Transcript Outlook for EU - Inter-American Development Bank

Latin America:
Situation and Prospects
Fernando Losada, Ph.D.
Director
Americas Economic Research
February 2004
MAIN REGIONAL TRENDS
The pace of economic activity is increasing in virtually all
Latin American countries, following stagnation or recessions
in most of them during 2001-02 and even 1H03 (Brazil).
Given the latest news out of the Asian and US economies,
we are more confident that 2004 will be a relatively good
year in the region, with GDP growth of at least 3.5%
following 1% growth in 2003 and 0% growth in 2002.
Inflation, interest rates and bond yields are down, and
currencies have stabilized or even strengthened, in virtually
all Latin American countries, following the adoption of
mainly restrictive fiscal, monetary and wage policies.
Dramatic turnarounds in the balance of payments have also
been accomplished.
Despite political transitions in most countries, such that
opposition candidates and parties are now in office, there
has been no major increase in nationalism or populism
except in Argentina and Venezuela.
2
MAIN REGIONAL TRENDS
The region’s main disadvantages remain mostly unchanged:
excessive dependence on commodity or low-value-added
production and exports; overindebtedness of most governments
and undercapitalisation of most companies; and low domestic
savings rates which are insufficient to underwrite investment
and growth, thus keeping economies hostage to volatile foreign
capital inflows.
There have been some major improvements, however: most
countries have made the transition to market-based exchange
rate regimes; most governments have reduced their operating
deficits and put in place fiscal responsibility rules; most central
banks have become independent and have achieved low inflation
rates; most banking systems have been strengthened by the
arrival of well-capitalised US and European banks.
One recent disadvantage is the demise of several traditional
political parties and a propensity of citizens to split their votes,
such that the region now has mostly weak governments.
3
SOVEREIGN CREDIT INDEX
Early warning models of FX and debt problems tend to
overpredict crises, need to be updated for regime changes and
are as good as the forecasts that go into them. Nevertheless,
we have developed two models of our own with more limited
objectives.
The SCI is an econometric model consisting of a singleequation regression estimated over a cross-section sample of
more than 60 countries, using a small set of political, economic
and financial indicators, to explain the sovereign credit ratings
assigned by the leading agencies.
The explanatory variables (per capita GDP, net external
debt/exports, the fiscal balance, access to capital markets, and
extent of political risk) are able to explain more than 90% of
the sovereign credit ratings.
To anticipate likely credit rating changes in the next 6-12
months, we use ABN AMRO forecasts as inputs in the estimated
equation.
4
SOVEREIGN CREDIT INDEX
S&P
Actual rating
Moody's
Fitch
Forward-looking
SCI rating
Argentina
SD
Caa1
DDD
CCC/Caa2
Upgrade
Downgrade
Upgrade
Brazil
B+*
B2
B+
BB-/Ba3
Upgrade
Upgrade
Upgrade
Colombia
BB
Ba2**
BB**
BB/Ba2
No change
No change
No change
BBB-
Baa2*
BBB-
BBB/Baa2
Upgrade
No change
Upgrade
B-
Caa1
B-
CCC+/Caa1
Mexico
Venezuela
Potential rating change as per SCI
S&P
Moody's
Fitch
Downgrade No change Downgrade
Note: The asterisk (*) denotes that the rating has a positive outlook, two stars (**) denote a negative outlook.
Source: ABN AMRO, as of February 4 2004
5
SUMMARY OF RATING SIGNALS OBTAINED
Upgrade
Downgrade
No change
Total
Latin America
15
5
10
30
EMEA
6
11
10
27
Emerging Asia
2
5
8
15
Total
23
21
28
72
Source: ABN AMRO, as of February 4 2004
6
SOVEREIGN LIQUIDITY RISK INDEX
Creditworthiness on an international scale is determined not
only by long-term structural factors but also by short-term
liquidity considerations. Our measure of sovereign liquidity
risk has successfully signaled the vulnerability of various
countries to cash-flow problems, though not all countries
ranking poorly have ended up facing a liquidity crisis.
Indicators such as the debt-service ratio and the importcoverage ratio do not have predictive power, because too
much depends on a country’s choice of exchange-rate
regime and on its ability to attract capital inflows
Our favorite indicator of near-term sovereign default risk
links the amount of a country’s liabilities to commercial and
investment banks located in the BIS-reporting area falling
due within the next 12 months, to all of the country’s liquid
external assets held in that universe of banks.
