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Déjà vue The Impact of the global Economic Crises on Latin American Economies Alicia Puyana FLACSO-MEXICO Presented at the international conference on “The Crisis of Neo-liberalism in India: Challenges and Alternatives” Organised by Tata Institute of Social Sciences, Mumbai and International Development Economics Associates (IDEAs) – 13th to 15th of March 2009, Mumbai 1 Déjà vue • This presentation follows the notes for the conference. It is organized as follows: • 1. Why the de-linking did not happen. • 2. Some ideas about the objectives of the structural reforms and its results. • 3.Latin America growth patterns 1980-2008. What the prognosis suggest. The margins to confront the crisis. • 4. The impact on employment, wages, and on the agricultural sector during 1980-2007 2 1. What was expected. • It was assumed that Latin America will not suffer the impact of the crisis because of decoupling. • The grounds for this assumption were: 1. The last four years Latin America enjoyed high growth and low inflation 2. Since the reforms, the region has better macroeconomic fundamentals: 3. Fiscal discipline → Reduced fiscal deficit→ lower public debt→ No crowding-out 4. Lower direct taxation → higher savings → higher investments 5. Fully liberalized foreign trade regime → High external coefficient of GDP → higher productivity →more exports →higher growth 3 1. What was expected. 6. Total liberalization of the capital account → higher inflows of foreign capital: financial and FDI; 7. Independence of the central banks → sound monetary policy; 8. High prices of export products: commodities: increasing terms of trade 9. Creation of stabilization funds to save part of the external bonanza, 10. Sound financial and efficient financial system → easy financing for the productive sector. 11. Higher reserves All shielded the economies from external shocks or make it easier to respond to them. 4 2. Why de-linking did not happen. • • • • • • • • • • • • Latin America is once again under severe stress by crisis: 1. Reduction of demand for its exports 2. Declining terms of trade 2. Contraction of credit 3. Reduction on the inflows of FDI 4. Contraction of remittances 5. Reduction of tourism 6. Latin American banks did not engage in mortgage activities but they swap with banks in developed countries and companies borrowed abroad: Comercial Mexicana, CEMEX, All the above elevated the pressure upon prices The demand for foreign resources induced devaluation. 6. To support the national currency central banks decided to sacrifice reserves: Mexico has spent some 26 billion US$, that is 26% of the reserves. The peso has devaluated by 50% since September 2008. 5 Devaluation will not spur exports: there is not demand 2. In the fundamentals of new economic model lays the explanation of why de-linking did not happen.. A rare coalition of: a) business man (importers, land owners, multinational companies), b) a elite of bureaucrats and politicians educated in the best USA universities, fully committed to free trade and c) technocrats of the multilateral organizations, took advantage of the debt crisis to impose the structural reforms. The main thrust of the reforms was to create the atmosphere to attract investments: price stability and high stable rates of profits. Fiscal, monetary and exchange policies all were directed to those