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Latin America and the Caribbean: Challenges and Opportunities in a Time of Crisis Alicia Bárcena Executive Secretary of ECLAC Woodrow Wilson International Center for Scholars Washington D.C., 11 September 2009 Dilemmas and uncertainties after the crisis Old and new forms of protectionism A new international financial architecture or just cosmetic changes? Will there be more regulation? What will be the combination of public policies? Bilateralism (chinamerica) as opposed to multilateralism (open regionalism) Uncertainty concerning climate change Unemployment, informality and poverty Fragile democracies MANAGING FIVE TRANSITIONS From market supremacy to a new role for the State From traditional to new geopolitical and economic alliances From social exclusion to an inclusive development From exclusive R&D to extensive innovation for all From oil-based to a carbon-free sustainable economy SHORT HISTORY OF THE CRISIS The known links: subprime crisisinvestment banks-financial systems-crisis in confidence The reconfirmed link: transfer to the real economy. No decoupling The proven effects: lower economic activity, negative growth, drop in international trade and FDI, reduction in remittances. FRUSTRATION IN THE REGION AFTER BOOM YEARS (2003-2008) Solid fiscal policies and improved levels of public debt profile Increased exchange rate flexibility and unprecedented international reserves (+150% between 2003 and 2008) Surplus in the regional current account coupled with economic growth Ready access to external financing Increased trade (I + X) (value: 138%; volume: 49%) Terms of trade improved by 25% in the region Per capita GDP grew by more than 3% per year for five consecutive years Unemployment diminished from 11% to 7.5% coupled with the creation of more quality jobs Poverty rates fell by 10 percentage points (from 44% to 34%) Estimates for a prompt recovery are negative for 2009 in the 4 main channels Foreign direct investment Remittances and tourism Commodity prices External demand 50% 40% 30% 20% 10% 0% -10% -5% - 10% -20% -30% -29% -40% -50% -35% - 45% 2008 2009 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official data. -25% Exports of LAC fell by 31% and imports fell by 29% in value in the first half of 2009 LATIN AMERICA AND THE CARIBBEAN: MERCHANDISE EXPORT AND IMPORT GROWTH IN THE FIRST HALF OF 2008 AND 2009 (Growth rates relative to the year-earlier period) EXPORTS -36.7 Caribbean countries 13.1 -30.0 Mexico and Central America Chile -38.8 Andean Community -42.0 8.1 42.0 -15.8 44.9 27.5 -27.3 Latin America and the Caribbean -30.9 23.9 -29.1 -40 -20 January - June 2009 0 20 40 29.7 -31.8 29.4 -60 15.9 -35.1 -31.2 -80 24.3 -31.7 South America In volume exports fell by 15.3% 14.6 -29.2 16.7 -21.7 MERCOSUR 24.4 -32.1 17.1 -11.2 Central America Common Market -24.3 18.1 -31.6 Mexico IMPORTS 60 80 January - June 2008 -80 -60 -40 50.3 42.2 28.6 -20 January - June 2009 All export destinations were affected but those to China have dropped the least Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official data. 0 20 40 60 80 January - June 2008 In volume imports fell by 25.3% Inflows of FDI are expected to fall, after peaking historically in 2008 LATIN AMERICA AND THE CARIBBEAN: FOREIGN DIRECT INVESTMENT (Millions of dollars) 13% 140 000 120 000 51% 100 000 80 000 60 000 40 000 20 000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 South Mexico, Central andofthe Caribbean Source: Economic Commission for Latin America America and the Caribbean (ECLAC),America on the basis official figures. Total Remittances have fallen significantly LATIN AMERICA AND THE CARIBBEAN: MIGRANTS’ QUARTERLY REMITTANCES (Annual growth rates with respect to the same period of the previous year) 40% 30% 20% 10% 0% -10% -20% Guatemala El Salvador Mexico Nicaragua Dominican Rep. Ecuador Colombia Jamaica -30% 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. 