7
SOVEREIGN LIQUIDITY RISK INDEX
Maturities
within 1yr
Ris k indic ato r abo ve 150%
Hungary
7.7
Assets
Difference
Maturities as %of assets
31-Mar-03
31-Dec-02
30-Sep-02
3.7
4.0
208.0
135.3
171.9
Ris k indic ato r abo ve 100%
South Korea
38.1
Turkey
19.8
Indonesia
13.1
30.4
15.9
12.4
7.7
4.0
0.8
125.2
124.9
106.1
122.5
92.5
112.5
114.9
98.5
113.2
Ris k indic ato r abo ve 50%
Romania
2.0
Brazil
23.3
2.2
44.6
-0.2
-21.3
90.8
52.3
95.4
57.3
69.8
55.6
Ris k indic ato r be lo w 50%
Argentina
11.7
South Africa
9.8
Mexico
23.5
Colombia
3.0
Venezuela
3.7
25.9
21.7
58.1
8.9
29.1
-14.2
-11.9
-34.5
-5.8
-25.4
45.2
45.1
40.6
34.4
12.7
53.1
43.7
44.9
45.3
13.7
59.5
46.6
44.7
48.0
13.2
Source: BIS, ABN AMRO
8
RELIANCE ON SHORT-TERM DEBT FROM BANKS (%)*
Africa &Middle East
Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Mar-03
51.1
55.4
53.3
52.5
51.3
49.6
46.9
47.6
Emerging Asia
61.3
54.3
46.7
45.3
44.7
46.1
48.8
51.9
Emerging Europe
45.0
45.5
40.5
38.2
41.8
41.9
39.3
40.4
Latin America
Argentina
Brazil
Mexico
Venezuela
53.7
56.3
63.0
44.7
28.4
54.8
57.3
64.3
43.6
39.4
51.2
54.3
56.3
44.5
40.6
48.2
52.5
54.1
38.2
33.4
48.4
56.2
49.6
35.1
35.9
45.9
51.0
47.1
37.1
32.6
43.4
46.9
43.6
35.5
32.0
43.6
45.6
43.1
36.3
29.6
* Liabilities of up to 1 year to BIS-reporting banks, as % of total liabilities.
Source: BIS, ABN AMRO
9
SOVEREIGN AND CORPORATE DEBT SPREADS (bp)
900
800
700
600
500
400
300
EMBI+
Chase High Yield BB
10
2/1/04
1/1/04
12/1/03
11/1/03
10/1/03
9/1/03
8/1/03
7/1/03
6/1/03
5/1/03
4/1/03
3/1/03
2/1/03
1/1/03
200
EMERGING MARKETS BOND ISSUANCE ($bn)
Total
Currency USD
EUR
JPY
Other
Region
Latin America
EMEA
Emerging Asia
Issuer
Sovereign
Corporate
Bank
2004
1Q*
28.4
17.8
5.0
0.3
5.2
9.2
9.8
8.8
14.3
6.5
7.6
2003
4Q
29.1
20.6
1.6
0.5
6.4
10.1
5.1
10.5
8.5
12.3
8.3
* year to February 17.
11
3Q
24.1
18.1
4.7
0.4
0.9
7.9
7.8
2.3
8.9
8.4
6.8
2Q
30.1
20.3
8.1
1.2
0.5
9.6
11.8
2.8
16.9
7.4
5.8
1Q*
16.1
10.1
4.6
0.4
1.0
6.4
6.1
2.4
11.4
3.2
1.5
2002
1Q*
11.1
10.0
1.0
0.1
0.0
7.0
2.4
1.6
7.5
2.9
0.7
EMERGING MARKETS SYNDICATED LOANS ($bn)
Total
Currency USD
EUR
JPY
Other
Region
Latin America
EMEA
Emerging Asia
Issuer
Sovereign
Corporate
Bank
2004
1Q*
5.6
3.8
1.7
0.0
0.0
0.0
4.3
1.3
0.6
4.5
0.5
2003
4Q
22.6
16.2
5.6
0.1
0.7
5.5
12.1
5.1
1.5
15.5
5.6
* year to February 17.
