LAC OUTLOOK: PLANTING IN GOOD TIMES? Guillermo Perry Chief Economist LAC February 2005

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1 LAC OUTLOOK: PLANTING IN GOOD TIMES? Guillermo Perry Chief Economist LAC February 25

2 EXPORTS: Slowing down due to lower global growth and Indices = CHILE COLOMBIA PERU URUGUAY LAC f Indices = ARGENTINA BRAZIL MEXICO VENEZUELA f Indices = Costa Rica Guatemala Jamaica Dominican Republic f Note: Indices calculated with exports of goods, FOB, billions of US$. World Bank LDB Working database, Consensus Forecasts and EIU country risk reports for Uruguay and the Central American and Caribbean countries.

3 currency appreciation? (Nominal Exchange Rates) 125 Mexico Venezuela Guatemala Costa Rica Uruguay Index: Jan. 3 = 75 1/1/3 5/1/3 9/1/3 1/1/4 5/1/4 9/1/4 1/1/5 Argentina Brazil Chile Colombia Peru Source: Bloomberg 75 1/1/3 5/1/3 9/1/3 1/1/4 5/1/4 9/1/4 1/1/5

4 125 currency appreciation? Real Effective Exchange Rates Costa Rica Guatemala Mexico Uruguay Venezuela 75 23M1 23M4 23M7 23M1 24M1 24M4 24M7 24M1 125 Index: Jan. 3 = 75 Argentina Brazil Chile Colombia Peru 23M1 23M4 23M7 23M1 24M1 24M4 24M7 24M1

5 INVESTMENT: Just back to 1997 levels or below in many countries Gross Fixed Capital Formation 12 Index 1997= e 25 f 26 f ARGENTINA COLOMBIA VENEZUELA Gross Fixed Capital Formation Index 1997= e 25 f 26 f Source: Consensus Forecast, September 2, 24. BRAZIL CHILE MEXICO PERU

6 PRIVATE CONSUMPTION: Keeping the pace? Not everywhere Private Consumption (average % change) 15 Private Consumption (average % change) Argentina Colombia Peru Venezuela Brazil Chile Mexico Venezuela 1 8 Private Consumption (average % change) Source: LDB and Consensus forecasts (January 25) Bolivia Costa Rica Ecuador El Salvador

7 CONSUMER CONFIDENCE: Still low in some countries Consumer Confidence Index Argentina Brazil Chile Colombia Mexico Peru Venezuela Source: Zona Latina, Fedesarrollo, Banco Central de Mexico, Universidad Di Tella y Camara de Comercio de Chile

8 7 6 5 GDP DOMESTIC ACTIVITY: Expect some slowdown? average % change on previous year Brazil Chile Colombia Mexico Peru IPI e 25f growth in % Brazil Chile Colombia Mexico Peru e 25f Source: Domestic Sources, Consensus Forecasts, and Economist Intelligence Unit.

9 not visible yet Indices (1997 = ) Indices SA (1998 =) 3m ma Brazil Chile Colombia Mexico Peru Jan- Jan-1 Jan-2 Jan-3 Jan-4 GDP Brazil Chile Colombia Mexico Peru 1997 I 1998 I 1999 I 2 I 21 I 22 I 23 I 24 I IPI

10 growth in % DOMESTIC ACTIVITY: average % change on previous year 3..and leveling off fast recoveries? GDP IPI e 25f e 25f Argentina Uruguay Venezuela Argentina Uruguay Venezuela

11 ..not visible yet either.. Indices SA (1998 =) 3m ma 8 6 IPI Argentina Uruguay Venezuela Indices ( = ) I Argentina Uruguay Paraguay Venezuela 1998 IV 1999 III 2 II 21 I 21 IV 22 III GDP 23 II 24 I Source: Central banks and National Statistics Institutes, and HAVER database. 4 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4

12 PLANTING IN GOOD TIMES? 6 Modest Increases in Primary Surplus Primary Balance of the General Government (% of GDP) f Argentina Brazil Ecuador Mexico f -1 Source: FITCH data and National Sources Chile Colombia Costa Rica Peru Venezuela -2

13 PLANTING IN GOOD TIMES? Debt ratios fall with appreciation Debt/GDP Exchange rate Brazil Chile Colombia Mexico Peru Argentina 12 (rhs) Uruguay (rhs) Index: 21= 95 9 Brazil Chile Colombia Mexico Peru Argentina (rhs) Uruguay (rhs)

14 PLANTING IN GOOD TIMES? Advances in debt composition: Brazil % of total Selic-Indexed Exchange Rate-Indexed Fixed 2 1 Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec

15 PLANTING IN GOOD TIMES? Domestic capital markets revival? Crédito Bank Credit Bancario to the al Private sector Sector privado in en moneda Foreign Currency Extranjera and & Public Deuda Foreign pública Debt externa (Percent) (Percent) Bank Credit in foreign currency / total credit Foreign public debt / total debt Bonos emitidos por el sector privado Jan-97 Bonds Issued by the Private Sector Stocks in en Billions mill Pesos of Domestic market Dollars 23 External market Jan-98 Jan-99 Jan- Jan-1 Jan-2 Source: Central Bank of Mexico Jan-3

16 SOME STILL VULNERABLE Brasil: Dinámica de la deuda ante un alza de 3 puntos básicos en tasas de interés en los EUA.55 3bp Combined Impact Base Case

17 SOME NOT ANY LONGER México: Dinámica de la deuda ante un alza de 3 puntos básicos en tasas de interés en los EUA bp Combined Impact Base Case

18 PLANTING IN GOOD TIMES? Trade negotiations Can we expect real advances in Doha? Will CAFTA and US/Andean Group TLC s go promptly through US Congress? Can Mercosur/EU TLC revive? Some effects from Mercosur/Andean Group and other bilaterals? Are countries pushing the complementary Agenda?

19 PLANTING IN GOOD TIMES? Structural Reform: how stalled? CHILE: Education, innovation, financial sector ARGENTINA: Back to the future? BRAZIL: Progress in microeconomic reforms? COLOMBIA: Will reelection politics continue to delay reforms? PERU: Will political uncertainty finally affect the economy? ECUADOR: Can we avoid reversals? BOLIVIA: Is there a way out? VENEZUELA: Towards command and control?

20 PLANTING IN GOOD TIMES? Structural Reform: how stalled? MEXICO: Can Fox still deliver some? Future? CENTRAL AMERICA: Is CAFTA pushing up? COSTA RICA: Any hope for fiscal reform? NICARAGUA: Paralyzing politics? OTHERS: Better prospects? CARIBBEAN: DR: light out of the tunnel? JAMAICA: just enough to keep going? CARICOM/OECS: Coming to grips with reality?

21 THE END

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