1 IMF SEMINAR ON REFORMS AND IMF SEMINAR ON REFORMS AND GROWTH IN LATIN AMERICA GROWTH IN LATIN AMERICA High Level IMF Seminar on Reforms and Growth in Latin America Washington May 5th 2006
Mar 27, 2015
1
IMF SEMINAR ON REFORMS IMF SEMINAR ON REFORMS AND GROWTH IN LATIN AND GROWTH IN LATIN AMERICA AMERICA
High Level IMF Seminar on Reforms and Growth in Latin America
Washington May 5th 2006
2
11 Macroeconomic Policies for GrowthMacroeconomic Policies for Growth
Building Social and Political Coalitions for ReformBuilding Social and Political Coalitions for Reform22
Institutional Reform and GrowthInstitutional Reform and Growth33
3
Latin America’s growth remains not Latin America’s growth remains not only low but also highly volatile…only low but also highly volatile…
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on International Financial Statistics, IMF 2005Based on International Financial Statistics, IMF 2005
Volatility calculated as standard deviation of GDP growthVolatility calculated as standard deviation of GDP growth
over 10-year periodsover 10-year periods
AverageAverage
Potential GDP growth in Latin America (%)
0
1
2
3
4
5
6
7
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
Annual va
riati
on (%
)
.
5.3%
2.4%
Output Volatility (%)
0
0.5
1
1.5
2
2.5
3
3.5
4
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
Dev
iati
on o
f %
change
.
1.7%
2.8%
2.0%
4
While Latin American countries While Latin American countries experienced a falling down…experienced a falling down…
1950
1960
1970
1980
1990
2000/06
2000/06
1990
1980 1970
1960
1950
1950
1960
1970
1980
1990
2000/06
-4
-3
-2
-1
0
1
2
3
-30 -10 10 30 50 70 90deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
Mexico Chile Brazil
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
5
… …some, more than others, during the some, more than others, during the 1950-2005 period …1950-2005 period …
2000/06
1990
1980
1970 1960
1950
1950
19601970
1980
1990
2000/06
1980
1970
1960
1950
1990
2000/06
-6
-5
-4
-3
-2
-1
0
1
2
-50 0 50 100 150 200 250 300deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
Venezuela ArgentinaColombia
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
6
..deepening the gap between them and ..deepening the gap between them and developed countries …developed countries …
1950
19601970
1980
1990
2000/061950
1960
1970
19802000/06
1990
2000/06
1990
1950
1960 1970
1980
-1,5
-0,5
0,5
1,5
2,5
3,5
4,5
50 100 150 200 250 300 350deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
Finland Norway Ireland
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
7
……deepening the gap with developed deepening the gap with developed countries…countries…
2000/06
1990
1960
1970
1980
1950
1990
2000/06
1980
1970
1960
1950
2000/06
1990
1980
1970
1960
1950
-3,5
-2,5
-1,5
-0,5
0,5
1,5
2,5
3,5
4,5
0 50 100 150 200 250deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
Spain Portugal Italy
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
8
……the Asian countries experienced the Asian countries experienced an historical jumpan historical jump
1950
1960
1970
1980
1990
2000/06
1950
19601970
1980
19802000/06
-2,5
-1,5
-0,5
0,5
1,5
2,5
3,5
4,5
5,5
-85 -75 -65 -55 -45deviation (%) of GDP per capita with respect to world average
($ 1990)
GD
P p
er c
apita
gro
wth
min
us w
orld
per
cap
ita g
row
th
(% a
nnua
lized
)
China India
Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005
9
Three reasons why Latin America is not Three reasons why Latin America is not catching up:catching up:
1.11.1 Weak global trade integrationWeak global trade integration
Volatile natural resources endowmentsVolatile natural resources endowments1.21.2
Strong financial dependenceStrong financial dependence1.31.3
10
With the exception of Mexico and With the exception of Mexico and Chile Latin America still remains closed to Chile Latin America still remains closed to
exchanges…exchanges…
Total value of merchandise exports valued free on board
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
Mil
lions
US d
oll
ars
.