aims. Flexible exchange rates, fiscal discipline and restrictive monetary policies guarantee to keep inflation under control. Global markets and FDI were erected as motors of growth. But…. “Unlike national markets, … global markets are only "weakly embedded." There is no global anti-trust authority, no global lender of last resort, no global regulator, no global safety nets, and, of course, no global democracy. In other words, global markets suffer from weak governance, and therefore from weak popular legitimacy. 6 2. In the fundamentals of new economic model lays the explanation of why de-linking did not happen.. The monetary authorities accepted that the only effect of any fiscal expansion is to increase interest rates, to stimulate the inflow of capital, devaluation and trade deficit which will erase the effects of fiscal expansion. Real economy uncha On the other hand, it was assumed,an expansion of the money supply will push down the interest rates, stimulate the outflow of capital and the devaluation. The pass through of devaluation will inflate the IPC with no effect on production. • Today they are dithering between reducing interest rates and expanding fiscal expenditure. • Only some countries have done so, but mildly 7 2. In the fundamentals of new economic model lays the explanation of why de-linking did not happen.. • Price stability as the central element of the economic policies has the effect of substituting imported value added for national value added. • The imported content of the GDP increased, in some countries more intensively than in others, aggravating the external constraints of the economy • The increase of the GDP elasticity of imports • The reduction of the GDP elasticity of employment. • Even when the economies expanded neither employment not salaries tend to growth at comparable pace 8 2. In the fundamentals of new economic model lays the explanation of why de-linking did not happen.. • The increased inflow of external resources do not had big impact on growth and salaries: • Foreign firms do have higher salaries than domestic firms but, • Their linkages with the economy are weak. They do not act as a catalyser of economic growth • They do not create a technological base • Increases in FDI did not lead to increases in total GKF. • FDI crowded out national investments • FDI did not create spillovers 9 3.The margins to confront the crisis. • The capacity to react to the crisis and to protect the economy varies from country to country and depends on several factors: • 1. Margin to change fiscal policies and to expand the expenditure using fiscal income. • 2. Possibilities to use foreign resources, which depends on the quantity of external assets, mainly foreign reserves, • 3 the possibility to accede to foreign credit. Almost exclusively from multilateral or regional institutions. UNASUR. • 4. The robustness of the national financial sector • 5 The balance on the capital and current accounts. 