Transcript That Glitters May Not Be Gold: Debating Key Issues

All That Glitters May Not Be Gold:
Debating Key Issues
May 8th, 2008
Prepared for Presentation at the XXVII Meeting of the Latin American Network of
Central Banks and Finance Ministries, IADB, Washington DC. This Presentation is
based on the IADB Research Department report “All That Glitters May Not Be Gold:
Assessing Latin America’s Recent Macroeconomic Performance”, coordinated by
Alejandro Izquierdo and Ernesto Talvi
OBJECTIVES
To present a regional macroeconomic perspective
Synchronization of Economic
Fluctuations in Latin America
(Real GDP, average annual growth)
15%
Tequila
Crisis
Russian
Crisis
Beginning of
Current Boom
10%
5%
0%
Argentina
Brazil
-5%
Chile
Colombia
Cumulative R2
-10%
Mexico
1st PC
0.42
Peru
2nd PC
0.64
Venezuela
PC= Principal Component
Dic-06
Dic-05
Dic-04
Dic-03
Dic-02
Dic-01
Dic-00
Dic-99
Dic-98
Dic-97
Dic-96
Dic-95
Dic-94
Dic-93
Dic-92
Dic-91
-15%
OBJECTIVES
To present a regional macroeconomic perspective
To evaluate macroeconomic performance and
fundamentals internalizing the impact of external
factors
External Conditions for Latin America
World Production
Commodity Prices
(World-7 GDP Index, Annual Variation,
Weighted by PPP adjusted GDP*)
External Financial Conditions
(Index of Oil and Non-Oil
Commodities, Oct-02=100)
5.5%
(EMBI spread, basis points)
364
365
1000
984
900
315
5.0%
800
265
4.8%
Average 91-97
700
4.5%
Oil
600
215
548
200
Non-Oil
4.0%
EMBI+
500
165
400
299
300
3.5%
Average 91-97
115
200
*World-7 includes G-3 (EU-15, Japan and USA) and EM-4 (China, India, Korea and Russia)
Oct-07
May-07
Jul-06
Dic-06
Feb-06
Sep-05
Abr-05
Nov-04
Jun-04
Ene-04
Ago-03
Mar-03
Oct-02
Oct-07
Abr-07
Oct-06
Abr-06
Oct-05
Abr-05
Oct-04
Abr-04
Oct-03
Abr-03
100
Oct-02
Jul-07
Mar-07
Nov-06
Jul-06
Mar-06
Jul-05
Nov-05
Mar-05
Nov-04
Jul-04
Mar-04
Nov-03
65
Jul-03
Mar-03
3.0%
264
Non-Latin
EMBI
Average 91-97
Mar-08
Average 91-97
OBJECTIVES
To present a regional macroeconomic perspective
To evaluate macroeconomic performance and
fundamentals internalizing the impact of external
factors
To stimulate a constructive policy debate
Growth Performance
Growth Performance in Latin America
‘This Time Is Different’
Observed GDP Growth
Forecast for GDP: 2003 – 2006*
(LAC-7, GDP Annual Growth)
(LAC-7, Values in logs)
Russian
Crisis
90s Boom
7%
‘All That Glitters May Not Be Gold’
Current Boom
4.85
90% confidence interval
03-07
Average:
5.8%
6%
5%
91-97
Average:
4.6%
4%
4.80
4.75
74-06
Average:
3.2%
3%
Predicted GDP
with Observed
External Factors
4.70
2%
4.65
1%
GDP at long
run average
growth
Observed
GDP
0%
4.60
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
*Izquierdo, Romero and Talvi (2007)
Jul-06
Mar-06
Nov-05
Jul-05
Mar-05
Nov-04
Jul-04
Mar-04
Nov-03
Jul-03
Mar-03
Nov-02
Jul-02
4.55
Mar-02
2007
2005
2003
2001
1999
1997
1995
1993
-2%
1991
-1%
Growth Performance in Latin America
‘This Time Is Different’
Observed GDP Growth
Growth in EMs: A Comparative Perspective
(LAC-7, GDP Annual Growth)
(Real GDP, 2003-2007 annual growth)
Russian
Crisis
90s Boom
7%
‘All That Glitters May Not Be Gold’
World: 5.0%
Current Boom
03-07
Average:
5.8%
6%
5%
91-97
Average:
4.6%
4%
Emerging
Asia
Ex USSR
74-06
Average:
3.2%
3%
2%
Middle East
Emerging
Europe
1%
0%
Africa
2007
2005
2003
2001
1999
1997
1995
1993
-2%
1991
-1%
Latin
America
2%
3%
4%
5%
6%
7%
8%
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
9%
Investment in Latin America
‘This Time Is Different’
‘All That Glitters May Not Be Gold’
Investment to GDP Ratio
Investment: 90’s vs. 00’s Expansion
(Private investment, constant prices, in %)
90s Boom
0,18
Russian Crisis
(Private investment, LAC-7, Year 0 = 100)
Current Boom
17.0%
0,17
16.5%
175
Current
Expansion
165
0,16
155
0,15
145
90s Expansion
135
0,14
125
0,13
115
0,12
105
0,11
2006
2004
2002
2000
1998
1996
1994
1992
1990
95
0
1
2
3
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
* Deflated by capital price indexes. The current expansion year 0 is 2002 and the 90s expansion year 0 is 1990.