Argentina Brazil Chile
Colombia Mexico Peru
Venezuela
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on Based on Oxford Latin American History DatabaseOxford Latin American History Database
1.11.1
11
… …with a slight improvement in the last with a slight improvement in the last decade…decade…
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on Based on International Financial Statistics, IMFInternational Financial Statistics, IMF
1.11.1
Latin America's export volume
70
90
110
130
150
170
190
1996 1997 1998 1999 2000 2001 2002 2003 2004
Export
index
indic
ato
r (1
996=10
0)
Argentina Brazil Chile Colombia
Mexico Peru Venezuela
12
… …but falling behind world but falling behind world performanceperformance
Latin America's export volume
100
120
140
160
180
200
220
1999 2000 2001 2002 2003 2004 2005
Index
of to
tal ex
port
s (B
ase
yea
r 19
99)
.
Latin America & Caribbean Latin America (ex-Brazil)
Asia World
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on Based on International Financial Statistics, IMF and Asian Development BankInternational Financial Statistics, IMF and Asian Development Bank
1.11.1
13
Three reasons why Latin America is not Three reasons why Latin America is not catching up:catching up:
1.11.1 Weak global trade integrationWeak global trade integration
Volatile natural resources endowmentsVolatile natural resources endowments1.21.2
Strong financial dependenceStrong financial dependence1.31.3
14
Latin America is endowed with natural Latin America is endowed with natural resources and is dependent on commodity resources and is dependent on commodity
marketsmarkets
Commodity prices
0
200
400
600
800
1000
1200
1400
1600
1800
2000
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
US$ n
om
inal in
dex
1970
=10
0 .
Non Energy Comm PricesCommodity prices (including energy)Petroleum Metals
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on Based on Oxford Latin American History Database and IMF Pink SheetOxford Latin American History Database and IMF Pink Sheet
1.21.2
15
Growth relies on performance of Growth relies on performance of primary products and price fluctuations…primary products and price fluctuations…
Source: BBVA; BBVA-MAP Latam index monitors the trading prices of commodities in the regionSource: BBVA; BBVA-MAP Latam index monitors the trading prices of commodities in the region
1.2 1.2
0
1
2
3
4
5
619
91
1993
1995
1997
1999
2001
2003
Vari
ati
on (%
)
.
0
10
20
30
Vari
ati
on (%
)
.
Oil Price (Brent)
GDP variation (%)
GDP and trading prices of commodities (1991-2005)
16
… …as a result macroeconomic as a result macroeconomic volatility has been a major issue for volatility has been a major issue for
Latin America…Latin America…
AverageAverage
Source: Ricardo Haussmann and Helmut Reisen, OECD (1996)
Volatility of real GDP Growth (1970-1992)
0
12
3
45
6
78
9
MENA Sub-SaharanAfrica
LatinAmerica
South Asia East Asianmiracle
OECD
Sta
ndar
d d
evia
tion (G
DP)
.
1.2 1.2
17
… …price volatility in particular has price volatility in particular has been historically high…been historically high…
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on Based on Oxford Latin American History Database and IMF Pink SheetOxford Latin American History Database and IMF Pink Sheet
1.2 1.2
Non-energy commodities
0
10
20
30
40
50
60
70
80
1900
1906
1912
1918
1924
1930
1936
1942
1948
1954
1960
1966
1972
1978
1984
1990
Sta
nd
ard d
evia
tion (
%)
.
Commodity prices (including energy)
0
10
20
30
40
50
60
70
80
1900
1906
1912
1918
1924
1930
1936
1942
1948
1954
1960
1966
1972
1978
1984
1990
Sta
ndard
dev
iati
on (%
) .
Metals
0
10
20
30
40
50
60
70
80
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
Sta
nd
ard
dev
iati
on (%
) .
Evolution of Price Volatility (1900-2000)
Petroleum
0
10
20
30
40
50
60
70
80
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
Sta
ndard
dev
iati
on (%
)
.