4Q 2008 1Q 2009 2Q 2009 LONG HISTORY OF THE CRISIS Development model based on deregulation Model based on the segmentation and increased predominance of the financial sector over the productive Production patterns that are jeopardizing the future habitability of the planet Globalization patterns with high concentrations of wealth Paradigms such as the “invisible hand” and “trickle down theory” are no longer credible Simultaneous economic contraction in so many countries since the Great Depression (nearly 80% of the world’s economies and GDP) NUMBER OF COUNTRIES IN RECESSION IN THE SAME YEAR a (Percentages of total number of countries) 100 100 Great Depression 90 80 Others 19% Countries with GDP contraction 81% World War I 70 Current economic crisis 90 80 70 60 60 World War II First oil crisis 50 50 Second oil crisis 40 40 30 20 20 10 10 0 0 1901 1905 1909 1913 1917 1921 1925 1929 1933 1937 1941 1945 1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 30 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from Maddison and IMF estimates for the most recent periods (2009). a Covers 29 economies. Growth rates are expressed in constant internationally comparable currency . Will the future be different: New Normality with lower potential GDP in developed countries Pre-crisis Post-crisis PIB potencial 170 160 150 140 2006 2007 2008 2009 2010 Fuente: Sobre la base de la OCDE (2009) y el FMI (2009). 2011 Años 2012 2013 2014 …much less aggregate demand from US mundo pre-crisis mundo post-crisis 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 1990-2000 Consumo Privado + Inversión Fuente: EIU (2009) 2001-2007 Gasto Público 2008-2015 Sector Externo …less trade (%) Crisis Mundo pre-crisis 15.0 10.0 5.0 0.0 2004 -5.0 -10.0 -15.0 -20.0 Fuente: OCDE (2009) 2005 2006 2007 2008 2009 2010 Past experience shows…. Comparison between GDP-percapita with poverty rates (Dlls and percentages) 5000 48.3 50 4800 43.5 43.3 4400 4597 44.3 42.0 42.5 44 40.5 4200 46 42 4000 39.8 40 36.3 38 Recuperación en el nivel de pobreza: 25 años 3800 3886 Recuperación del P IB: 14 años 3600 3650 3620 3400 3746 36 34.1 33.2 3432 3200 34 32 3321 PIB per cápita Pobreza 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 30 1978 3000 Incidencia de la pobreza 4600 PIB per cápita 48 45.7 MAJOR GAPS INEQUALITY AND POVERTY RATES INCOME DISTRIBUTION AND SOCIAL PROTECTION EDUCATION PRODUCTIVITY INVESTMENT THE MOST UNEQUAL REGION OF THE WORLD Gini Coefficient in comparison with other regions Frustration in terms of labor market and poverty rates: Regional unemployment rate could exceed 9% in 2009 LATIN AMERICA AND THE CARIBBEAN: POVERTY, EXTREME POVERTY AND UNEMPLOYMENT RATES (Percentages) a 60 12 48,3 50 43,8 40,5 43,5 40 8 36,3 30 22.5 20 10 44,0 18.6 19.0 18.5 34,1 33,2 6 19.4 4 13.3 12.6 12.9 10 2 0 0 1980 1990 Very poor 1997 1999 Poor 2002 2006 2007 2008 2009 Unemployment rate (right hand side) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted in the respective countries. a Figures for poverty and extreme poverty rates are based on estimates for 19 countries of the region, including Haiti. The figures appearing above the bars are percentages of the population. Figures for 2008 and 2009 are forecasts. Vicious circle in the life cycle • Education, • Deficits in education translate in unemployment, informality and low proctivity • Salary gaps, lack of social protection in increasing ageing population EXPORT-LED MODEL NEED TO CHANGE Comparison between productivity and exports Coeficiente de exportacion y productividad en América Latina (Números índice, 1990=100) 250 200 150 100 50 0 1990 1991 1992 1993 1994 1995 1996 1997 Productividad 1998 1999 2000 2001 2002 Coeficiente de exportación Fuente: División de Desarrollo Productivo y Empresarial, CEPAL 2003 2004 2005 2006 2007 PRODUCTIVITY GAP ADDS TO THE ENERGY CONSUMPTION GAP Índices de brecha energética y productividad relativa, 1996-2006 250 200 150 100 50 0 1996 2001 2002 2003 2004 Brecha Enérgica AL/EEUU Pr relativa Linear (Brecha Enérgica AL/EEUU) Linear (Pr relativa) Fuente: División de Desarrollo Productivo y Empresarial, CEPAL 2005 2006 ENERGY INTENSITY (BEP/1OOO US$ a precios de 2000) Indice 1980=100 110 110 100 100 OECD Total América Latina y Caribe Fuente: Elaboración propia con base en SIEE de OLADE, y base de datos de la AIE 2007 2006 2005 2004 2003 2002 2000 2001 1999 1998 1997 1996 1995 1993 1994 1992 1991 1990 1989 1988 60 1986 1987 60 1985 70 1984 70 1983 80 1982 80 1981 90 1980 90 Technological frontier: patents in 2006 Biotecnología Nanotecnología EEUU 41,5 % EEUU 40,3 % Japón 11,9 % Japón 19,0 % UE27 27,4 % UE27 26,7 % Alemania 7 % Korea 2,7 % Reino Unido 4,5 % Francia 3,6 % Canadá 2,0 % España 1,3 % Australia 1,1 % Canadá 3,2 % China 1,0 % Korea 3 % India China 1,9 % 0,2 % India 0,9 % América Latina 0,3 % Brasil 0,3 % Fuente: OECD, 