Download economic liberalization in latin america under the historical lens

ECONOMIC LIBERALIZATION
IN LATIN AMERICA UNDER
THE HISTORICAL LENS
UNITED NATIONS
DESA
JOSÉ ANTONIO OCAMPO
UNDER-SECRETARY-GENERAL
OVER THE PAST TWENTY-FINVE
YEARS, LATIN AMERICA’S ECONOMIC
POLICY HAS BEEN BASED
ON TWO BASIC ASSUMPTIONS:
¾
State-led Industrialization was inefficient
¾
The liberalization of market forces was
necessary, therefore, to generate
competitive and dynamic economies
THESE CLAIMS CONFRONT,
NEVERTHELESS, TWO
STUBBORN FACTS:
¾
The last twenty-five years have been the
worst in the region’s history of economic
performance
¾
Economic growth was highly superior under
the State-led industrialization model
THE LAST TWENTY-FIVE YEARS
PERFORMANCE HAS BEEN
MEDIOCRE
6.0
GDP growth
5.0
4.0
3.0
2.0
1.0
0.0
1950-1980
1980-1990
Weigthed average
1990-1997
Simple average
1990-2004
THE LAST TWENTY-FIVE YEARS
PERFORMANCE HAS BEEN
MEDIOCRE
3.0
Per worker GDP growth
2.0
1.0
0.0
(1.0)
(2.0)
(3.0)
1950-1980
1980-1990
Weighted average
1990-1997
Simple average
1990-2004
COMPARED TO THE REST OF THE WORLD,
WE HAVE RECEDED TO THE SAME LEVELS
OF A CENTURY AGO
35
33
31
29
27
25
23
21
19
17
15
120
110
100
90
80
70
60
Latina America/World Maddison
Latin America/US Maddison
LA/W World Bank
LA/US W orld Bank
2003
2000
1997
1991
1990
1980
1973
1965
1950
1913
1900
50
1870
Latin America/World
130
Latin America/United States
Iner-regional disparities
FOUR QUESTIONS THAT
WE MUST ANSWER
¾
Why did the State-led industrialization model
collapse?
¾
Why was the debt crisis so severe?
¾
Why was the later economic recovery so
frustrating?
¾
Is the mediocre economic performance
associated to an equally poor social
performance?
FIRST QUESTION
WHY DID THE STATE-LED
INDUSTRIALIZATION MODEL
COLLAPSE?
EXHAUSTION OF IMPORT
SUBSTITUTION?
¾
In the majority of the countries, Import substitution was
exhausted long before the debt crisis.
¾
For that reason, a new strategy had emerged : a “mixed
model”
9
Export promotion
9
Regional integration
9
Gradual rationalization of protection
9
In inflationary countries, gradual devaluation schemes
¾
To talk about “import substitution” as the dominant model
in the 1970s, is thus a clear anachronism.
¾
In this framework, Latin America had a dynamic
performance since the mid sixties’
THE LATE PHASE OF STATE-LED
INDUSTRIALIZATION WAS RELATIVELY
SUCCESFUL
35
33
31
29
27
25
23
21
19
17
15
120
110
100
90
80
70
60
Latina America/W orld Maddison
Latin America/US Maddison
LA/W World Bank
LA/US W orld Bank
2003
2000
1997
1991
1990
1980
1973
1965
1950
1913
1900
50
1870
Latin America/World
130
Latin America/United States
Iner-regional disparities
THERE ARE SEVERAL MYTHS
ABOUT EXPORT DYNAMISM
DURING THIS PHASE
¾
The slow dynamism of exports was
concentrated in the early post-war years and
in major countries
¾
Exports accelerated since the mid-1950s
¾
However, the region lost market share in the
commodity markets, specially oil and oil
products
EXPORTS ACCELERATED
SINCE THE MID-1950s…
Latin America without Venezuela
(Simple average)
7%
6%
5%
4%
3%
2%
1%
0%
1945-1955
1956-1965
Exports growth
1966-1973
GDP growth
1974-1980
EXPORTS ACCELERATED
SINCE THE MID-1950s…
10%
Exports growth
8%
6%
4%
2%
0%
1945-1955
1956-1965
1966-1973
1974-1980
-2%
-4%