4
Productivity in Latin America
‘This Time Is Different’
Total Factor Productivity
Productivity: 90’s vs. 00’s Expansion
(1990=100 and annual variation in %)
(Total Factor Productivity, LAC-7, Year 0 = 100*)
Russian Crisis
Current Boom
4%
Total Factor
Productivity Index
113
122
111
118
109
2%
114
1%
90-06 Average
Growth: 1.0%
110
0%
105
106
-2%
102
101
-3%
98
-1%
90s Expansion
107
103
Current
Expansion
2006
2004
2002
2000
1998
1996
1994
1992
Annual
Variation
1990
Productivity Growth
3%
126
Productivity Index
90’s Boom
5%
‘All That Glitters May Not Be Gold’
99
0
1
2
3
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
*The current expansion year 0 is 2002 and the 90s expansion year 0 is 1990.
4
Productivity in Latin America
‘This Time Is Different’
‘All That Glitters May Not Be Gold’
Total Factor Productivity
Productivity Growth by Region
(1990=100 and annual variation in %)
(Total Factor Productivity, 1990-2006; annual rate)
90’s Boom
5%
Russian Crisis
Current Boom
4%
3.0%
122
118
2%
114
1%
90-06 Average
Growth: 1.0%
110
0%
3.0%
2.5%
Productivity Index
Total Factor
Productivity Index
3%
2.0%
1.8%
1.5%
1.0%
106
1.0%
-2%
102
0.5%
-3%
98
0.0%
-1%
1.0%
2006
2004
2002
2000
1998
1996
1994
1992
Annual
Variation
1990
Productivity Growth
3.5%
126
Emerging Asia
Emerging
Regions*
Advanced
Economies
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
* Excluding LAC and China
LAC-7
QUESTIONS FOR DISCUSSION:
GROWTH PERFORMANCE
 From a growth perspective, does your country fit the regional
pattern? Why yes or why not?
 From your country’s perspective, do you consider that external
factors play an important role in explaining current growth
performance?
 Our evidence suggest that even if the favorable external
environment persists, the effect on growth will probably
dissipate. Do you think that external conditions have a level or
growth effect on economic activity?
 Has the trend growth rate in your country increased above its
historical average? If so, can the dynamics of investment and
productivity during the current expansion support higher trend
growth rates in your country?
Fiscal Policy
Observed and Structural Fiscal Balances*
(Structural balances computed by applying the “Chilean Fiscal Rule” to other LAC-7 countries)
3%
Latin America
Chile
(LAC-7, % of GDP)
(% of GDP)
Russian
Crisis
10%
Beginning of
Current Boom
2%
Russian
Crisis
Beginning of
Current Boom
8%
‘This Time Is Different’
1%
1.0%
Observed
(Observed)
6%
0%
4%
-1%
Structural
2%
-2%
0%
-3%
‘All That Glitters
May Not Be Gold’
-4%
(Structural)
-2%
-4.1%
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
Fiscal balances include: Public Sector (Mexico), Non-Financial Public Sector (Argentina, Colombia, Peru), General Government (Brazil), Central
Government (Chile, Venezuela).
*Izquierdo, Ottonello and Talvi (forthcoming).
2005
2003
2001
1999
1997
1995
1993
2005
2003
2001
1999
1997
1995
1993
1991
1991
-4%
-5%
Fiscal Balances by Country
(Dec-06, in % of GDP)
Structural Fiscal Balance
Observed
Fiscal Balance
Traditional HP Filter*
“Chilean” Fiscal Rule**
1,8%
0,6%
-2,2%
Brazil
-3,0%
-3,3%
-4,9%
Colombia
-0,5%
-1,2%
-0,1%
Mexico
0,1%
-0,5%
-4,5%
Peru
2,1%
0,6%
-1,8%
-0,2%
-2,0%
-16,0%
LAC-6
0,0%
-1,0%
-4,9%
Chile
7,7%
6,1%
1,0%
LAC-7
1,1%
0,0%
-4,1%
Argentina
Venezuela
LAC-6 is the simple average of Argentina, Brazil, Colombia, Mexico, Peru and Venezuela. LAC-7 is the simple average of the seven major Latin
American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. These countries represent 91% of Latin America’s GDP.