2008 Fuente: Cepal (2008), sobre datos de OCDE Patent Database, 2008 INVESTMENT GAP Inversión como % del PIB en dólares del 2000 25.0 24.0 23.0 22.0 21.0 20.0 19.0 18.0 17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0 23,0% 18,9% 18,7% 19,4% 18,2% 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 1968 1966 1964 1962 1960 1958 1956 1954 1952 1950 17,6% But the crisis also put in evidence important gaps Weakness of domestic productive structures: Strong presence of industries extracting natural resources without value added Little or no innovation Wider productivity gap in the face of the emergence of new technological demands The international competitiveness of the countries of the region remains limited to either “maquila” or sectors intensive in natural resources EXCLUSION IN EDUCATION 18 COUNTRIES: EDUCATION LEVELS BY (1990-2005) Quintil I Quintil V 120 80 60 97.5 84.1 92.9 100 61 53.9 40 20 79.6 7.9 14.8 0.2 20.5 22.6 0.7 0 Conclusión Conclusión Conclusión Conclusión Conclusión Conclusión primaria secundaria terciaria primaria secundaria terciaria 1990 2005 Fuente: CEPAL (2007). Panorama Social de América Latina 2007. /a. El porcentaje de conclusión de la primaria se estimó sobre la población de 15 a 19 años, en la secundaria se consideró como universo la población de 20 a 24 años y en la terciaria a la población de 25 a 29 años. 26 The capacity to respond to the crisis is different among countries LATIN AMERICA AND THE CARIBBEAN: SCOPE OF THE MEASURES ADOPTED TO 31-05-09 IN ORDER TO DEAL WITH THE CRISIS (Number of countries that have adopted the measure) Monetary and financial policy a Lower or and/or more flexible reserve requirements b Money supply 19 18 Fiscal policy c Lower taxes/higher subsidies d Increase and/or anticipation of infrastructure spending 17 16 15 Exchange-rate and foreign-trade policy e Higher tariffs or import restrictions f Lower tariffs g Export financing h Credit management with IFIs 14 13 12 11 10 Specifically targeted policies i Housing programmes j Support to SMEs k Sectorial policies 9 8 7 6 5 Labour and social policies l Employment incentives m Social programmes 4 3 2 1 0 a b c d e f g h i j k l m Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of official information. But the space to finance counter-cyclical policies is shrinking LATIN AMERICA AND THE CARIBBEAN: CURRENT ACOUNT AND FISCAL BALANCE, 2000-2009 a (Percentage of GDP) 2.0 1.5 Current account balance 2006 2005 2004 1.0 Twin surpluses 2003 0.5 2007 0.0 -0.5 2002 2008 -1.0 -1.5 -2.0 -2.5 2001 2009 a Twin deficits -3.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 Fiscal balance Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a The 2009 figures are forecasts. 0.5 1.0 A new role for the State Define a long term vision: a pre-analytical framework A new fiscal policy with a new social covenant Chose the right mix of public policies Search a more proactive relation with the market Protect the most vulnerable sectors Ensure inclusive development through spreading of technology and innovation Fostering a green economy The crisis highlights the need for a new fiscal covenant Main objective: to foster equality From assistance-based to universality based on rights Tax reform based on efficiency and progressiveness Tax revenues are low and constrains public expenditure LATIN AMERICA AND THE CARIBBEAN: FISCAL REVENUE AND SOCIAL SPENDING (Percentage of GDP) 45 40 35 30 25 20 15 10 5 0 Other public revenue Tax revenue Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. Guatemala El Salvador Dominican Rep. Paraguay Mexico Honduras Peru * Ecuador Panama Costa Rica * Uruguay Nicaragua Chile Venezuela (Bol.Rep.of) Colombia * Argentina * Bolivia (Pl.St.of) Brazil * Public social spending Tax policies are regressive in the majority of Latin American countries LATIN AMERICA AND THE CARIBBEAN: GINI COEFFICIENT BEFORE AND AFTER TAXES (Coefficients) Argentina (1997) Mexico (1989) Chile (1996) EU15 (2001) Spain (2001) Germany (2001) Gpost Gpre Sw eden (2001) 0.300 0.350 0.400 0.450 0.500 0.550 0.600 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Gómez Sabaini, “Repensar lo social en tiempos de crisis”, May 2009. POLITICS IS BACK Provision of public goods Universal social protection Innovation and knowledge Productive convergence Energy efficiency and security Cut back carbon emissions Regional and subregional integration beyond trade