Large and medium countries (without Ven)
Small countries
Venezuela
THE REGION LOST MARKET SHARE IN
FOOD AND ENERGY MARKETS…
Latin Am erica/World
Share in total exports
30
25
20
15
10
5
0
1953
1958
1963
1968
Food
Raw material
Oil and derivates
1973
1980
1990
2000
…HOWEVER, IT BENEFITED
FROM THE GROWTH OF WORLD
MANUFACTURING TRADE
5
20
4
15
3
10
2
1
5
0
0
1953 1958 1963 1968 1973 1980 1990 2000
In world total
Developing countries
In developing countries
In world total
Latin America in m anufacture exports
A BETTER EXPLANATION OF THE
CRISIS: MACROECONOMIC
VULNERABILITIES
¾
In spite of export dynamism, larger external deficits
¾
Larger investment requirements
¾
Fiscal vulnerabilities
¾
Even more important: distortions generated by the abundant
external financing
¾
9
They affected to a larger extent the more liberalized
economies of the Southern Cone…
9
… they had affected in the past the export economies…
9
… would affect, again, in the 1990s, the liberalized
economies
This is, therefore, a more generalized phenomenon
compared to the alleged exhaustion of the “import
substitution” model
DETERIORATION OF THE RELATION GROWTH/
TRADE BALANCE IN THE 1970s…
Annual GDP growth
7%
1971-1980
6%
1961-1970
5%
1951-1960
1991-1997
4%
3%
2%
1%
1998-2003
1981-1990
0%
-4%
-2%
Trade balance
0%
2%
4%
Net resource transfers
…AND LARGER INVESTMENT
REQUIREMENTS
7%
1961-1970
Annual GDP growth
6%
1971-1980
1951-1960
5%
4%
1991-1997
3%
2%
1%
0%
17.0%
1998-2003
19.0%
1981-1990
21.0%
23.0%
25.0%
Fixed capital investment as a percentage of GDP (1995 dollars)
27.0%
SECOND QUESTION
WHY WAS THE DEBT CRISIS SO
SEVERE?
GROWTH DURING THE LOST DECADE WAS
HALF OF THE EXPERIENCED DURING THE
GREAT DEPRESSION
GDP growth (9 countries)
2.5%
2.2%
2.0%
1.5%
1.1%
1.0%
0.5%
0.0%
1929-1939
1980-1990
THIS IS TRUE IN THE MAJORITY OF THE
COUNTRIES (CHILE IS THE ONLY
EXCEPTION)
GDP growth
5.0%
4.0%
Colombia
1980-1990
3.0%
Chile
2.0%
México
1.0%
-1.0%
Guatemala
Venezuela
Uruguay
0.0%
-1.0%
Brasil
0.0%
1.0%
2.0%
3.0%
Argentina
Perú
-2.0%
1929-1939
4.0%
5.0%
6.0%
7.0%
THE BASIC REASONS: TWO
EXTERNAL SHOCKS WITHOUT
PRECEDENTS (OR ONLY
DISTANT PRECEDENTS)
¾
The reversal of the capital account : from
positive transfers of around 2-3% of GDP to
negative transfers of 4-5% of GDP.
¾
Collapse in the prices of non-oil commodities
(-32%).
¾
These shocks confronted vulnerable
economies in macroeconomic terms.
Percent of GDP
AN ABRUPT REVERSAL IN EXTERNAL
FINANCING…
4.0
2.0
0.0
-2.0
-4.0
-6.0
Financial flows
2003
2000
1997
Direct foreign investm ent
1994
1991
1988
1985
1982
1979
1976
1973
1970
Total
HIGH INTEREST RATES GENERATED AN
UNFORESEEN EXPLOSION OF THE EXTERNAL
DEBT COEFFICIENT
450.0
70
60
350.0
50
300.0
250.0
40
200.0
30
150.0
20
100.0
Percentage of GDP
Percentage of exports
400.0
10
50.0
0.0
0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
External debt as a percentage of exports
External debt as a percentage of GDO
COLLAPSE OF COMMODITY PRICES
110
100
90
80
Cae
32%
70
60
50
Aggregate index of commodities relative prices
1999
1989
1979
1969
1959
1949
1939
1929
40
THE INTERNATIONAL RESPONSE
WAS VERY DIFFERENT:
¾
In the 1930s the moratorium of the debt
eased the recovery, and was tolerated by
the United States.
¾
In the 1980s, late and insufficient solutions.
Meanwhile, highly conditional financing.