12
3Q
26.4
23.7
2.5
0.0
0.1
2.8
12.3
11.3
1.1
20.6
4.5
2Q
21.7
15.9
4.6
0.6
0.6
8.6
7.1
6.0
2.7
14.1
4.8
1Q*
3.3
3.1
0.1
0.0
0.1
0.3
2.2
0.8
0.4
2.8
0.2
2002
1Q*
4.4
4.4
0.1
0.0
0.0
1.1
2.4
0.9
0.0
3.5
0.9
SOVEREIGN DEBT COUPON AND REDEMPTION
PAYMENTS ($bn)
Feb/Mar 04
2Q04
3Q04
4Q04
Jan-05
Latin America
3.3
6.4
5.1
3.8
1.4
EMEA
5.2
3.0
2.8
3.6
1.2
Emerging Asia
0.3
0.6
1.0
0.7
0.2
Total
8.8
10.0
8.9
8.1
2.8
13
ARGENTINA: CURRENT SITUATION
Economic situation
The economy has recuperated more and faster than
expected, driven mainly by higher exports, lower imports
and some recovery of consumption. Inflationary pressures
have been surprisingly benign and transitory. The policy mix
consists of restrictive fiscal and wage policies and a very
loose monetary policy. Bank deposits have been growing
but bank lending has not. Utility prices remain frozen.
Political situation
President Kirchner has adopted a nationalistic posture in his
dealing with multinational companies, foreign creditors and
the multilateral institutions in an attempt to enhance his
popularity and thus build a political base with which to
govern. So far, the strategy is working.
14
ARGENTINA: BOND SPREADS & LOCAL INTEREST RATES
120
7,500
7,000
100
6,500
80
6,000
60
5,500
40
5,000
20
4,500
3-mo domestic rate (% pa)
Argentina EMBI+ sovereign spread (bp over UST, rhs)
Source: JP Morgan, Bloomberg, ABN AMRO
15
5-Sep
15-Aug
25-Jul
4-Jul
13-Jun
23-May
2-May
11-Apr
21-Mar
28-Feb
7-Feb
17-Jan
27-Dec
6-Dec
15-Nov
25-Oct
4-Oct
13-Sep
23-Aug
2-Aug
12-Jul
21-Jun
31-May
10-May
19-Apr
29-Mar
8-Mar
15-Feb
4,000
25-Jan
0
ARGENTINA: PUBLIC DEBT (% of GDP)
160
140
120
100
80
60
40
20
0
1998
1999
2000
2001
Domestic
External
Source: Ministerio de Economía, ABN AMRO
16
2002
2003F
ARGENTINA: PRIMARY FISCAL BALANCES (% of GDP)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1998
1999
2000
2001
Source: Ministerio de Economía, ABN AMRO
17
2002
2003E
2004F
ARGENTINA: NEAR-TERM OUTLOOK
Economic outlook
Unless the business climate improves meaningfully, a
shortfall of new investment will probably put a ceiling on the
economic recovery during 2005. Negotiations with foreign
creditors, as well as with banks, pension funds and
multinational companies operating in Argentina, are likely to
be protracted and to leave deep scars. The government will
maintain an interventionist, paternalistic attitude.
Political outlook
President Kirchner will use his increased political support to
get some necessary reforms passed (e.g., revenue sharing
rules), but he is unlikely to stage a Lula-style turnaround in
his cool attitude toward big business, the IMF and the US. He
is a nationalist and interventionist at heart.
18
ARGENTINA: MAIN ECONOMIC INDICATORS
2002
2003E
2004F
-10.9
18.0
41.0
8.4
14.3
3.7
5.5
13.5
9.0
-1.8
16.5
7.8
-1.2
15.4
7.0
-1.0
12.5
4.0
0.0
175.0
10.2
3.36
1.0
190.0
14.1
2.93
1.2
205.0
15.5
3.15
Real GDP (% yoy)
Unemployment (%)
Consumer prices (Dec, %)
Government budget (% of GDP)
Foreign trade balance (US$bn)
Current account (% of GDP)
Foreign direct investment (US$bn)
External debt (US$bn)
International reserves (US$bn)
Exchange rate (Dec, /US$)
19
ARGENTINA: LONGER-TERM ISSUES
Can the rule of law be restored, such that new
investors will have some confidence that their
contracts will be honored?
Is it possible to rebuild the financial system, or will
bank credit and capital markets financing be
unavailable for many years to come?
Will there be the kind of fiscal discipline and effort
necessary to service the government’s financial
obligations after a debt restructuring?
20
BRAZIL: CURRENT SITUATION
Economic situation
The economy was in a mild recession in 1H03 because of the
impact of previous political uncertainty, and highly restrictive
fiscal and monetary policies, on domestic consumption and
investment. However, as was to be expected, inflationary
pressures have abated, the currency has regained some
strength and stabilized, and the foreign trade and current
accounts of the balance of payments have improved
markedly. Economic activity has been accelerating since 4Q03
- we expect GDP to grow by more than 4% in 2004.
