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Title: Rodolfo H. Terragno Present and Future of the Latin American Economy


1
Rodolfo H. TerragnoPresent and Future of
theLatin American Economy
  • Yale University
  • March 7th, 2007

2




Weisbrot and Rosnick


November 13, 2003 ?Another Lost
Decade?Latin America's Growth Failure Continues
into the 21st Century?
  • 1980s. The lost decade for Latin
    America income p.c. shrunk.
  • 1990s. Slow growth.
  • The current decade will not be a success by
    any reasonable measure.

3
Growth Latin America 1951/2004PER CÁPITA
  • .

4
The region should grow for the reminder of the
decade at
  • 5.9 p.a. to match its 1960-70 performance.
    Nearly impossible.
  • 2.5 p.a. to equal its 1990s performance.
    Unlikely.

5
What actually happenedin the latest two years 1
6
What actually happenedin the latest two years 2
  • .

7
Short term analyses are often deceiving
  • A Latin American economy may enjoy periods of
    sunshine
  • until tidal waves wash ashore.
  • a Tsunami effect.

8
Argentina, 2001
  • SEPTEMBER
  • IMF Anne Krueger praises the liquidity defenses
    of the Argentine banking system.
  • Argentine virtuous economic policy deserves
    the strong support of the international
    community.
  • Stand-by credit raised to US21.6bn.
  • DECEMBER
  • Largest default in world history (US95bn).
  • Severe devaluation (A lost more than 66 of its
    value vis-a-vis the US)
  • The worst crisis Argentina had ever suffered

9
The roller-coaster track
  • Every economy shifts over time between growth and
    decline.
  • But L.A. shows unusually steep rises and falls.
  • Both neo-liberalism and economic interventionism
    claim full responsibility for periods of bonanza,
    and blame each other for every crisis.
  • But neither boom nor collapse is definitely
    related to one particular set of general
    policies.
  • In the long run, the roller-coaster motion
    prevents development.

10
Conventional wisdom
  • ORIGIN OF CRISES
  • Low institutional quality.
  • Legal instability.
  • Political disarray.
  • Stubborn opposition.
  • Political machines based on patronage.
  • Diffuse leadership.
  • Faulty administration.
  • _______________________________
  • At the most these are concurrent causes
  • RECIPE FOR SUCCESS
  • High institutional quality.
  • Legal stability.
  • Political consensus.
  • Moderate opposition.
  • Government in the hands of the most proficient.
  • Clear leadership.
  • Good administration
  • _____________________
  • Not enough

11
Attempts to identify the underlying
causes of recurrent crises in L.A.20th Century
  • .

12
Asymmetric international trade system
  • Terms of trade (Singer, Prebisch, 1950).
    Commodities prices fall faster than manufactures
    over time. In the industrial world, big corps and
    burly unions translate productivity gains into
    higher profits/wages rather than lower prices.
  • Unbalanced Productive Structures (Diamand, 1968).
    In semi-industrialized countries, the industrial
    sector does no generate dollars, but it swallows
    up them to import capital goods.
  • Evolutive Dutch disease. Asymmetry can affect
    even a central economy (Netherlands, after the
    disconvery of gas, 60s). An inflow of extra money
    leads to currency appreciation.Local costs
    increase while international prices do not
    change.The manufacturing sector loses labor,
    investments, productivity. If this affect an
    industrial country, let alone one which is in
    evolution.

13
21st century
  • Asymmetries under a different light

14
ToT, UPSs models that claim for correction
  • COMMODITIES
  • OPEC, wars, limited reserves, poor substitutes
    make energy commodities prices to grow faster
    than manufactures.
  • Asiatic export-oriented industrial policy created
    NICs that now demand more commodities.
  • Fall of the USSR, end of COMECON and rise of
    near-Capitalist China expanded the world market
    for metals and food.
  • Change of market size. Increase of volumes is as
    important as an increase in prices.
  • Biosciences. Genetic engineering has multiplied
    productivity of crops (soybean).
  • MANUFACTURES
  • Digital Revolution is dramatically reducing
    per-unit cost of manufactures. Productivity gains
    are translated into prices.

15
Latin American IMPORTS
  • What to look at

16
1. High-tech dependency
  • Many L.A. countries can produce cars or tractors,
    but all of them depend upon technology-added
    imports

17
2. The bulk of imports
  • Productivity turns down the unit prices of
    imports, but innovation multiplies the amount of
    goods to be imported

18
3. Non-fuel commodities
  • Hikes no longer rise prices of industrial goods
    direct impact of fuel is limited

19
Why oil hikes are not sparking inflation
  • Oil intensity, US, 1970-2002 drop 50 (same GDP
    with ½ oil). Cause energy efficiency, high-tech
    intensive industries
  • IT, telecom is making productivity surge. Greater
    margins to absorb extra costs
  • Globalization and more competition restrict
    ability to pass costs increases on to customers
  • High after-tax gasoline prices have restrained
    oil consumption in Europe
  • European labor flexibility has put an end to
    automatic indexation of salaries, wage-price
    spirals
  • Monetary policy authorities now promptly respond
    to rising oil prices by adjusting short-term
    interest rates

20
Oil bill doesnt affect the region
21
Latin American EXPORTS
  • What to look at

22
1. Low-tech exports commodities
  • The key of current international trade is
    technological intensity slightly processed
    commodities make little difference