THE 1930s vs. THE 1980s:
PURCHASING POWER OF EXPORTS
Relative to 1929
Relative to 1979
Year 10
Year 9
Year 8
Year 7
Year 6
Year 5
Year 4
Year 3
Year 2
Year 1
160
150
140
130
120
110
100
90
80
70
60
Year 0
Index year 0=100
Exports deflated by MUV
THE 1930s vs. THE 1980s:
TRADE BALANCE AS A PERCENTAGE OF
EXPORTS
(minus previous decade average)
1930´s (year 0=1929)
1980´s (year 0=1979)
Year 10
Year 9
Year 8
Year 7
Year 6
Year 5
Year 4
Year 3
Year 2
Year 1
Year 0
45
40
35
30
25
20
15
10
5
0
-5
-10
“Díaz-Alejandro (1984) summed
up the developments as follows:
“what could have been a serious but manageable
recession has turned into a major development
crisis unprecedented since the early 1930s
mainly because of the breakdown of
international financial markets and an abrupt
change in conditions and rules for international
lending. The non-linear interactions between this
unusual and persistent external shock and risky
or faulty domestic policies led to a crisis of
severe depth and length, one that neither shocks
nor bad policy alone could have generated”
THIRD QUESTION
WHY WAS THE LATER ECONOMIC
RECOVERY SO FRUSTRATING?
COMMON
BUT INACCURATE ANSWERS :
¾
Emphasis in positive effects of reforms…
¾
…but the lack of suitable conditions for the
functioning of markets
¾
Slow productivity growth
¾
Fundamental problems that these answers do not
take into consideration:
9
Latin America grew satisfactorily before the
1980s
9
Nothing guarantees full utilization of resources
9
Economic losses during transition
9
Static efficiency vs. dynamic efficiency
PRODUCTIVITY GROWTH IS SLOW…
2.5
Total factors' productivity
2.0
1.5
1.0
0.5
0.0
(0.5)
(1.0)
(1.5)
(2.0)
1950-1980
1980-1990
Weighted average
1990-1997
Simple average
1990-2002
…BUT THIS IS DUE, TO A GREAT
EXTENT, TO THE UNDERUTILIZATION
OF PRODUCTIVE RESOURCES
1990-2000
Annual per worker GDP growth
4%
Chile
3%
Argentina
2%
Panamá
-0.03
-0.02
-0.01
Uruguay
1%El Salvador Costa Rica
Bolivia
Guatemala
México
Brasil
0%
0
0.01
-1%
Ecuador
-2%
Annual informal sector growth
0.02
Colombia
0.03
0.04
Venezuela
THE GREAT PARADOX:
GREATER INTERNATIONAL
INSERTION IN RECENT YEARS…
…BUT SLOW ECONOMIC GROWTH
EXPORT DIVERSIFICATION
HAS BEEN RAPID
Share in total exports
100%
12%
8%
23%
40%
80%
62.2%
60%
40%
20%
0%
1953
1958
1963
1968
Manufactures
Energy
Commodities
Food
1973
1980
1990
2000
5
20
4
15
3
10
2
1
5
0
0
1953 1958 1963 1968 1973 1980 1990 2000
In world total
In developing countries
In developing countries
In world total
IN PARTICULAR, THE MARKET SHARE
IN WORLD MANUFACTURING TRADE
HAS INCREASED
HOW CAN WE EXPLAIN THIS
PARADOX?
¾
Limited production linkages
¾
In manufactures, new “enclaves”
¾
In natural resources, limited employment generation
¾
Deterioration in the trade balance/growth relationship
¾
This generates greater dependency on external
financing…
¾
… and, due to the consequent real volatility, low levels
of investment
¾
The constant tendency to currency appreciation during
periods of extensive external financing aggravates this
problem.
ADDITIONAL DETERIORATION
OF THE GROWTH/TRADE BALANCE
RELATIONSHIP…
7%
1971-1980
Annual GDP Growth
6%
1961-1970
5%
1951-1960
1991-1997
4%
3%
2%
1%
0%
-4%
1998-2003
1981-1990
-3%
-2%
-1%
Trade Deficit
0%
1%
2%
Net resource transfers
3%
…AND LOW INVESTMENT LEVELS
7%
1961-1970
Annual GDP growth
6%
1971-1980
1951-1960
5%
4%
1991-1997
3%
2%
1%
0%
17.0%
1998-2003
19.0%
1981-1990
21.0%
23.0%
25.0%
Fixed capital investment as a percentage of GDP (1995 dollars)
27.0%
A MORE GENERAL STRUCTURALIST
INTERPRETATION:
¾
The new model solves in a better way the
problem of incentives to economic efficiency…
¾
... but this benefit is only static and
microeconomic
¾
The previous model, solved much better the
problems of dynamic efficiency in the productive
structure of the economy
9
Creation of new production capabilities
9
Creation of new production linkages
FOURTH QUESTION
IS THE MEDIOCRE ECONOMIC
PERFORMANCE ASSOCIATED TO AN
EQUALLY POOR SOCIAL
PERFORMANCE?