Political situation
Despite an increase in unemployment and an erosion of real
wages because of high inflation late last year and early this
year, the government’s approval ratings remain high and
President Lula has established a strong, multi-party
congressional coalition that controls the House and Senate,
allowing the government to pass needed legislation. It
remains to be seen, however, how costly for Lula is the
recent corruption scandal.
21
Brazil EMBI+ (bp over UST)
Source: JP Morgan, Bloomberg, ABN AMRO
22
1-yr domestic rate (% pa, rhs)
Sep-03
Jul-03
Jun-03
May-03
Apr-03
Mar-03
Feb-03
Dec-02
Nov-02
Oct-02
Sep-02
Aug-02
Jun-02
May-02
Apr-02
Mar-02
Feb-02
Dec-01
Nov-01
Oct-01
Sep-01
Aug-01
Jun-01
May-01
Apr-01
Mar-01
Feb-01
Dec-00
Nov-00
Oct-00
Sep-00
Aug-00
Jun-00
May-00
Apr-00
Mar-00
Feb-00
Dec-99
BRAZIL: BOND SPREADS & LOCAL INTEREST RATES
2,800
35
2,300
30
1,800
25
1,300
20
800
15
300
10
BRAZIL: NET PUBLIC DEBT (% of GDP)
65
60
55
50
45
40
35
30
Dec-98
Dec-99
Dec-00
Dec-01
Mar-02
Jun-02
Source: Banco Central do Brasil, ABN AMRO
23
Sep-02
Dec-02
Mar-03
Jun-03
BRAZIL: PRIMARY FISCAL BALANCES (% of GDP)
5.0
4.0
3.0
2.0
1.0
0.0
Dec-98
Dec-99
Dec-00
Dec-01
Mar-02
Jun-02
Source: Banco Central do Brasil, ABN AMRO
24
Sep-02
Dec-02
Mar-03
Jun-03
Current account balance
Source: Banco Central do Brasil, ABN AMRO
25
FDI inflows
Jul-03
May-03
Mar-03
Jan-03
Nov-02
Sep-02
Jul-02
May-02
Mar-02
Jan-02
Nov-01
Set-01
Jul-01
Mai-01
Mar-01
Jan-01
Nov-00
Set-00
Jul-00
Mai-00
Mar-00
Jan-00
Nov-99
Set-99
Jul-99
Mai-99
Mar-99
Jan-99
Nov-98
Set-98
Jul-98
Mai-98
Mar-98
Jan-98
BRAZIL: CURRENT ACCOUNT AND FDI (US$bn)
40
30
20
10
0
-10
-20
-30
-40
BRAZIL: OUTLOOK
Economic outlook
Economic activity should rebound in the months ahead, now
that fiscal and monetary policy have been relaxed. In
anticipation, the financial markets have staged a strong
rally. We expect inflation to stay under good control, the
currency to remain stable, and the balance of payments to
continue strong.
Political outlook
Congress should approve the pension reform for civil servants
and key items in the tax reform (eg, the renewal of the
financial transactions tax and the DRU, preventing the
earmarking of certain government revenues) before year’s
end. Passage of a new bankruptcy law and a new law on the
financial system granting autonomy to the central bank are
likely to be approved before mid-2004.
26
BRAZIL: MAIN ECONOMIC INDICATORS
2002
2003E
2004F
Real GDP (% yoy)
Unemployment (%)
Consumer prices (Dec, %)
Overnight interest rate (Dec, %)
1.5
11.7
12.5
25.0
0.1
12.0
9.3
16.5
3.8
10.0
5.5
15.0
Government budget (% of GDP)
Foreign trade balance (US$bn)
Current account (% of GDP)
-10.3
13.1
-1.7
-5.2
24.8
0.4
-2.4
22.3
0.2
Foreign direct investment (US$bn)
External debt (US$bn)
International reserves (US$bn)
Exchange rate (Dec, /US$)
16.6
205.0
37.8
3.54
10.0
208.0
49.3
2.89
12.0
209.0
59.9
3.20
27
BRAZIL: LONGER-TERM ISSUES
Will domestic interest rates and the sovereign risk
premium come down below previous floors, such
that Brazil can experience a burst of investmentand export-led growth, and government debt
dynamics can improve substantially?