10 3.Latin America growth patterns 1980-2008. What the prognosis suggest. INCOME PER CAPITA: AVERAGE GROWTH RATE, 1900-2005. In dollars PPP Average Growth Rate Country Relative to USA Average Growth Rate 1900-1945 1945-1982 1982-2005 1900-2005 1900-1945 1945-1982 1982-2005 Argentina 0.7% 1.7% 0.9% 1.1% 0.85 0.89 0.47 0.56 Brazil 1.6% 3.4% 0.8% 2.4% 1.81 1.80 0.41 1.21 Chile 0.5% 1.3% 4.7% 1.3% 0.56 0.68 2.35 0.68 Colombia 1.4% 2.1% 1.1% 1.8% 1.64 1.08 0.57 0.91 Mexico 0.4% 3.0% 1.0% 1.8% 0.40 1.55 0.51 0.90 Peru 2.6% 2.3% 0.3% 1.7% 2.94 1.21 0.17 0.86 Uruguay 1.0% 1.1% 1.6% 1.1% 1.17 0.55 0.81 0.57 Venezuela 4.8% 2.2% -0.4% 2.8% 5.45 1.12 0.22 1.42 Total 8 countries 1.2% 2.5% 1.0% 1.8% 1.40 1.30 0.49 0.90 United States 0.9% 1.9% 2.0% 2.0% 1.00 1.00 1.00 1.00 - 1900-2005 Source: Own elaboration based on Maddison, A. Historical Statistics for the World Economy, 1-2003 and 1950-2005 Consulted, february 1st 2009, in: http://www.ggdc.net The fastest growth of Latin American economies took place during 1945-1982. They converged with USA. This expansion was recovered only after 2006. In the last section we 11 will illustrate the pattern of growth with examples on Mexico 3. Past and Future Growth Rates. The margins to confront the crisis Annual percentage changes of constant price GDP World L. Am.& Carb. Arg. Brazil Chile Mexico Venzla Averg. 1980-84 2.50 1.62 -0.49 1.46 0.73 3.48 -1.19 Averg. 1985-89 2.64 3.73 4.50 6.41 1.24 1.50 1.50 Averg. 1990-94 2.36 3.32 6.31 1.42 7.33 3.86 4.04 Averg. 1995-99 3.43 2.55 2.25 2.01 5.53 2.91 0.89 Averg. 2000-03 3.34 1.87 -1.81 2.36 3.53 2.24 -2.38 2004 4.93 6.09 9.03 5.72 6.04 4.00 18.29 2005 4.45 4.73 9.18 3.16 5.55 3.13 10.32 2006 5.09 5.50 8.47 3.75 4.34 4.91 10.35 2007 4.99 5.64 8.65 5.42 5.10 3.20 8.40 2008 3.37 4.58 6.50 5.23 4.46 2.05 6.00 2009 0.49 3.19 3.60 3.50 3.80 1.80 2.00 2010 2.98 4.10 3.00 4.39 4.50 3.66 2.00 2011 4.78 4.25 3.00 4.01 4.70 4.68 2.00 2012 4.80 4.29 3.00 4.02 5.00 4.76 2.00 2013 4.71 4.18 3.00 4.02 5.02 4.37 2.00 Year Source MIF, WEO 2009, consulted March 5 2009 in http://www.imf.org/external/pubs/ft/weo/2008/02/weodata/weoselgr.aspx After three years of growth higher than in the two lost decades but lower than 1950-80, Latin American Economies is expected to growth at a pace that will not allow to reduce unemployment, informality and poverty. The crisis will push up poverty and income 12 concnetration, due to the character of the measures applied. 3. Current Account Balance as percentage of GDP. 2000-2013 Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2013 Latin America & Caribbean -2.3 -2.7 -0.9 0.4 0.9 1.3 1.5 0.4 -0.8 -1.6 -1.9 United States Argentina Brazil Chile Mexico Venezuela -4.3 -3.8 -4.4 -4.8 -5.3 -5.9 -6.0 -5.3 -4.6 -3.3 -2.8 -3.2 -1.4 8.9 6.3 2.1 2.0 2.6 1.7 0.8 -0.6 -0.8 -3.8 -4.2 -1.5 0.8 1.8 1.6 1.3 0.1 -1.8 -2.0 -1.7 -1.2 -1.6 -0.9 -1.1 2.2 1.2 4.7 4.4 -1.1 -0.9 -2.5 -3.0 -2.6 -2.0 -1.2 -0.9 -0.6 -0.2 -0.6 -1.4 -2.2 -2.8 10.1 1.6 8.2 14.1 13.8 17.7 14.7 8.8 8.5 3.4 - Source MIF, WEO 2009, consulted March 5 2009 in http://www.imf.org/external/pubs/ft/weo/2008/02/weodata/weoselgr.aspx 13 3. Consumer Price Index 1990-2013 Promedio 1990-99 Emerging Econ. 51,3 A. L. $Carb. 98,4 Argentina 59,3 Brazil 325,4 Chile 11,5 Mexico 20,1 Venezuela 46,1 2000 8,5 8,3 -0,9 7,1 3,8 9,5 16,2 2001 7,7 6,5 -1,1 6,8 3,6 6,4 12,5 2002 6,8 8,7 25,9 8,4 2,5 5 22,4 2003 6,6 10,5 13,4 14,8 2,8 4,5 31,1 2004 5,9 6,6 4,4 6,6 1,1 4,7 21,7 2005 5,7 6,3 9,6 6,9 3,1 4 16 2006 5,4 5,3 10,9 4,2 3,4 3,6 13,7 2007 6,4 5,4 8,8 3,6 4,4 4 18,7 2008 9,4 7,9 9,1 5,7 8,9 4,9 27,2 2009 7,8 7,3 9,1 5,1 6,5 4,2 33,5 2013 4,8 5,6 9 4,5 3 3 30 2013 4,8 5,6 9 4,5 3 3 30 Source MIF, WEO 2009, consulted March 5 2009 in http://www.imf.org/external/pubs/ft/weo/2008/02/weodata/weoselgr.aspx The main objetctive of macroeconomic policy was to control inflation. That was achieved. But it is not clear if the IMF prognosis is realistic. The IMF, also ECLAC advise prudence in confronting the crisis. Both emphasize the need to maintain fiscal equilibrium and not to expand fiscal expenditure “unwisely”. The advise is to reduced taxes to social groups with higher capacity to expend. 