SOCIAL PERFORMANCE
IN THE LAST DECADES (1)
¾
Human development advance experienced a
slow down in the last decades
¾
However, the majority of the social indicators
continued to improve
¾
In many of them, there was no “lost decade”
¾
Rather, gigantic underutilization of human
capital
¾
Democracy’s advance has been reflected in
an increase of social spending.
THE IMPROVEMENT IN THE QUALITY OF
LIFE CONTINUED, ALTHOUGH AT A
SLOWER PACE
Standard of living Index relative to the United States
80%
75%
70%
65%
60%
55%
50%
45%
40%
35%
LA-6 countries
LA-13 countries
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
1935
1930
1925
1920
1915
1910
1905
1900
30%
RECENT INDICATORS SHOW A FASTER
IMPROVEMENT IN THE 1990s IN THE SIX
LARGEST ECONOMIES…
Hum an Develo pment
Asto rga et al vs UNDP
6 countries
80%
75%
70%
65%
60%
55%
1975
1980
1985
HSLI (6)
1990
IDH UNDP (6)
1995
2000
…ALTHOUGH NOT IN THE SMALLER
ECONOMIES
Hum an Develo pment
Asto rga et al vs UNDP
13 remaining co untries
75%
70%
65%
60%
55%
50%
45%
40%
1975
1980
1985
HSLI (13)
1990
IDH UNDP (13)
1995
2000
THE EFFORT OF THE REGION IN TERMS OF
SOCIAL SPENDING HAS BEEN NOTEWORTHY
SOCIAL EXPENDITURE AS A PERCENTAGE OF GDP
16
Education
Health
Social Security
14
Housing
13.8
12.1
12
10.1
10
8
6
4
2
0
1990-1991
1996-1997
2000-2001
SOCIAL PERFORMANCE
IN THE LAST DECADES (2)
¾
The main problems dwell in the connections
from the economic to the social system
¾
Additional distributive deterioration…
¾
…on already very high levels of social
segmentation
¾
Current social policy can help to fight poverty…
¾
…but inequality remains outside the agenda
¾
Inequality might be becoming a development
trap
Population under poverty level
THE POVERTY-PER CAPITA GDP RELATIONSHIP
HAS DETERIORATED COMPARED TO 1980
49
48
47
46
45
44
43
42
41
40
3200
1990
1994
2003
1997
1980
3300
3400
3500
3600
Per capita GDP in dollars
3700
3800
INCOME DISTRIBUTION HAS WORSENED
IN SEVERAL COUNTRIES
CHANGES IN INCOME DISTRIBUTION’S GINI COEFFICIENT, 1990-1999
1990
Brasil
Bolivia
1999
0.627
Increased
0.640
0.538
Increased
0.586
Nicaragua
0.582
0.584
Guatemala
0.582
0.582
Colombia
0.601
Decreased
0.572
Paragu ay
0.447
Increased
0.565
Ho ndu ras
0.615
Decreased
0.564
Chile
0.554
0.559
Panama
0.560
0.557
0.501
Argentina
0.542
Increased
0.536
Mexico
0.539
0.461
Increased
0.521
0.507
Increased
0.518
Venezuela
0.471
Increased
0.498
Costa Rica
0.438
Uruguay
0.492
Ecu ador
Salvador
1.0
0.473
Increased
0.440
Decreased
0.8
0.6
0.4
0.2
0.0
0.2
0.4
0.6
0.8
1.0
THE POLICY AGENDA
¾
More emphasis on the economy’s real
stability
¾
Productive development strategies for
open economies
¾
Improve the social linkages of the
economic system
ECONOMIC LIBERALIZATION
IN LATIN AMERICA UNDER
THE HISTORICAL LENS
UNITED NATIONS
DESA
JOSÉ ANTONIO OCAMPO
UNDER-SECRETARY-GENERAL