Can the authorities overcome nationalistic impulses
and accept a deal with the US on free trade, even if
it is a less ambitious, and thus more limited,
agreement (a “lite” FTA)?
Can the government target its spending better,
improving on the delivery of social services and
income support to the poorest of the poor?
28
COLOMBIA: CURRENT SITUATION
Economic situation
The pace of economic growth has been faster than expected,
and inflationary pressures have been moderate. Although
original IMF fiscal targets will not be met, Washington will be
accommodating of the country’s needs. The recession cum
exchange controls in Venezuela are constraining export
earnings growth.
Political situation
President Uribe’s popularity remains high, based on the
people’s support for his democratic security policy. The
administration has recovered well from the blow of the
referendum defeat. While Uribe appears to have full support
from the White House, the backing for his policies on the part
of the US Congress (and of many European countries) is not
so strong.
29
COLOMBIA: BOND SPREADS & LOCAL INT. RATES
12
1100
1000
11
900
10
800
9
700
600
8
500
7
400
300
1/
4/
0
2/ 2
1/
0
3/ 2
1/
3/ 02
28
/
4/ 02
26
/
5/ 02
24
/
6/ 02
21
/
7/ 02
19
/
8/ 02
16
/
9/ 02
13
10 /02
/1
1/
11 02
/8
/
12 02
/6
/0
1/ 2
3/
1/ 03
31
/
2/ 03
28
/
3/ 03
28
/
4/ 03
25
/
5/ 03
23
/
6/ 03
20
/
7/ 03
18
/
8/ 03
15
/
9/ 03
12
/0
3
6
3-mo domestic deposit rate (% pa)
Colombia EMBI+ spread (bp over UST, rhs)
Source: JP Morgan, Bloomberg, ABN AMRO
30
COLOMBIA: PUBLIC DEBT (% of GDP)
60
50
40
30
20
10
0
1996
1997
1998
1999
Domestic
Source: MHCP, ABN AMRO
31
2000
External
2001
2002
COLOMBIA: PRIMARY FISCAL BALANCES (% of GDP)
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
1996
1997
1998
1999
Source: MHCP, ABN AMRO
32
2000
2001
2002
COLOMBIA: NEAR-TERM OUTLOOK
Economic outlook
The pace of economic activity growth should remain in the
neighborhood of 3% pa, helped by a strong US economic
recovery. Concerns about knock-on effect of Venezuela and
Ecuador will remain. The failure of the referendum opens the
door to renewed concerns regarding the country’s fiscal
outlook.
Political outlook
The government’s bet on Uribe’s tailwind to be enough for
ensuring a positive vote in the referendum failed, and the
costs will be on the fiscal front and in terms of Uribe’s loss of
its aura of invincibility. The referendum defeat gave rise only
to a moderate selloff, however, indicating that the market
remains confident about Uribe’s ability to retain his political
power.
33
COLOMBIA: MAIN ECONOMIC INDICATORS
2002
2003E
2004F
Real GDP (% yoy)
Unemployment (%)
Consumer prices (Dec, %)
1.6
18.0
6.5
3.5
14.7
6.5
3.0
14.0
6.0
Government budget (% of GDP)
Foreign trade balance (US$bn)
Current account (% of GDP)
-3.8
0.7
-1.9
-3.0
1.0
-2.3
-2.8
1.5
-1.5
2.6
42.7
11.0
2867
2.4
44.5
10.8
2780
2.5
47.0
11.0
2930
Foreign direct investment (US$bn)
External debt (US$bn)
International reserves (US$bn)
Exchange rate (Dec, /US$)
34
COLOMBIA: LONGER-TERM ISSUES
Is President Uribe’s popularity enough to ensure that
progress will continue to take place in the areas of
fiscal discipline and structural reform in spite of the
referendum fiasco?
Is Colombia’s bid to reach a bilateral free trade
agreement with the US successful?
Does President Uribe persuade the US Congress that
his security policy is the best not only for Colombia
but also the one that improves hemispheric security?
35
MEXICO: CURRENT SITUATION
Economic situation
The economy stagnated in the 2 years until 1Q03, but has
been showing signs of life since then, although the job
market remains depressed, partly because of a loss in
international competitiveness. Inflation, interest rates and
sovereign spreads are testing all-time lows. The
government’s fiscal and monetary policies are conservative
and have credibility. The structural reform agenda, however,
has made little or no progress.
Political situation
President Fox has not managed to build a political base within
his party and with other parties to advance his legislative
agenda (tax, energy and other reforms). He has emerged
further weakened from recent mid-term elections.