14 3. Price propects for L.American main export products Commodities Coffee, arabica, c/kg Coffee, robusta, c/kg Palm oil, $/mt Soybeans, $/mt Maize, $/mt Wheat, US, HRW, $/mt Bananas, US, $/mt Beef, US, c/kg Oranges, $/mt Shrimp, Mexico, c/kg Sugar, world, c/kg Aluminum, $/mt Copper, $/mt Gold, $/toz '07 231 162 661 325 139 216 572 220 810 855 19 2235 6030 590 '08 241 179 738 412 175 256 637 253 855 824 23 2059 5498 668 '09 206 152 533 297 126 194 571 206 719 780 21 1675 3654 571 '10 195 145 488 289 127 196 552 222 714 774 22 1728 3456 545 '15 186 132 643 278 127 197 519 248 694 840 25 1955 2978 490 '20 164 107 510 267 125 197 431 249 641 855 27 1996 2993 513 The prices of exports products will fall quite sharply even at nominal prices. The Loses will be important especially for coffee, soy beans, copper, maize. Consumers of imported cereals, maize, wheat etc, will not benefit of lower prices Due to devaluation of currency. 15 Current US/B 20 06 20 03 20 00 19 97 19 94 19 91 19 88 19 85 19 82 19 79 19 76 19 73 100 90 80 70 60 50 40 30 20 10 0 19 70 Dollars per barrel 3. A Long term view of international oil prices US $ 2007 Sourc: BP, Statistical Review of World Energy 2008, consulted March 6th 2009 in: http://www.bp.com/productlanding.do?categoryId=6929&contentId=7044622 Nominal prices did grew. But at constant prices in 2007 were just above the level of 1982. The expected fall will depress them near the very low prices of 1986. 16 3. Latin America & Caribbe Barter Terms of Trade. 1980-08 Index: 2000=100 Argentina Bolivia Brazil Chile Colombia Costa Rica Mexico Venezuela El Salvador Guatemala Honduras Haití 1980 106,3 187,5 73,9 243,3 112,0 81,4 305,4 154,1 94,0 132,9 113,2 224,6 1985 94,1 184,4 62,1 185,7 103,9 84,0 173,9 143,1 64,8 93,5 96,0 203,9 1990 63,6 102,0 66,4 113,7 81,3 75,0 102,2 89,6 84,2 115,3 78,0 132,3 1995 91,6 89,4 110,4 135,6 86,8 104,6 92,5 63,4 121,1 117,9 96,3 113,2 2000 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 100,0 2005 106,8 111,8 99,2 139,8 110,9 88,3 103,6 154,5 96,7 91,3 87,2 92,4 2006 112,9 134,6 103,8 183,7 115,2 85,8 104,0 184,4 95,5 89,6 83,2 88,9 2007 118.0 139.0 106.7 190.7 124.2 84.9 105.1 NA 94.6 87.9 81.6 87.6 2008 123.4 147.1 110.3 177.0 140.7 81.7 108.0 260.0 90.0 87.1 79.4 66.7 Source: Own elaboration based on WB, WDI, 2008. Positive and increasing terms of trade have only commoditiy exporters. Countries Which export manufactures to “global value chain do Have decreasing terms of trade and will have difficulties to adjust to the crisis. Amongst them are the C. American countries and Mexico it’s index is lower than other oil exporting countries 17 3. LATIN AMERICAN & CARIBBEAN COUNTRIES. EXTERNAL BALANCES (Millons US$) Trade Balance Current Account Balance Capital Account 2006 2007 2008 d 2006 2007 2008d 2006 2007 2008 d L. Am.& Carb. 79068 47694 18644 49965 19281 -26933 11848 105523 81524 L. Am.