18
……although the situation has although the situation has improved over recent yearsimproved over recent years
Source: IMF, 2005Source: IMF, 2005
PeriodDomestic
OutputFixed
Investment1870-1929 6.49 107.8
Argentina 1930-1970 4.56 67.961971-2004 5.01 16.39
1870-1929 4.84 37.16Brazil 1930-1970 3.25 29.56
1971-2004 2.94 15.82
1870-1929 6.25 76.05Chile 1930-1970 7.69 64.6
1971-2004 5.35 16.1
1870-1929 7.29 79Mexico 1930-1970 2.9 102.36
1971-2004 3.3 14.93
Cyclical Volatility Estimates (standard deviations in %)
1.2 1.2
19
… …current account imbalances remain current account imbalances remain persistent todaypersistent today
AverageAverage
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
1.2 1.2
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
Venezuela Colombia Chile Mexico Argentina Peru Brazil
Dev
iati
on
(%
)
.
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
Korea Thailand Singapore China Indonesia India
Dev
iati
on
(%
)
,
Current Account volatility (1976-2005)
20
Three reasons why Latin America is not Three reasons why Latin America is not catching up:catching up:
1.11.1 Weak global trade integrationWeak global trade integration
Volatile natural resources endowmentsVolatile natural resources endowments1.21.2
Strong financial dependenceStrong financial dependence1.31.3
21
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on IMF, World Bank, National DataBased on IMF, World Bank, National Data
Debt ratios have decreased, but they Debt ratios have decreased, but they remain high with respect to other remain high with respect to other
economies…economies…
AverageAverage
0
100
200
300
400
500
India Indonesia Philippines Thailand Korea China Malaysia
Deb
t as
% o
f Exp
orts
.
1.3 1.3
0
100
200
300
400
500
Argentina Peru Brazil Colombia Chile Venezuela Mexico
Deb
t as
% o
f Export
s .
Average debt ratios as percentage of exports (1996-2005)
22
The failure to The failure to boost internal boost internal savings rates is persistent in the savings rates is persistent in the
region...region...
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on Global Development Finance, The World Bank, 2005Based on Global Development Finance, The World Bank, 2005
Evolution of regional saving rates (as a percentage of GDP)
5
10
15
20
25
30
35
40
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Net
nat
ional
sav
ings
(%
of G
DP)
.
East Asia & Pacific Latin America & Caribbean
South Asia World
1.3 1.3
23
… …making Latin America still highly making Latin America still highly dependent on foreign capitaldependent on foreign capital
Regional averageRegional average
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on Global Development Finance, The World Bank, 2005Based on Global Development Finance, The World Bank, 2005
1.3 1.3
0
5
10
15
20
25
30
35
40
Venezuela Chile Mexico Peru Brazil Argentina Colombia
Net
nat
ion
al s
avin
gs
(% o
f G
NI)
.
0
5
10
15
20
25
30
35
40
Singapore China Malaysia Thailand Indonesia IndiaN
et n
atio
nal
sav
ings
(%
of G
NI)
.
Net National savings by country (1996-2005)
24
Dependency of the region on external Dependency of the region on external capital is not new…capital is not new…
Foreign Direct Investment as a share of GDP
0
0.5
1
1.5
2
2.5
3
1900 1914 1929 1938 1967 1980 1990
%
Latin America Asia Africa Total
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on “Foreign Capital in Latin America in the Nineteeth and Twentieth Centuries” Taylor, A. (2003)Based on “Foreign Capital in Latin America in the Nineteeth and Twentieth Centuries” Taylor, A. (2003)
1.3 1.3
25
… …and today Latin America’s and today Latin America’s investment ratios remain low and limit investment ratios remain low and limit
growth potentialgrowth potential
Outwards FDI flows by region
0
10
20
30
40
50
60
70
80
90
1985
1988
1991
1994
1997
2000
2003
Bil
lions
of doll
ars
.
Latin America Asia
Source: International Financial Statistics,IMF and UNCTADSource: International Financial Statistics,IMF and UNCTAD
1.3 1.3
26
Four policy lessons for Latin America:Four policy lessons for Latin America:
2.12.1 CompetitivenessCompetitiveness
Trade diversificationTrade diversification2.22.2
Financial integrationFinancial integration2.32.3
Macroeconomic stabilizationMacroeconomic stabilization2.42.4
27
Source: C.HJ.Kwan, Nomura Institute of Capital Markets ResearchSource: C.HJ.Kwan, Nomura Institute of Capital Markets ResearchSource: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on Working Paper by Blázquez, Rodríguez and Santiso, 2006Based on Working Paper by Blázquez, Rodríguez and Santiso, 2006
Competition is increasingly important: Competition is increasingly important: China is a wake up call for more reforms in the China is a wake up call for more reforms in the
regionregion
Asian countries competition* vs. Chinese exports to US, %
010203040506070
*Value of exports to US from China in same product categories as country´s exports, as % of country´s total exports to US
Latin American countries competition* vs. Chinese main export products
0%
10%
20%
30%
40%
50%
60%
*Arithmetic average of the following indexes: CC= and CS=
where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in time t.