36
MEXICO: BOND SPREADS & LOCAL INTEREST RATES
10
450
9
400
8
350
7
300
6
250
5
3-mo domestic rate (% pa)
Mexico EMBI+ spread (bp over UST, rhs)
Source: JP Morgan, Bloomberg, ABN AMRO
37
5-Sep
15-Aug
25-Jul
4-Jul
13-Jun
23-May
2-May
11-Apr
21-Mar
28-Feb
7-Feb
17-Jan
27-Dec
6-Dec
15-Nov
25-Oct
4-Oct
13-Sep
23-Aug
2-Aug
12-Jul
21-Jun
31-May
10-May
19-Apr
29-Mar
8-Mar
15-Feb
25-Jan
200
4-Jan
4
MEXICO: PUBLIC DEBT (% of GDP)
35
30
25
20
15
10
5
0
1Q99
2Q99
3Q99
4Q99
1Q00
2Q00
3Q00
4Q00
1Q01
External
2Q01
3Q01
Domestic
Source: SHCP, ABN AMRO
38
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
MEXICO: PRIMARY FISCAL BALANCES (% of GDP)
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
1999
2000
2001
Source: SHCP, ABN AMRO
39
2002
2003E
MEXICO: NEAR-TERM OUTLOOK
Economic outlook
The pace of economic activity should pick up in the months
ahead in reflection of the strong US economic recovery, but
there are reasons for concern about the continuing impact of
China on Mexico’s previously privileged position vis-à-vis the
US market. Absent a sharp decline in world oil prices, the
currency should remain fairly stable, given low inflation and
conservative monetary and fiscal policies.
Political outlook
Political negotiations about a tax reform may make progress,
but the outlook for other reform initiatives remains murky,
especially when it comes to the energy sector. The PRI is
making a comeback and the leftist PRD has an appealing
candidate for the 2006 presidential elections (Mexico City
Mayor López Obrador).
40
MEXICO: MAIN ECONOMIC INDICATORS
2002
2004F
0.9
2.7
5.7
1.2
3.0
4.0
3.2
2.8
3.5
-2.9
-8.0
-2.8
-2.2
-6.0
-2.7
-1.8
-8.0
-2.8
12.6
190.0
46.1
10.4
13.5
197.0
56.1
11.2
14.0
200.0
59.0
11.8
Real GDP (% yoy)
Unemployment (%)
Consumer prices (Dec, %)
Government budget (% of GDP)
Foreign trade balance (US$bn)
Current account (% of GDP)
Foreign direct investment (US$bn)
External debt (US$bn)
International reserves (US$bn)
Exchange rate (Dec, /US$)
2003E
41
MEXICO: LONGER-TERM ISSUES
Is President Fox able to reach a domestic political
accord such that progress can take place on his
structural reform agenda?
Does the US start to pay more attention to Mexico’s
aspirations within NAFTA, broadening the
relationship beyond commerce?
Can Mexico move up the value-added chain and thus
offset the loss of assembly jobs to China and other
Asian countries? This would require a great leap
forward in terms of educational and on-the-job
training reforms.
42
VENEZUELA: CURRENT SITUATION
Economic situation
The oil industry recovered quickly, though not fully, from the
labor strike and dismissals earlier this year, but the non-oil
economy remains in a recession aggravated by the
imposition of exchange controls. Monetary and fiscal
policies have been loose but banks are not granting credit.
The government demonstrated its willingness to keep
servicing the public debt, and has regained partial access to
the capital markets.
Political situation
President Hugo Chávez has lost popularity but refuses to
resign, managing to delay a referendum that could end up in
his removal. Gross domestic private investment remains
depressed and capital repatriation has been delayed because
of political uncertainty.
