Transcript O PAPEL DA MOEDA EM MARX E KEYNES

Presentation for the AHE Annual Conference 2009
Capital Flight or Volatile Financial Flows:
which one is the best indicator to measure
Brazilian External Vulnerability
Vanessa da Costa Val
(Professor at IE-UFU/Brazil and PhD student at Cedeplar/UFMG)
Gilberto Libânio
(Professor at Cedeplar/UFMG)
07/07/2015
1
Introduction
 Importance of confidence in the global economy to
the international capital flow movement.
 The liquidity and dynamics of international financial
markets determines the caractheristics and volume of
these flows towards peripheral countries.
 In Brazil, the financial liberalization associated with
capital flight results in external vulnerability, high
interest rate and public debt, and low economic
growth.
 The vulnerability depends on the weight of volatile
capital flows in the Balance of payments.
2
Objectives
 To Evaluate which indicator - capital flows volatility or
capital flight measures - best reveals the resource
reversal potential for Brazil and, then, the external
vulnerability of this economy.
- To measure the volatility of each sub-account of the
Financial Account, detecting which flows have more
influence on the vulnerability of this account.
- To find out which capital flight measure is the best one
for the Brazilian case.
3
Capital Flows Volatility: Motivation
Analysis
Monthly Financial Account – 1995 to 2008 (U$ Millions)
20000
15000
10000
5000
jan/09
jul/08
jan/08
jul/07
jan/07
jul/06
jan/06
jul/05
jan/05
jul/04
jan/04
jul/03
jan/03
jul/02
jan/02
jul/01
jan/01
jul/00
jan/00
jul/99
jan/99
jul/98
jan/98
jul/97
jan/97
jul/96
jan/96
jul/95
jan/95
0
-5000
-10000
-15000
-20000
Financial Sub-accounts of the Brazilian balance of payments - 1990 to 2008 (U$ Millions)
60000
40000
20000
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-20000
-40000
-60000
Total Direct Investment
Portfolio Investment
Derivatives
Other Foreign Investment
Brazilian Direct Investment
Brazilian Portfolio Investment
Other Investment
Foreign Direct Investment
Foreign Portfolio Investment
Other Brazilian Investment
4
Data treatment and Time cut
 Data resource: time series of the National Account




System, displayed by the Central Bank of Brazil.
Data treatment: four groups of capital flows - 1) Direct
Investment; 2) Portfolio Investment; 3) Derivatives; e
4) Other Investments. Each of these flows is again
divided in further sub-accounts to show specific
details.
GARCH Model(generalized autoregressive
conditional heteroskedasticity model): instantaneous
volatility in the series at specific moments of its
trajectory.
Periodicity: monthly
Time cut: 1) between January 1995 and December
1998; 2) between January 1999 and August 2008.
5
Capital flows volatility: results for
the first period
Financial Account series volatility - 1995: 01 to 1998:12
(first level of openness of BoP)
2.00E+07
1.60E+07
1.20E+07
8.00E+06
4.00E+06
0.00E+00
1995
1996
1997
GARCHDERIVATIVOS
GARCHIC
1998
GARCHID
GARCHOI
6
Capital flows volatility: results for
the first period
Financial Account series volatility - 1995: 01 to 1998:12
(Second level of openness of BoP)
9.0E+07
8.0E+07
7.0E+07
6.0E+07
5.0E+07
4.0E+07
3.0E+07
2.0E+07
1.0E+07
0.0E+00
1995
1996
GARCHIBC
GARCHIBD
GARCHIEC
1997
1998
GARCHIED
GARCHOIB
GARCHOIE
7
Capital flows volatility: results for
the second period
Financial Account series volatility - 1999: 01 to 2008: 08
(first level of openness of BoP)
2.40E+07
2.00E+07
1.60E+07
1.20E+07
8.00E+06
4.00E+06
0.00E+00
99
00
01
02
03
04
GARCHDERIVATIVOS
GARCHIC
05
06
07
GARCHID
GARCHOI
08
8
Capital flows volatility: results for
the second period
Financial Account series volatility - 1999: 01 to 2008: 08
(second level of openness of BoP)
6.0E+07
5.0E+07
4.0E+07
3.0E+07
2.0E+07
1.0E+07
0.0E+00
99
00
01
02
03
GARCHOIE
GARCHOIB
GARCHIED
04
05
06
GARCHIEC
GARCHIBD
GARCHIBC
07
08
9
External Vulnerability showed by
external debtors indicators
Indicator/Year
2000 2001 2002 2003 2004 2005 2006 2007
Debt service/Exports (%)
Debt service/GDP (%)
Interest rates/Exports (%) - annual
Total external debt/GDP (%)
Total public sector external debt/total external debt (%)
Net total external debt/GDP (%)
Reserves (liquidity)/Total debt (%)
Total external debt/Exports - Ratio
Net total external debt/Exports - Ratio
Reserves (liquidity)/Debt service - Ratio
88,6
7,6
29
33,6
48,5
26,5
15,2
3,9
3,1
0,7
Source: Central Bank of Brazil
84,9
8,9
28
37,9
51,5
29,4
17,1
3,6
2,8
0,7
82,7
9,9
23,6
41,8
59,4
32,7
18
3,5
2,7
0,8
72,5
9,6
19,4
38,8
63,1
27,3
22,9
2,9
2,1
0,9
53,7
7,8
14,8
30,3
65,7
20,4
26,3
2,1
1,4
1
55,8
7,5
12,2
19,2
59,2
11,5
31,7
1,4
0,9
0,8
41,4
5,3
10,8
16,2
51,7
7
49,8
1,3
0,5
1,510
32,3
4
9,5
14,9
44,4
-0,8
93,2
1,2
-0,1
3,5
Capital flows volatility: Results
 High volatility of Direct Investments during the second
period: historical record in July 2007.
 High volatility in Other Brazilian Investments account in
June 2007: large outflow/inflow of “currency and
deposits”.
 The high volatility of short run capital flows causes
macroeconomics effects, such as interest rate trap and
exchange rate valorization even when the crisis is not
so deep.
 The Subprime market crisis in USA in 2007 shows that
capital flows volatility remains very high in the Brazilian
economy.
11
Capital Flight
 Definition: capital flight refers to the capital outflow not
registered.
 It is abnormal or illegal capital outflow.
 This capital outflow usually occurs due to speculation
movements.
 Capital flight is related to uncertainty and to the risk of
keeping certain domestic assets, that is, capital “flies”
trying to avoid huge wealth losses.
12
Capital Flight: residual method
 It measures capital flight indirectly: the residuals