å --n
njt
nit aa
2
11
åå
å
n
njt
n
nit
n
njt
nit
aa
aa
22 )()(
2.1 2.1
(2005) (2005)
% o
f exp
ort
s
% o
f exp
ort
s
28
Four policy lessons for Latin Four policy lessons for Latin America:America:
2.12.1 CompetitivenessCompetitiveness
Trade diversificationTrade diversification2.22.2
Financial integrationFinancial integration2.32.3
Macroeconomic stabilizationMacroeconomic stabilization2.42.4
29
Trade diversification is required, so more Trade diversification is required, so more financial independence from external capital flowsfinancial independence from external capital flows
Source: BBVA; BBVA-MAP Latam index monitors the trading prices of commodities in the regionSource: BBVA; BBVA-MAP Latam index monitors the trading prices of commodities in the region
AverageAverage
Commodity exports as a share of total exports (2005)
0
10
20
30
40
50
60
70
80
90
Venezuela Peru Chile Colombia Argentina Brazil Mexico
%
2.2 2.2
30
Four policy lessons for Latin Four policy lessons for Latin America:America:
2.12.1 CompetitivenessCompetitiveness
Trade diversificationTrade diversification2.22.2
Financial integrationFinancial integration2.32.3
Macroeconomic stabilizationMacroeconomic stabilization2.42.4
31
There is still room for more local There is still room for more local savings and deepening of financial savings and deepening of financial
markets markets
OECD Countries
0
20
40
60
80
100
120
% o
f GD
P .
Non OECD Countries
0
20
40
60
80
100
120
% o
f G
DP
.
Importance of Pension funds in the Economy (2004)
Source: OECD Global Pension Statistics, 2005
2.3 2.3
AverageAverage
32
There is also still room for deeper There is also still room for deeper financial integration :financial integration :
Source: Schularick, 2006
Based on GDP figures from Maddison (1995, 2001)) in 1990 international dollars (PPP), and gross foreign investment data from Woodruff (1966) and Wilkins (1989) for 1913/14.
2.3 2.3
Average 1913 Average 1913 Average 2000 Average 2000
International Financial Integration Index (1913 vs 2000)
0
1
2
3
4
5
6
7
8
9
Brazil Turkey Argentina Mexico Chile Russia India China
Inte
grati
on Index
(0-1
0)
.
Integration Index 1913
Integration Index 2000
33
Four policy lessons for Latin Four policy lessons for Latin America:America:
2.12.1 CompetitivenessCompetitiveness
Trade diversificationTrade diversification2.22.2
Financial integrationFinancial integration2.32.3
Macroeconomic stabilizationMacroeconomic stabilization2.42.4
34
Source: Global Development Finance, The World Bank, 2005Source: Global Development Finance, The World Bank, 2005
Macroeconomic stabilization can Macroeconomic stabilization can still be improved:still be improved:
2.4 2.4
Evolution of international reserves
0
200
400
600
800
1000
1200
1400
1600
1800
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Res
erve
s (R
ES)
Bil
lion
s of (
U$)
. 02 East Asia & Pacific 04 Latin America & Caribbean
06 South Asia All developing countries
35
……stabilization through reserves can be stabilization through reserves can be difficultdifficult
Source: OECD Development Center, 2006Source: OECD Development Center, 2006
Based on Global Development Finance, The World Bank, 2005Based on Global Development Finance, The World Bank, 2005
2.4 2.4
0
50
100
150
200
250
Brazil Mexico Argentina Chile Venezuela Peru Colombia
Res
erve
s (R
ES) B
illi
ons
of U
S$
.
0
50
100
150
200
250
China India Thailand Malaysia IndonesiaR
eser
ves
(RES) B
illi
ons
of U
S$ .