43
VENEZUELA: BOND SPREADS & LOCAL INTEREST RATES
70
1500
65
1400
60
1300
55
50
1200
45
1100
40
1000
35
900
30
3-month promissory note borrowing rate (% pa)
Venezuela EMBI+ spread (bp over UST, rhs)
Source: JP Morgan, Bloomberg, ABN AMRO
44
10-Oct
12-Sep
15-Aug
18-Jul
20-Jun
23-May
25-Apr
28-Mar
28-Feb
31-Jan
3-Jan
6-Dec
8-Nov
11-Oct
13-Sep
16-Aug
19-Jul
21-Jun
24-May
26-Apr
29-Mar
700
1-Mar
20
1-Feb
800
4-Jan
25
VENEZUELA: PUBLIC DEBT (% of GDP)
60
50
40
30
20
10
0
1995
1996
1997
1998
1999
Domestic
External
Source: Ministerio de Finanzas, Standard & Poor’s, ABN AMRO
45
2000
2001
2002
VENEZUELA: OIL AND INTERNATIONAL RESERVES
20
33
19
31
18
29
17
16
27
15
25
14
13
23
12
21
11
International reserves incl. FIEM ($bn)
Ven crude basket price ($/bbl, rhs)
Source: Banco Central de Venezuela, Bloomberg, ABN AMRO
46
12-Sep
29-Aug
15-Aug
1-Aug
18-Jul
4-Jul
20-Jun
6-Jun
23-May
9-May
25-Apr
11-Apr
28-Mar
14-Mar
28-Feb
14-Feb
31-Jan
17-Jan
3-Jan
20-Dec
6-Dec
22-Nov
8-Nov
25-Oct
11-Oct
27-Sep
13-Sep
30-Aug
16-Aug
19
2-Aug
10
VENEZUELA: PRIMARY FISCAL BALANCES (% of GDP)
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
1999
2000
2001
2002
Source: Ministerio de Finanzas, Standard & Poor’s, ABN AMRO
47
2003F
2004F
VENEZUELA: NEAR-TERM OUTLOOK
Economic outlook
The non-oil economy is likely to touch bottom soon and
some pick-up in consumption will take place, but investment
spending will probably be minimal. The exchange control
regime is likely to be liberalized gradually in the months
ahead. The economy remains vulnerable to a softening of
world oil prices. We assume that business conditions will
improve in 2H04, once political uncertainty is resolved.
Political outlook
A referendum to remove President Chávez is likely to take
place by mid-2004. Depending on the timing Vice President
Rangel may end up taking over temporarily until new
elections are held, say, before the end of 2004.
48
VENEZUELA: MAIN ECONOMIC INDICATORS
2002
2003E
2004F
Real GDP (% yoy)
Unemployment (%)
Consumer prices (Dec, %)
-8.0
17.5
31.2
-10.0
17.0
27.1
6.0
16.0
35.0
Government budget (% of GDP)
Foreign trade balance (US$bn)
Current account (% of GDP)
-3.6
12.0
7.6
-5.0
15.0
13.0
-3.5
14.0
9.0
2.5
35.3
11.0
1,389
0.0
37.3
21.3
1,600
1.0
38.0
25.0
2,200
Foreign direct investment (US$bn)
External debt (US$bn)
International reserves (US$bn)
Exchange rate (Dec, /US$)
49
VENEZUELA: LONGER-TERM ISSUES
Can new political leadership emerge and bring
the country together again? This would
require for the political opposition to Chávez to
stand united, at least initially.
Will the oil industry recuperate its production
fully and attract renewed foreign investment?
How much capital will be repatriated and be
put to work in Venezuela if a new government
takes office?
50
The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or analysts in the research report
accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or
indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.





 Copyright 2003 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO"). All rights reserved.
This material was prepared by the ABN AMRO affiliate named on the cover or inside cover page. It is provided for informational purposes only and does not constitute an offer to sell or a solicitation to
buy any security or other financial instrument. While based on information believed to be reliable, no guarantee is given that it is accurate or complete. While we endeavour to update on a reasonable
basis the information and opinions contained herein, there may be regulatory, compliance or other reasons that prevent us from doing so. The opinions, forecasts, assumptions, estimates, derived
valuations and target price(s) contained in this material are as of the date indicated and are subject to change at any time without prior notice. The investments referred to may not be suitable for the
specific investment objectives, financial situation or individual needs of recipients and should not be relied upon in substitution for the exercise of independent judgement. ABN AMRO may from time to
time act as market maker, where permissible under applicable laws, or, as an agent or principal, buy or sell securities, warrants, futures, options, derivatives or other financial instruments referred to
herein. ABN AMRO or its officers, directors, employee benefit programmes or employees, including persons involved in the preparation or issuance of this material, may from time to time have long or
short positions in securities, warrants, futures, options, derivatives or other financial instruments referred to in this material. ABN AMRO may at any time solicit or provide investment banking,
commercial banking, credit, advisory or other services to the issuer of any security referred to herein. Accordingly, information may be available to ABN AMRO, which is not reflected in this material, and
ABN AMRO may have acted upon or used the information prior to or immediately following its publication. Within the last three years, ABN AMRO may also have acted as manager or co-manager for a
public offering of securities of issuers referred to herein. The stated price of any securities mentioned herein is as of the date indicated and is not a representation that any transaction can be effected at
this price. Neither ABN AMRO nor other persons shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the
information contained in this material. This material is for the use of intended recipients only and the contents may not be reproduced, redistributed, or copied in whole or in part for any purpose without
ABN AMRO's prior express consent. In any jurisdiction in which distribution to private/retail customers would require registration or licensing of the distributor which the distributor does not currently
have, this document is intended solely for distribution to professional and institutional investors.