& Carb. 73819 41948 14340 45569 14191 -31133 14945 108620 84227 Argentina 13427 12729 16616 7712 7113 10406 6800 4660 -10766 Brazil 36816 26975 7197 13643 1712 -27752 16927 85772 54752 Chile 21959 22491 8361 6838 7200 -5639 -4841 -10414 10839 Colombia -1797 -3203 -1081 -2982 -5859 -6442 3005 10572 9053 Mexico -11869 -16013 -21986 -2231 -5813 -15136 1228 16099 17636 ECLAC, 2008, Balance Preliminar de A. Latina, consulted Februray 28 in: http://www.eclac.org/cgiin/getProd.asp?xml=/publicaciones/xml/5/34845/P34845.xml&xsl=/de/tpl/p9f.xsl&base=/tpl/topbottom.xslt 18 3. LATIN AMERICAN & CARIBBEAN COUNTRIES. FOREIGN DIRECT INVESTMENT 2000-08 2000 2001 2002 2003 2004 2005 2006 2007 2008b L. Am.& Carb. 72190 66564 50996 38414 48926 53710 30461 84601 81816 Argentina 9517 2005 2776 878 3449 3954 3100 4997 4900 Brazil 30498 24715 14108 9894 8339 12550 -9380 27518 20000 Chile 873 2590 2207 2701 5610 4801 4482 10627 11170 Colombia 2111 2526 1277 783 2873 5590 5558 8127 8645 Mexico 17789 23045 22158 15341 18451 14471 13573 16763 20100 Source: ECLAC, 2008, Balance Preliminar de A. Latina, consulted Februray 28 in: http://www.eclac.org/cgiin/getProd.asp?xml=/publicaciones/xml/5/34845/P34845.xml&xsl=/de/tpl/p9f.xsl&base=/tpl/topbottom.xslt The inflow of FDI has been quite unstable. Such volatility induces instability affecting Growth and external balances, the exchange rate and capital accumulation. Not even During 2003-2007 the inflow grew. 19 • 4. Some effects of the Latin American pattern of growth on the: • structure of GDP, • employment, • salaries and • income concentration • What happen to the mexican agriculture? 20 4. Structure of GDP 1980-2006 LACC Argentina Brazil Chile Col Mexico 1980 1990 2006 1980 1990 2006 1980 1990 2006 1980 1990 2006 1980 1990 2006 1980 1990 2006 Manufacts Agricul & mining Services 26,7 26,7 18,3 29,5 26,8 22,3 33,5 27.5 18,4 21,5 19,6 13,5 23,9 20,6 16,7 22,3 20,8 18,0 10,1 10,1 6,2 6,4 8,1 8,4 11,0 8,1 5,1 7,3 8,7 4,1 19,9 16,7 12,0 9,0 7,8 3,9 51,0 51,0 62,4 52,4 55,9 56,0 45,2 53,2 64,0 55,3 49,8 48,2 47,6 45,4 52,4 57,4 63,7 69,4 Source: WB WDI, 2008 The declining path of the contribution of tradable sectors to GDP is mirrored by employment. Low productivity growth. Tradable sectors did not growth at the pace Needed to incorparate labour. Productivity growth and low sectoral GDP growth Lower job creation. 21 4. LATIN AMERICAN & CARIBBEAN COUNTRIES. URBAN OPEN UNEMPLOYMENT Average annual rates of change 2000 2001 2002 2003 2004 2005 2006 2007 2008a L. Am.& Carb. 10.4 10.2 11.0 11.0 10.3 9.1 8.6 7.9 7.5 Argentina 15.1 17.4 19.7 17.3 13.6 11.6 10.2 8.5 8.0d Brazil 7.1 6.2 11.7 12.3 11.5 9.8 10.0 9.3 7.9 Chile 9.7 9.9 9.8 9.5 10.0 9.2 7.7 7.1 7.7 Colombia 17.3 18.2 17.6 16.6 15.3 13.9 12.9 11.4 11.5 Mexico 3.4 3.6 3.9 4.6 5.3 4.7 4.6 4.8 4.9 ECLAC, 2008, Balance Preliminar de A. Latina, consulted Februray 28 in: http://www.eclac.org/cgiin/getProd.asp?xml=/publicaciones/xml/5/34845/P34845.xml&xsl=/de/tpl/p9f.xsl&base=/tpl/top -bottom.xslt 22 4. The evolution of real wages. 1980-2008 Year 1980 1990 2000 2005 2006 2007 2008 80-90* 91-00* 01-08* 80-08 Argentina Brazil Chile Colombia Mexico MRW/a ARS/b MRW/a ARS/b MRW/a ARS/b MRW/a ARS/b MRW/a ARS/b 131,7 28,3 100,0 171,1 136,7 145,6 155,3 -8,1 20,2 7,2 6,5 121,3 93,3 100,0 99,0 107,8 117,6 127,8 -1,8 0,7 3,3 0,7 135,1 73,8 100,0 128,5 139,2 148,1 157,8 -5,2 3,2 5,5 1,2 90,9 99,6 100,0 85,2 88,2 89,5 91,0 1,4 0,3 -1,1 0,2 66,0 57,7 100,0 113,4 111,8 115,8 113,4 -0,8 5,7 2,2 2,4 67,9 71,2 100,0 108,5 110,6 113,7 112,4 0,6 3,5 1,5 1,8 93,5 100,4 100,0 105,0 102,1 102,4 101,7 0,8 0,0 