between officially registered resources and the use it
funds.
KFWB = CDET + NFI – CAD – CRES
CDET: net growth of external debt registered by
Central Bank of Brazil (BCB).
NFI: Foreign Direct Investment + Portfolio Investment +
Other Investments (IMF).
CAD: – (net current account)
CRES: international reserves variation (“RESERVE
ASSETS: NET” of IMF).
13
-10000
-40000
Q2 2007
Q4 2006
Q2 2006
Q4 2005
Q2 2005
Q4 2004
Q2 2004
Q4 2003
Q2 2003
Q4 2002
Q2 2002
Q4 2001
Q2 2001
Q4 2000
Q2 2000
Q4 1999
Q4 1997
Q2 1996
Q2 1995
Q2 1994
Q4 1992
Q4 1991
Q2 1991
Q4 1990
Q2 1990
Capital Flight: residual method
Capital flight using residual method (US$ millions)
60000
50000
40000
30000
20000
10000
0
-20000
-30000
14
Capital Flight: residual method results
 Capital flight peaks coincide with moments of
international financial crisis or with some exogenous
event, out of domestic control: in 1994’s 2nd quarter
(Tequil Effect), 1998’s 4th quarter (Russian Crisis),
and 2007’s 2nd quarter (positive international reserve
variation).
 During moments of crisis capital flight reaches a very
significant percentage of GDP, as occurred in 1994
and 1998 in Mexico and Russia, respectively. It
exceeded 50% of Brazil’s economic activity.
 In periods of favorable international liquidity a reverse
capital flight is observed.
15
Capital Flight: Hot Money method
 Capital flight is represented by short term capital
outflow.
KFH = – SK (short term private capital flows) – EO
(errors and omissions)
 SK = SK1 + PORT.
 Where SK1 = other assets from other investments;
PORT = net Portfolio Investments; EO = net errors
and omissions.
16
-50000
Q2 2007
Q3 2006
Q4 2005
Q1 2005
Q2 2004
Q3 2003
Q4 2002
Q1 2002
Q2 2001
Q3 2000
Q4 1999
Q1 1999
Q2 1998
Q3 1997
Q4 1996
Q1 1996
Q2 1995
Q3 1994
Q4 1993
Q1 1993
Q2 1992
Q3 1991
Q4 1990
Q1 1990
Capital Flight: Hot Money method
Capital flight using Hot Money method (US$ millions)
20000
10000
0
-10000
-20000
-30000
-40000
17
Capital Flight: Misinvoicing trade
method
 Capital flight is represented by export under-invoicing
and import over-invoicing.
Export misinvoicing = (Xw / CIFFOB factor) - Xc
Import misinvoicing = (Mc / CIFFOB factor) – Mw
 Where: Xw = Brazil’s imports registered by the world on
CIF basis; Xc = Exports registered by Brazil on FOB
basis; Mc = Imports registered by Brazil on CIF basis;
Mw = Exports to Brazil registered by the world on FOB
basis; CIFFOB factor = CIF / FOB.
18
Q1 1990
Q3 1990
Q1 1991
Q3 1991
Q1 1992
Q3 1992
Q1 1993
Q3 1993
Q1 1994
Q3 1994
Q1 1995
Q3 1995
Q1 1996
Q3 1996
Q1 1997
Q3 1997
Q1 1998
Q3 1998
Q1 1999
Q3 1999
Q1 2000
Q3 2000
Q1 2001
Q3 2001
Q1 2002
Q3 2002
Q1 2003
Q3 2003
Q1 2004
Q3 2004
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Capital Flight: Misinvoicing trade
method
Capital flight using Misinvoicing trade method (US$ millions)
20000000
15000000
10000000
5000000
0
-5000000
19
Preliminary conclusions
 External Events→ volatility of capital flows → Brazilian
economic performance → reduce the scope of
macroeconomic policy conduction.
 High volatility → impacts on domestic variables
(interest rate, exchange rate, public debt).
 Increase of Minskyan behavior of International
Financial System.
 Most volatile capital flows: the ones of most reversal
potential.
20
Preliminary conclusions
 The changes in structures of international capital flow
and of domestic economy are important to analyze
capital flight in Brazil.
 Capital flights are resulting from macroeconomic
instability, the consequence of the financial
liberalization process.
 While financial flow volatility can indicate moments in
which Brazil turns from receptor to emitter of
international resources, capital flight can indicate the
sensibility of capital flow towards Brazil when facing
unstabilizing factors and external shocks.
21