Average International Reserves (1996-2005)
36
Other stabilization mechanisms, Other stabilization mechanisms, such as fiscal, need to be enforcedsuch as fiscal, need to be enforced
Source: OECD Development Center, 2006Source: OECD Development Center, 2006
Based on Eduardo Lora, Inter-American Development Bank, 2006Based on Eduardo Lora, Inter-American Development Bank, 2006
AverageAverage
2.4 2.4
Tax revenue as a share of GDP (%) 2005
0
5
10
15
20
25
30
35
40
Brazil Chile Colombia Argentina Peru Mexico Venezuela
%
37
Concluding remarksConcluding remarks
• There are lessons for enhancing convergence of Latin American countries:
Competition is increasing: China is a wake up call to foster more reforms in Latin America towards competitiveness and productivity
Trade diversification is needed and would help to reduce vulnerabilities of the region
More financial integration is decisive as well as increasing financial independence
Reforms aiming at macroeconomic stabilization are needed for raising growth on a sustained basis
38
33 Institutional Reform and GrowthInstitutional Reform and Growth
Building Social and Political Coalitions for ReformBuilding Social and Political Coalitions for Reform22
Macroeconomic Policies for GrowthMacroeconomic Policies for Growth11
39
Democratic governments have reached Democratic governments have reached stability, but they are still youngstability, but they are still young
AverageAverage
Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.
MIT Press. Cambridge, Massachusetts, 2006MIT Press. Cambridge, Massachusetts, 2006
Based on the Inter-American Development BankBased on the Inter-American Development Bank
Democratic regimes in Latin America since transition (1978-2005)
0
5
10
15
20
25
30
35
40
Colombia Venezuela Peru Mexico Argentina Brazil Chile
Yea
rs
40
Political landscape may adjust as Latin Political landscape may adjust as Latin America faces several elections in America faces several elections in
2006…2006…
Source: Based on electoral authorities and local pressSource: Based on electoral authorities and local press
Country Election Date
Chile Presidential (2nd round) 15-Jan
Legislative 12-Mar
Presidential 28-May
Presidential 2nd round (if needed) 18-Jun
Presidential / Legislative 9-Apr
Presidential 2nd round (if needed) 7-May
Mexico Presidential / Legislative 2-Jul
Presidential / legislative / state 3-Oct
Presidential 2nd round (if needed) 29-Oct
Venezuela Presidential 3-Dec
Colombia
Peru
Brazil
41
……with the impact of presidential with the impact of presidential elections being different across elections being different across
countriescountries
Source: IADB Politics of Policies Report, 2006 and UNDP, 2005Source: IADB Politics of Policies Report, 2006 and UNDP, 2005
AverageAverage
Overall legislative Powers of Presidents in Latin America (2005)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Chile Brazil Colombia Peru Argentina Venezuela Mexico
Ov
era
ll l
eg
isla
tiv
e p
ow
ers
(a
ve
rag
es
)
.
42
Democratic temporality of mandates is Democratic temporality of mandates is important for the region…important for the region…
Terms of presidential mandates and possibilies of reelection in Latin America in 2006
CountryLength of
actual mandate
Length of previous mandate
Year of change
Immediate re-election
Non-Immediate re-election
Re-election forbidden
Year of change
Argentina 4 6 1994 1994
Brazil 4 5 1994 1997
Chile 6 (4 since 2005) 8 1993 / 2005
Colombia 4 4 1991
Mexico 6 6
Peru 5 5 1993
Venezuela 6 5 1999 1998
Total 4.7 5 7 4 8 6 9
Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.
MIT Press. Cambridge, Massachusetts, 2006MIT Press. Cambridge, Massachusetts, 2006
Based on the Inter-American Development Bank, 2006Based on the Inter-American Development Bank, 2006
43
……although economic performance although economic performance becomes less dependent on political becomes less dependent on political
cycles…cycles…
Source: OECD Development Centre.Source: OECD Development Centre.