23
2.Limits to labor-intensive sectors
  • WTO China, India (38 of world population, low
    GDP p.c.) do not leave room for becoming
    competitive through subsidies, tariffs

24
3. Purchasing power of dollars earned
  • Apart from Dutch disease. Governments often try
    to halt inflation or alleviate debt burden by
    overvaluing local currency a self-inflicted
    deterioration of terms of trade

25
Current growth is linked to non-fuel commodities
  • .
  • .

26
When the bubble will burst?a) Confident view
  • Integration into the global economy of 1/3 of the
    world population.
  • Latin America total population 25 of China
    India.
  • Chinas GDP raised 10 folds since 1978.
  • The ascent of such giants means unparalleled
    demand for commodities.
  • Chinas compliance with WTO rules will demolish
    import barriers
  • Classical criteria are incapable to assess the
    current situation

27
When the bubble will burst?b) Cautious view
  • Future-prices-based models current commodities
    prices are unsustainable.
  • Speculation has magnified changes in the
    supply/demand relation.
  • Feb. 27th, Shangai gave a yellow light to
    speculators the Composite Index dropped 8.8. It
    was its steepest fall in a decade.
  • Prices of most non-fuel commodities are below
    historical peaks in real terms.
  • There are doubts on the reliability of Chinas
    statistics.

28
o
  • China, India population ? effective demand
    (purchasing power).
  • India ? China. Acute poverty ( 1/day) China,
    17 India, 35. Relative poverty (2/day)
    China 47 India, 80.
  • Foreign Direct Investment (FDI), 2004-06. China
    (without Hong Kong) US203bn Latin America,
    US303.2bn.
  • Too many barriers to MA.
  • State-owned banking with too many non-performing
    loans
  • Inflation may force to take measures that would
    slow GDP.
  • Last month Alan Greenspan warned that US economy
    may slip into recession by the end of year.

29
Getting ready
  • Sooner or later, ToT will deteriorate
  • Imports substitution is no longer a solution
  • L.A. needs export-oriented economies
  • That requires competitive advantages in
    knowledge-intensive industries

30
Elements for a strategy
  • Current income windfall invested in education,
    RD
  • Company training
  • Govermentbusiness partnership
    science-technology-industry links
  • Hi-tech clusters
  • Detection of hi-tech niches in biosciences,
    electronics, software
  • Incentives for higher growing productivity
  • Facilities for start-ups, SMS business in
    industrial sectors with high value added

31
Success stories
32
References
  • UNCTAD Investment Brief, 2007-1, www.unctad.org
  • International Energy Agency, Key World Energy
    Statistics 2006 (Paris, 2007).
  • UN Economic Commission for Latin America (ECLAC),
    Preliminary Overview of the Economies of Latin
    America and the Caribbean, 2006 (Santiago de
    Chile, 2007).
  • Omar Bello, Latin American CountriesOil Import
    Bill, ECLAC, Geneva, October 2006.
  • Martin Sommer, Christopher Gilbert, The Boom in
    Nonfuel Commodity Prices Can it Last?, in World
    Economic Outlook Globalization and Inflation,
    International Monetary Fund, Washington D.C.,
    April, 2006
  • Andrés Solimano, Economic Growth and Macro
    Management in Latin America Past, Present and
    Future Perspectives. ECLAC, United Nations, June
    21, 2005.
  • Augusto de la Torre, Norbert Fiess, Growth in
    Latin America Short-Run Issues, Long-Run
    Challenges, World Bank, EuroFinance Conference,
    Miami, Florida, April 26th, 2005.
  • Claudio M. Loser, Latin America Economic
    Developments and Prospects Ten bullets, five
    charts and one table. Inter-American Dialogue,
    Sol M. Linowitz Forum, May 16th, 2004.
  • Mark Weisbrot and David Rosnick, Another Lost
    Decade? Latin America's Growth FailureContinues
    Into the 21st Century, Center for Economic and
    Policy Research (Washington, November, 2003)

33
.
  • José Antonio Ocampo, María Ángela Parra,
    Returning to an Eternal Debate The Terms of
    Trade for Commodities in the 20th Century
    (Santiago de Chile, February, 2003).
  • Thomas G. Rawski, Whats Happening to Chinas
    GDP Statistics?, in China Economic Review
    (Shangai, December 2001).
  • McKinsey Global Institute, Productivity The Key
    to an Accelerated Development Path for Brazil
    (São Paulo, 1998)
  • Rodolfo H. Terragno, The Challenge of Real
    Development (Boulder, 1988).
  • Hans Singer, Trade Policy and Growth of
    Developing Countries, in Elsevier (Montreal,
    1988).
  • Edmar Bacha, El Milagro y la Crisis (Buenos
    Aires, 1986).
  • Hans Singer, The Terms of Trade Controversy and
    the Evolution of Soft Financing (Washington,
    1984).
  • Raúl Prebisch, Capitalismo periférico crisis y
    transformación (Buenos Aires, 1981).
  • Marcelo Diamand, Doctrinas Económicas, Desarrollo
    e Independencia, Buenos Aires, 1973.
  • Raúl Prebisch, Crecimiento, desequilibrio y
    disparidades interpretación del proceso de
    desarrollo económico (Buenos Aires, 1950).
  • Raúl Prebisch, The Economic Development of Latin
    America and its Principal Problems (New York,
    1950).

34
.
  • terragno_at_netizen.com.ar
  • The author is indebted to Daniel Montamat, Marta
    Barros,
  • Guillermo Locane for their cooperation
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