nov-09 Jan-07 Jun-07 Jul-07 Jan-08 Jun-08 Jul-08 Jan-09 Jun-09 Jul-09 Feb-07 Mar-07 Apr-07 May-07 Aug-07 Sep-07 Oct-07 Dec-07 Feb-08 Mar-08 Apr-08 May-08 Aug-08 Sep-08 Oct-08 Dec-08 Feb-09 Mar-09 Apr-09 May-09 Aug-09 Sep-09 Oct-09 Dec-09 Exports Imports Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information. Note: Simple average; includes Argentina, Brazil, Chile, Colombia, Mexico and Peru.

At the same time, the domestic credit growth slowed heavily in Latin America… LATIN AMERICA AND THE CARIBBEAN (6 COUNTRIES): CREDIT TO THE PRIVATE SECTOR (Percentage annual variation, in real terms) 25% 20% 15% 10% 5% 0% Nov-07 Nov-08 Nov-09 Jan-07 Jun-07 Jul-07 Jan-08 Jun-08 Jul-08 Jan-09 Jun-09 Jul-09 Feb-07 Mar-07 Apr-07 May-07 Aug-07 Sep-07 Oct-07 Dec-07 Feb-08 Mar-08 Apr-08 May-08 Aug-08 Sep-08 Oct-08 Dec-08 Feb-09 Mar-09 Apr-09 May-09 Aug-09 Sep-09 Oct-09 Dec-09 Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information. Note: Simple average; includes Argentina, Brazil, Chile, Colombia, Mexico and Peru.

Despite the difference with respect to other crises, this episode does not seem to have compromised growth in stocks… LATIN AMERICA AND THE CARIBBEAN (7 COUNTIRES): MONTHS OF IMPORTS COVERED WITH INTERNATIONAL RESERVES AND EXTERNAL DEBT AS A PERCENTAGE OF GDP, 1980-2009 15 80 External debt 70 Argentina External debt as a percentage of GDP Months of import cover with international Asia 10 60 reserves 50 5 40 30 0 20 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Years IR/Imports External dbt/GDP Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information.

This is partly thanks to macroeconomic achievements prior to the crisis … • Macroeconomic performance was exceptional in 2003-2007: – Highest per capita growth rates for the past three decades, 3.7% • Average rate in the 1970s was 3.1% – Macroeconomic stability • Non-financial public sector debt fell from 59% of GDP to 33% – Large build-up of international reserves • Level of reserves more than doubled, from US$ 189 billion in 2003 to US$ 433 billion in 2007

And helped to underpin countercyclical policies in the region… • Most of the countries announced fiscal stimulus packages – These vary from 1% to 6% of GDP – Most packages are directed at increasing spending • On expanding and maintaining infrastructure • On social sectors • On support for SMEs • On job creation – They also include tax policies (tax cuts) to stimulate private spending on consumption and investment • Cuts in direct and indirect taxes and increased exemptions • Cuts in social security contributions • Fuel prices freezes or cuts

On the monetary front the countries reduced their interest rates… LATIN AMERICA: MONETARY POLICY RTES IN COUNTRIES WITH INFLATION TARGETS, JANUARY 2007-MARCH 2010 16 14 Brazil 12 10 Colombia Mexico 8 Chile 6 Peru 4 2 0 Nov-07 Nov-08 Nov-09 Jan-07 Jun-07 Jul-07 Jan-08 Jun-08 Jul-08 Jan-09 Jun-09 Jul-09 Jan-10 Feb-07 Mar-07 Apr-07 May-07 Aug-07 Sep-07 Oct-07 Dec-07 Feb-08 Mar-08 Apr-08 May-08 Aug-08 Sep-08 Oct-08 Dec-08 Feb-09 Mar-09 Apr-09 May-09 Aug-09 Sep-09 Oct-09 Dec-09 Feb-10 Mar-10 Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information.

Lastly, public-sector credit was boosted to compensate for the fall in private lending… LATIN AMERICA AND THE CARIBBEAN (7 COUNTRIES): GROWTH IN TOTAL LENDING (IN REAL TERMS), 2007-2009 30 28% 26% 25 22% 19% 20 17% 16% 15 10 7% 4% 5 -4% 0 -5 2007 2008 2009 Total lending Private lending Public lending Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of IDB (2010).

The countercyclical role of the public financial systems was particularly significant in Brazil… BRAZIL: INDEX OF CREDIT TO GDP OF PUBLIC AND PRIVATE FINANCIAL INSTITUTIONS AND INDUSTRIAL ACTIVITY INDEX, JANUARY 2008-OCTOBER 2009 175 January-December 2008 January-October 2009 165 155 Index: January 2008=100 145 135 125 115 105 95 85 75 Jan Feb Jun Jul Jan Feb Jun Jul Mar May Sep Oct Nov Dec Mar May Sep Oct Aug Aug Apr Apr Public financial institutions Private financial institutions Activity index Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bacen (2010).

This paved the way for an upturn in economic activity… LATIN AMERICA: INDUSTRIAL PRODUCTION (Percentage annual variation) 15% Crisis Recovery 10% 5% 0% -5% -10% -15% Nov-07 Nov-08 Nov-09 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Dec-09 Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information. Note: Simple average, includes Argentina, the Bolivarian Republic of Venezuela, Brazil, Chile, Colombia, Mexico and Peru.

The recovery will firm up in 2010 with growth estimated at 4.1% LATIN AMERICA AND THE CARIBBEAN: GROWTH RATES, 2010 (Percentages) 5.5 Brazil 5.0 Uruguay 5.0 Peru 4.5 Panama 4.5 Chile Bolivia (Plur. State of) 4.5 4.5 South America Latin America and the Caribbean 4.1 Argentina 4.0 Dominican Republic 3.5 Mexico 3.5 Costa Rica 3.5 Paraguay 3.0 3.0 Ecuador 3.0 Cuba 3.0 Central America Colombia 2.5 Venezuela (Bol. Rep. of) 2.0 2.0 Nicaragua Haiti 2.0 Guatemala 2.0 El Salvador 2.0 The Caribbean 1.8 Honduras 1.5 0 1 2 3 4 5 6 Source : Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information.