BBased on Banco de Mexico, 2006ased on Banco de Mexico, 2006
Mexico Exchange rate depreciation (monthly)
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Jan-9
2
Jan-9
3
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
%
Electoral periods
44
Governments continue to pursue Governments continue to pursue structural reforms for boosting structural reforms for boosting
growth…growth…Political reforms Economic reforms
Andeans State reform Free Trade Agreement (FTA) with United States
ICMS 1 (reduction of brackets)
Pension (pending amendments)
Central Bank authonomy
Labor reform
Union reform
Utilities regulation
Tax reforms
Region transfers reforms
Social Security (ISSSTE)
Labor reform
Energy sector Reform
Fiscal Reform
Education reforms
Pensions reforms
Education reforms
Labor reforms
Brazil State reform
Colombia State reform
Mexico State reform
ChileState reform
45
Governments need to enforce the Governments need to enforce the continuity of their policiescontinuity of their policies
Source: IADB Politics of Policies Report, 2006 Source: IADB Politics of Policies Report, 2006
Policy Stability Index (2005)
0 0.5 1 1.5 2 2.5 3 3.5 4
Venezuela
Argentina
Peru
Mexico
Colombia
Brazil
Chile
Stability Index (1-4 scale)
AverageAverage
46
Emerging democracies need to be Emerging democracies need to be consolidated:consolidated:
Source: IADB Politics of Policies Report, 2006 Source: IADB Politics of Policies Report, 2006
(2005)
47
……as they are decisive for the functioning as they are decisive for the functioning of democracy and the quality of policiesof democracy and the quality of policies
Source: IADB Politics of Policies Report, 2006 and UNDP, 2005 Source: IADB Politics of Policies Report, 2006 and UNDP, 2005
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0
Congressional Capability Index (1-3 scale)
Poli
cy I
ndex
(1-
4 s
cale
)
Congressional Capabilities and the Quality of Policies
48
Concluding remarksConcluding remarks
• Political developments are promising:
Emerging democracies in Latin America are still consolidating
Governments need to enforce the continuity of their economic policies
Improving Congress capabilities will be crucial for the quality of these policies
49
33 Institutional Reform and GrowthInstitutional Reform and Growth
Building Social and Political Coalitions for ReformBuilding Social and Political Coalitions for Reform22
Macroeconomic Policies for GrowthMacroeconomic Policies for Growth11
50
Latin America’s competitiveness lies Latin America’s competitiveness lies behind other regions due to behind other regions due to
institutional flaws…institutional flaws…
Days to register a business
0
10
20
30
40
50
60
70
LatinAmerica
East Asia andPacific
South Asia OECD
Num
ber
of days
.
Cost of registration
0
10
20
30
40
50
60
LatinAmerica
East Asia andPacific
South Asia OECD
% o
f G
NP p
er c
apit
a
.
1. Registration requirements
AverageAverage
Source: Doing Business, The World Bank 2006Source: Doing Business, The World Bank 2006
51
Policy towards the suppleness of labor Policy towards the suppleness of labor regulations can still be enforced…regulations can still be enforced…
2. Labor market costs
Hiring cost (% of salary)
0
5
10
15
20
25
LatinAmerica
East Asia andPacific
South Asia OECD
% o
f sa
lary
.
Firing cost (weeks of wages)
0
10
20
30
40
50
60
70
80
LatinAmerica
East Asia andPacific
South Asia OECD
Wee
ks
of w
age
s
.
AverageAverage
Source: Doing Business, The World Bank 2006Source: Doing Business, The World Bank 2006
52
The fiscal setting is key to enhancing The fiscal setting is key to enhancing competitive markets in the region…competitive markets in the region…
3. Fiscal barriers
Number of taxes
0
10
20
30
40
50
60
LatinAmerica
East Asia andPacific
South Asia OECD
Num
ber
of ta
xes
.
Total tax payable
0
10
20
30
40
50
60
LatinAmerica
East Asia andPacific
South Asia OECD%
of G
ross
pro
fit
.
AverageAverage
Source: Doing Business, The World Bank 2006Source: Doing Business, The World Bank 2006
53
There is still room for improving There is still room for improving business regulationsbusiness regulations
Source: Doing Business, The World Bank 2006Source: Doing Business, The World Bank 2006
4. Temporal indicators of business regulation
Days to comply with licences
0
50
100
150
200
250
LatinAmerica
East Asia andPacific
South Asia OECD
Num
ber
of days
.