Fiscal balances include: Public Sector (Mexico), Non-Financial Public Sector (Argentina, Colombia, Peru), General Government (Brazil), Central
Government (Chile, Venezuela).
*HP = Hodrick Prescott; lambda = 1600 (quarterly data).
**Izquierdo, Ottonello and Talvi (forthcoming).
Fiscal Revenues and Expenditures*
(Adjusted revenues computed by applying the “Chilean Fiscal Rule” to other LAC-7 countries)
Latin America
Chile
(LAC-7, Fiscal Revenues, Mar-91 = 100)
(Fiscal Revenues, Mar-91 = 100)
335
Russian
Crisis
335
Beginning of
Current Boom
Beginning of
Current Boom
Russian
Crisis
Fiscal
Revenues
285
285
235
235
Fiscal
Revenues
Fiscal
Expenditures
Adjusted
Revenues
185
Adjusted
Revenues
185
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
Fiscal balances include: Public Sector (Mexico), Non-Financial Public Sector (Argentina, Colombia, Peru), General Government (Brazil), Central
Government (Chile, Venezuela).
*Izquierdo, Ottonello and Talvi (forthcoming).
2005
2003
2001
1999
1997
1995
1993
2005
2003
2001
1999
1997
85
1995
85
1993
135
1991
135
1991
Fiscal
Expenditures
Revenue Bonanza and Government
Expenditure in Latin America
Fiscal Revenues and Expenditures*
(LAC-7, Fiscal Revenues, Mar-91 = 100; Adjusted
Revenues following the “Chilean Fiscal Rule”)
335
Russian
Crisis
Increase in Public Expenditures
(in % of increase in fiscal revenues, 2003-2006)
Beginning of
Current Boom
Venezuela
Fiscal
Revenues
285
Brazil
Mexico
235
Fiscal
Expenditures
Colombia
Adjusted
Revenues
185
Peru
Argentina
135
LAC-7: 77%
Chile
2005
2003
2001
1999
1997
1995
1993
1991
85
0%
20%
40%
60%
80%
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
Fiscal balances include: Public Sector (Mexico), Non-Financial Public Sector (Argentina, Colombia, Peru), General Government (Brazil), Central
Government (Chile, Venezuela).
*Izquierdo, Ottonello and Talvi (forthcoming).
100%
Revenue Bonanza and Government
Expenditure in Latin America
Fiscal Revenues and Expenditures*
Public Investment Expenditure
(LAC-7, Fiscal Revenues, Mar-91 = 100; Adjusted
Revenues following the “Chilean Fiscal Rule”)
335
Russian
Crisis
Beginning of
Current Boom
(LAC-7, in % of Primary Expenditure)
18%
Fiscal
Revenues
17.2%
17%
285
16%
235
15%
Fiscal
Expenditures
14.0%
Adjusted
Revenues
185
14%
13.1%
13%
12%
135
11%
2005
2003
2001
1999
1997
1995
1993
1991
85
10%
1998
2002
2007
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
*Fiscal balances include: Public Sector (Mexico), Non-Financial Public Sector (Argentina, Colombia, Peru), General Government (Brazil), Central
Government (Chile, Venezuela).
*Izquierdo, Ottonello and Talvi (forthcoming).
Observed and Structural Public Debt*
(LAC-7, in % of GDP)
Russian Crisis
90s Boom
Current Boom
55%
52%
50%
‘This Time Is Different’
50%
(Observed Debt)
47%
‘All That Glitters
May Not Be Gold’
45%
44%
(Structural Debt)
40%
37%
35%
33%
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
30%
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
*Izquierdo, Ottonello and Talvi (forthcoming).
QUESTIONS FOR DISCUSSION:
FISCAL POLICY (I)
 From a fiscal policy perspective, does your country fit the
regional pattern? Why yes or why not?
 Do you consider the structural fiscal balance a relevant
concept for evaluating the stance of fiscal policy? If so, is
a ‘Chilean-Style’ smoothing (i.e. saving the boom to a
large extent) relevant for your own country?
 Do you think having explicit structural fiscal balance
targets à la Chile could be useful for your country? If so,
what are the difficulties in implementing such a rule?