Should you require additional information please contact your local ABN AMRO account representative, unless governing laws dictate otherwise.
Australia: Any report referring to equity securities is distributed in Australia by ABN AMRO Equities Australia Ltd (ABN 84 002 768 701), a participating organisation of the Australian Stock Exchange Ltd.
Any report referring to fixed income securities is distributed in Australia by ABN AMRO Bank NV (Australia Branch) (ARBN 079 478 612). Australian investors should note that this document was
prepared for wholesale investors only. Canada: The securities mentioned in this material are available only in accordance with applicable securities laws and may not be eligible for sale in all
jurisdictions. Persons in Canada requiring further information should contact ABN AMRO Incorporated. Hong Kong: This document is being distributed in Hong Kong by, and is attributable to, ABN AMRO
Asia Limited which is regulated by the Securities and Futures Commission of Hong Kong. India: Shares traded on stock exchanges within the Republic of India may only be purchased by different
categories of resident Indian investors, Foreign Institutional Investors registered with The Securities and Exchange Board of India ("SEBI") or individuals of Indian national origin resident outside India
called Non Resident Indians ("NRIs") and Overseas Corporate Bodies ("OCBs"), predominantly owned by such persons or Persons of Indian Origin (PIO). Any recipient of this document wanting
additional information or to effect any transaction in Indian securities or financial instrument mentioned herein must do so by contacting a representative of ABN AMRO Asia Equities (India) limited.
Italy: Persons in Italy requiring further information should contact ABN AMRO Bank N.V. Milan Branch. Japan: This report is being distributed in Japan by ABN AMRO Securities Japan Ltd to institutional
investors only. New Zealand: This document is distributed in New Zealand by ABN AMRO Equities NZ Limited a New Zealand Stock Exchange Firm. Russia: The Russian securities market is associated
with several substantial risks, legal, economic and political, and high volatility. There is a relatively high measure of legal uncertainty concerning rights, duties and legal remedies in the Russian
Federation. Russian laws and regulations governing investments in securities markets may not be sufficiently developed or may be subject to inconsistent or arbitrary interpretation or application.
Russian securities are often not issued in physical form and registration of ownership may not be subject to a centralised system. Registration of ownership of certain types of securities may not be
subject to standardised procedures and may even be effected on an ad hoc basis. The value of investments in Russian securities may be affected by fluctuations in available currency rates and
exchange control regulations. Singapore: This document is distributed in Singapore by ABN AMRO Asia Securities (Singapore) Private Limited to clients who fall within the description of persons in
Regulation 49(5) of the Securities and Futures (Licensing and Conduct of Business) Regulations 2002. Investors should note that this material was prepared for professional investors only. United
Kingdom: Equity research is distributed in the United Kingdom by ABN AMRO Equities (UK) Limited, which is registered in England (No 2475694), and is authorised and regulated by the Financial
Services Authority. All other research is distributed in the United Kingdom by ABN AMRO Bank NV, London Branch, which is authorised by the Dutch Central Bank and by the Financial Services Authority;
and regulated by the Financial Services Authority for the conduct of UK business. The investments and services contained herein are not available to private customers in the United Kingdom. United
States: Distribution of this document in the United States or to US persons is intended to be solely to major institutional investors as defined in Rule 15a-16 under the US Securities Act of 1934. All US
persons that receive this document by their acceptance thereof represent and agree that they are a major institutional investor and understand the risks involved in executing transactions in securities.
Any US recipient of this document wanting additional information or to effect any transaction in any security or financial instrument mentioned herein, must do so by contacting a registered
representative of ABN AMRO Incorporated, Park Avenue Plaza, 55 East 52nd Street, New York, N.Y. 10055, US, tel + 1 212 409 1000, fax +1 212 409 5222.
1 Material means all research information contained in any form including but not limited to hard copy, electronic form, presentations, e-mail, SMS or WAP.
51