Years to close a business
0
0.5
11.5
2
2.5
33.5
4
4.5
LatinAmerica
East Asia andPacific
South Asia OECDN
um
ber
of ye
ars
.
AverageAverage
54
The institutional costs for productivity The institutional costs for productivity are not only financial but temporal…are not only financial but temporal…
Number of days needed to open a business
020406080
100120140160
Bra
zil
Venez
uela
Thaila
nd
Peru
Indi
a
Argen
tina
Colom
bia
Méx
ico
China
Sout
h Kor
ea
Chile
Uru
guay
Money needed to open a business (in US$)
0
500
1000
1500
2000
2500
Spai
n
Uru
guay
Sout
h Kor
ea
Méx
ico
Venez
uela
Peru
Colom
bia
Chile
Bra
zil
Argen
tina
Indi
a
China
Number of days needed to enforce a contract
0100200300400500600
Colom
bia
Peru
Bra
zil
Indi
a
Venez
uela
Uru
guay
Méx
ico
Argen
tina
Chile
China
Spai
n
Sout
h Kor
ea
Money needed toenforce a contract (in US$)
0
500
1000
1500
2000
2500
Venez
uela
Spai
n
Uru
guay
Chile
Argen
tina
Peru
Méx
ico
Indi
a
Sout
h Kor
ea
China
Colom
bia
Bra
zil
Nu
mb
er
of
days
Nu
mb
er
of
days
UD
$U
S$
Source: Doing Business, The World Bank 2006Source: Doing Business, The World Bank 2006
55
Low confidence in institutions affect Low confidence in institutions affect their efficiency, and further reforms are their efficiency, and further reforms are
neededneededEffectiveness of lawmaking bodies (2004-2005)
0
0.5
1
1.5
2
2.5
3
3.5
4
Chile Brazil Colombia Mexico Peru Argentina Venezuela
1=V
ery
inef
fect
ive
7=V
ery
effe
ctiv
e
.
Mean score given by business executives (World Economic Forum))
AverageAverage
Source: IADB, 2006 Source: IADB, 2006
Based on Latinobarometer (1996–2004), World Economic Forum (2005), and Saiegh (2005) Based on Latinobarometer (1996–2004), World Economic Forum (2005), and Saiegh (2005)
56
Investor protection is important, if not Investor protection is important, if not sufficient, for boosting investmentsufficient, for boosting investment
AverageAverage
0
1
2
3
4
5
6
7
8
9
10
Singapore India Thailand Indonesia Korea China Philippines
Indic
es 0
-10
.
0
1
2
3
4
5
6
7
8
9
10
Peru Chile Colombia Argentina Brazil Mexico Venezuela
Indic
es
0-1
0
.
Strength of investor protection (2005)
Source: Doing Business, The World Bank 2006Source: Doing Business, The World Bank 2006
57
Institutions are not the sole guarantee Institutions are not the sole guarantee for improving the investment climatefor improving the investment climate
Outwards FDI flows by region
0102030405060708090
1991 1994 1997 2000 2003
Bil
lions
of doll
ars
Latin America Asia
Source: World Bank and Cherchye and Moesen, 2005 Source: World Bank and Cherchye and Moesen, 2005
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Mexico Chile Argentina Colombia India China
Inst
ituti
onal
Qual
ity
.
Synthetic indicators of institutional quality (2005)
58
More importantly, the quality of policy More importantly, the quality of policy making needs to be addressed…making needs to be addressed…
Source: IADB Politics of Policies Report, 2006 and World Economic Forum, 2005Source: IADB Politics of Policies Report, 2006 and World Economic Forum, 2005
0 0.5 1 1.5 2 2.5 3 3.5 4
Stability
Enforcement andimplementation
Public regardedness
Efficiency
Policy index
Scale 1-4
OECD
East Asia
LatinAmerica
Key features of Public Policies: Inter-regional comparison
59
Concluding remarksConcluding remarks
• Strengthening the institutional framework is part of
the process:
Latin American institutions remain perfectible
Institutional costs are not only financial but also temporal
Although institutions are not the magic box (and tool) for
better performance, improving the quality of the policy
making process remains a pending issue
60
Thank you for Thank you for your attention!your attention!