0,3 0,3 64,9 76,3 100,0 105,3 109,3 108,7 105,8 1,7 2,8 1,1 1,8 311,8 144,5 100,0 99,0 99,7 99,6 98,5 -7,3 -3,5 -0,1 -3,6 114,1 88,9 100,0 110,2 110,6 111,7 111,9 -2,1 1,4 1,9 0,4 a: MRW= Real Minimun Wage. B: ARS= Average Real Salary Source: ECLAC: BADEINSO, BADEINSO, consulted March 6, at:http://www.eclac.org/estadisticas/bases/ Real wages did lost value after the debt crisis. The largest drops took place in Mexico Which is the only country where minimum wages suffered larger loses than average Wages. Other countries, specially Argentina and Chile protected minimun wages. 23 The result is the increase of capital share of GNI and the fall of labour share Income concentration is higher than before the reforms and even higher than in 2000. 1944 1960 1970 1980 1990 2000 2001 2002 2003 2004 2005 Argentina 32.6 36.86 38.65 41.27 44.4 50.4 52.2 53.3 52.85 50.8 50.2 Brasil 54.13 53.18 56.86 56 60.45 59.4 60 58.3 57.6 56.6 59.88 Chile 39.86 44.52 50.1 51.93 53.96 57.35 57.25 57.56 54.6 58.18 58.49 Colombia 50.66 58.5 51.91 51.55 53.99 56.68 54.8 54.88 54.95 55.75 55.1 México 51.9 51.98 49.1 52.08 52.14 53.95 52.19 51.03 52.2 49.9 52.21 USA 43.6 42.3 39.07 39.67 40.4 41.73 46.3 46.2 46.4 46.41 42.51 Transferences and phocalized anti- poverty programmes do not change the initial Distribution of income. In Chile the GINI after transferences is only 0.08 % lower than Before and in Mexico the change is only 0.004 %. Yet, multilateral organizations are asking and advising governments not to expand fiscal expenditure and to maintain 24 fiscal discipline. Poverty will increase substantially Prices of agricultural export products, 1990-2008. In constant 1993 pesos 30000 25000 20000 15000 10000 5000 0 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 08 constant 1993 pesos/mt 35000 Fruits-vegtbls Total (right) 25 Price of some agricultural products. 1998-2008 in constant 1993 pesos/MT . 1900 3500 1700 3000 1500 2500 1300 2000 1100 1500 900 1000 700 500 500 0 300 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 4000 Beens Corn (right) Tomatoes (right) 26 Value of production of some of the most important agricultural products. Constant 1993 pesos. 1990-08 1000 800 600 400 200 Pinapple Rice Oats Melon 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0 Oranges 27 Price of agricultural products. 1980-2008. Constant 1993 pesos/mt 5000 1800 4500 1600 4000 1400 3500 3000 1200 2500 1000 2000 800 1500 600 1000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2008 Garlic (left) Green tomato Tomato Potatoes 28 Value of production of some of the most important agricultural products. Constant 1993 pesos. 1990-08 4500 14000 4000 3500 12000 3000 10000 2500 8000 2000 6000 1500 4000 1000 2000 500 Beens Sorgum Wheat 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 0 1990 0 Corn (rightr) 29 4. Mexico:External supply of apparent consumption*.1980-2008 90-94 20,3 48,4 47,1 0,8 15,6 5,4 10 45,4 71,1 19,5 94-03 40,9 45,6 61,4 0,2 22,6 6,7 19,7 39,4 95,1 42,6 03 -'08 Sesame Cotton Rice Cardamomo Barley Beens Corn Sorgum Soy beens Wheat 80-90 36,1 16,8 29,4 0 18,9 26,8 26,4 36,9 58,9 18,2 Poultry Beef Eggs (Tons) Mil (000 litrs) Porc 2,9 2,1 0,3 12,1 8,3 8,1 10,3 0,8 20,6 21,7 10,4 15,5 0,7 16,9 23,9 16,1 29,0 0,7 18,3 39,3 Product 61,2 65,2 74,1 0,3 29,8 7,6 32,8 43,1 96,7 65,1 Source Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación. Consulted in: www.siap.sagarpa.gob.mx/AnxInfo/ * (Imports/Production-exports) 100 30 Policy measures addopted by L.A. governments up to 20 February 2009 MEASURE COUNTRY AR BO BR CL CO CR EC GT MX NI UY JM X X X X X X X DM Monetary and financial policy Reduction or relaxation of reserve requirements X X X X Provision of liquidity in national currency X X X X Tax cuts or increassed subsides X X X X Spending incressed or brought toward (infraestructure) X X X X X Provision of liqudity in foreign currency X X X X X Increassed trafiffs or import restrictions X X Tariff cuts X X Financing of exports X X X X X Fiscal plicy X X X X X X X Exchange-rate and external trade policy X X X X X X Obtaining credit fron international financial bodies X X X X X X X X X X X X X X X X X X X X X X X X X Sectoral policies Housing X Small and medium-sized enterprises X Agriculture X X X X X X Tourism Manufacturing X X X X X X X X X Employment and social policies Promoting job creation Social programmes X X X X X X X X X X X X X X Source: Taken from ECLAC: The reactions of Latin American and Caribbean governments to the international crisis an overview of policy measures up to 20 February 2009. Consulted March 5 2009 on: http://www.eclac.org/cgi-bin/getProd.asp?xml=/prensa/noticias/comunicados/2/35182/P35182.xml&xsl=/prensa/tpl31 i/p6f.xsl&base=/tpl-i/top-bottom.xsl Conclusions • Despite all the effort to adjust the economy and to instrument the structural reforms, Latin American Countries suffering the effects of the global crisis. • The neo-liberal model did not shield the economies from external shocks. On the contrary it intensified their vulnerability. • The last 3 years (2005-07) L.A. countries grew faster than during the two lost decades (1983-2004). That expansion did not fully compensate the loses. 32 Conclusions • The channels through which the crisis are transferred are: • 1. Contraction of external demand of LA exports, both commodities and manufactures and tourism.. • 2. Reduction of external financial flows: FDI, portfolio investments, remittances. • 3. pressure upon the national currencies leading to intensive devaluations • 4. fiscal income will decrease as a result of declining activity. Anti-cyclical • 5. employment and real incomes will fall aggravating income concentration and poverty 33 Conclusions • • - The intensity of the crisis varies from country to country. The most severe impact will fall on countries: more intensivelly link to the USA, Exporters of maquila type manufactures and Those that did totally liberalized the capital account Those with mayor revaluation of the currency (Mexico and central american countries). Less acute impact will affect countries which have/are: Fiscal margin of action Commodity exporters (expected better terms of trade) Sound banking system and preserved development financial institutions. Created stabilization funds Argentina, Brazil, Chile, Colombia, Venezuela. 34 Conclusions • Red lights • The resolve on the macroeconomic frame: • 1. Prevalence of price stability over growth and employment. • 2. insistence on using the exchange rate to control inflation, the denial of using it to promote, and/or protect tradable sectors • 3. The emphasis on fiscal discipline to maintain surpluses on the fiscal account. • 4. The preservation of the dogma of sectoral neutrality and the consecration of the market as the only tool to allocate factors of production. 35