QUESTIONS FOR DISCUSSION:
FISCAL POLICY (II)
 Should structural fiscal balance targets be established
taking into account the target levels of structural public
debt? How should these target levels be determined? Is
the 20% of GDP rule of thumb a valid one for your
country?
 Assuming that we are in the presence of a permanent
improvement in the external environment, which is the
optimal way of assigning the increase in fiscal
revenues in your country: increase current expenditure,
increase capital expenditure, debt reduction or
reduction in tax rates?
Public Debt Management
Debt Composition in Latin America
‘This Time Is Different’
‘All That Glitters May Not Be Gold’
Mutation in Debt Riskiness:
Two Revealing Examples
Debt Riskiness
(LAC-7, Risky Debt in % of Total Domestic Debt*)
(Risky Debt in % of Total Domestic Debt**)
80
100%
90%
90%
75
80%
70
67%
70%
60%
65
50%
40%
60
28%
30%
20%
55
10%
2005
2003
2001
1999
1997
1995
1993
1991
50
5%
0%
Dec-93
Nov-94
Mexico
Aug-97
Dec-98
Brazil
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
*Risky debt includes foreign-currency debt, short-term debt and variable interest rate debt. LAC-7 excludes Peru.
**For Mexico, risky debt is computed by taking the ratio of Tesobonos (denominated in US dollars) to total domestic public debt. The latter includes Cetes,
Bondes Ajusta Bonos and Tesobonos. For Brazil, risky debt is constructed by taking the ratio of the sum of domestic public debt indexed to the Selic plus
exchange-rate-indexed debt over total domestic public debt.
QUESTIONS FOR DISCUSSION:
PUBLIC DEBT MANAGEMENT
 Form a public debt management perspective, does your
country fit the regional pattern? Why yes or why not?
 How much of the change in debt composition is
structural and how much due to favorable international
conditions?
 From a risk perspective, do you believe that changes in
debt composition are a reasonable substitute for the
reduction in debt levels?
 If so, how should debt composition targets be
determined?
External Position
Capital Flows to Latin America*
‘This Time Is Different’
‘All That Glitters May Not Be Gold’
Net Capital Flows
Capital Inflows and Outflows
(LAC-7, Billions of US Dollars)
(LAC-7, Billions of US Dollars)
100
140
Russian Crisis
Russian Crisis
Inflows
120
80
100
60
80
40
60
Outflows
40
20
20
0
0
LAC-7 is the sum of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
* Calvo and Talvi (2007).
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1991
-20
-20
International Reserves in Latin America
‘This Time Is Different’
‘All That Glitters May Not Be Gold’
International Reserves
International Reserves to M2 Ratios
(LAC-7, in %)
(LAC-7, Billions of US Dollars*)
0.55
Russian
Crisis
415
Beginning of
Current Boom
Russian
Crisis
404
365
0.50
LAC-7
315
Dec.02-Dec.07
Variation:
175%
Jan.91-Jun.98
Variation:
271%
265
0.45
44%
215
40%
0.40
174
165
115
0.35
Jun.98-Dec.02
Variation:
-15%
65
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
*LAC-7 is is computed as the sum of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru
and Venezuela. These countries represent 91% of Latin America’s GDP.
Dic-06
Dic-05
Dic-04
Dic-03
Dic-02
Dic-01
Dic-00
Dic-99
Dic-98
Dic-97
Dic-96
Dic-95
Dic-94
Dic-93
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1991
1992
0.30
15
International Reserves in Latin America
‘This Time Is Different’
‘All That Glitters May Not Be Gold’
International Reserves
International Reserves to M2 Ratios
(LAC-7, in %)
(LAC-7, Billions of US Dollars*)
Russian
Crisis
415
404
25
Russian
Crisis
Beginning of
Current Boom
365
22.1
EA-5
315
Dec.02-Dec.07
Variation:
175%
Jan.91-Jun.98
Variation:
271%
265
20
17.0
16.9
215
174
165
15
Jun.98-Dec.02
Variation:
-15%
65
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.
*LAC-7 is is computed as the sum of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru
and Venezuela. These countries represent 91% of Latin America’s GDP.
EA-5 is the simple average of Indonesia, Korea, Malaysia, Philippines and Thailand.
Dic-06
Dic-05
Dic-04
Dic-03
Dic-02
Dic-01
Dic-00
Dic-99
Dic-98
Dic-97
Dic-96
Dic-95
Dic-94
Dic-93
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
10
1992
1991
15
LAC-7
13.0
115
QUESTIONS FOR DISCUSSION:
EXTERNAL POSITION (I)
 From a capital account perspective, does your
country fit the regional pattern? Why yes or why
not?
Do you think that a sectoral perspective of the
capital account offers a relevant angle for
vulnerability analysis?
 Is there information available at the country level to
make a sectoral analysis of the capital account?
QUESTIONS FOR DISCUSSION:
EXTERNAL POSITION (II)
 Which are the effective ways of financial insurance in the
absence of international risk sharing arrangements?
Should reserves be acquired with genuine resources, i.e.
fiscal surpluses that take into account an optimal pattern
of reserve accumulation?
 Do international reserves obtained by issuing monetary
liabilities (including sterilization bonds) really constitute
an effective insurance, available in times of sudden
stops? Is reserves-to-M2 ratio a relevant indicator in a
context of flexible exchange rates?
Latin America and the
US Subprime Crisis
Latin America’s Reaction to US Subprime Crisis
Bond Prices by Region
(US High Yield and Latin EMBI Bond Price Equivalent, 23-Jul-07 = 100)
104
102
100
Latin America
98
96
94
Variation*
92
US High Yield
Latin America
90
Bond Price
(in %)
Spread
(in bps)
-10.8%
0%
305
105
US High Yield
Feb-08
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
Jul-07
88
Aug-07
*23 Jul-19 Feb
Emerging Markets’ Reaction to
US Subprime Crisis
Bond Prices by Region
(US High Yield, Latin EMBI, Asia EMBI and Europe EMBI,
Bond Price Equivalent, 23-Jul-07 = 100)
Emerging Europe
104
Asia
102
100
Latin America
98
96
94
Variation*
92
US High Yield
Latin America
Asia
Emerging Europe
90
Bond Price
(in %)
Spread
(in bps)
-10.8%
0%
1.3%
2.8%
305
105
90
81
US High Yield
Feb-08
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
Jul-07
Aug-07
*23 Jul-19 Feb
88
Emerging Markets’ Reaction to
US Subprime Crisis
Bond Prices in Emerging Countries and Fundamentals
(US High Yield and EMBI Bond Price Equivalent, 23-Jul-07 = 100)
108
Credit
Ratings*
AAA
AA
AA-
Investment Grade
105
A+
A
Strong Fundamentals*
Investment
Grade
A-
102
BBB+
BBB
Weak Fundamentals*
Speculative Grade
99
BBVariation**
Variation**
93
US High
High Yield
Yield
US
Weak Fundamentals
Speculative
Grade
Strong Fundamentals
Investment
Grade
Bond Price
Price
Bond
(in %)
%)
(in
Spread
Spread
(in bps)
bps)
(in
-10.8%
-1.3%
-0.3%
-0.2%
3.2%
298
140
127
B+
B
B-
US High Yield
CCC+
108
76
CCC
**23 Jul-19
Jul-19 Feb
Feb
**23
CCC-
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
Aug-07
87
Jul-07
BB+
BB
96
90
BBB-
CC
SD
* A country with strong fundamentals is defined as a country that displays both a current account and a fiscal surplus and a country with weak
fundamentals is a country that displays both a current account and a fiscal deficit.
* Standard & Poor’s Credit Ratings prior to US subprime crisis.
Speculative
Grade
Emerging Markets’ Reaction to
US Subprime Crisis and the Fed
105
5.5
Investment Grade
103
Fed Funds Rate
99
Speculative Grade
4.5
97
4
95
US High Yield
3.5
93
91
3
89
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
2.5
Aug-07
87
FED Funds target rate, in %
5
101
Jul-07
US High Yield and EMBI Bond Price Equivalent (23-Jul-07 = 100)
Bond Prices in Emerging Countries and the Fed Funds Rate
QUESTIONS FOR DISCUSSION:
THE US SUBPRIME CRISIS AND LATIN AMERICA
 What is your interpretation of the apparently limited
reaction of Latin America to the US Subprime Crisis?
 Could the US Subprime Crisis create an ‘Indian
Summer’ in the region? If so, what should be the
policy response? Should monetary and fiscal policy
be tightened?
 Should we expect a Volcker-jump in interest rates once
the financial crisis in the US subsides? If so, what
should our countries be doing to protect themselves
from that eventuality?
All That Glitters May Not Be Gold:
Debating Key Issues
May 8th, 2008
Prepared for Presentation at the XXVII Meeting of the Latin American Network of
Central Banks and Finance Ministries, IADB, Washington DC. This Presentation is
based on the IADB Research Department report “All That Glitters May Not Be Gold:
Assessing Latin America’s Recent Macroeconomic Performance”, coordinated by
Alejandro Izquierdo and Ernesto Talvi