Transcript risk - Felaban

World Economic Imbalances and
their Impact in Latin America
LILIANA ROJAS-SUÁREZ
Center for Global Development
Mexico, June 2005
Summary
• In contrast with 2004, 2005 is a year of very varied economic
growth among industrial nations. While economic recovery is
expected to continue in the US, and Latin America is expected to
benefit in general from this recovery, European and Japanese
growth appears weak.
• The extremely high prices of non-agricultural commodities benefit
the fiscal accounts and balance of payments of many nations in
the region.
• Latin America has also benefited from very low international
interest rates.
• But 2005 results are very fragile, and the Latin American region
faces significant risks stemming from the need to correct
macroeconomic imbalances in industrialized nations and China,
aside from the vulnerabilities specific to each country in the region.
• More macroeconomic imbalances are created in international markets.
This due to the following:
– The need for monetary policy “adjustments” in industrial nations to prevent
inflationary episodes and/or disorderly exchange rate movements.
– Fiscal imbalances in many industrialized nations, especially the United States
and Japan, which are unsustainable for the medium term.
– The enormous US current accounts deficit, correction of which requires
exchange rate adjustments.
– An “overheated” Chinese economy.
– Conflicts with the Arab world and possible terrorist attacks.
• Given the need for global level adjustments, the greatest risk faced by
Latin America is that 2004 – 2005 growth results are regarded as
“permanent” and the relatively favorable international context for
necessary reforms is overlooked.
The Unusual Global Economic Growth of
2004 will not be repeated in 2005-2006
Real GDP Growth for the World and for Latin America: 2004 - 2006
(percentages)
10
9
8
7
6
2004
2005F
2006F
5
4
3
2
1
0
World
United
States
Japan
Euro Area
Latin America
Emerging
Asia
China
Sources: IMF, Market Estimates
The need for global macroeconomic adjustments will reduce growth in
2005 and 2006.
The Unusual Global Economic Growth of
2004 will not be repeated in 2005-2006
Real GDP Growth for Latin American Nations: 2004 - 2006
20
18
16
14
12
2004
10
2005F
8
2006F
6
4
2
0
Argentina
Brazil
Chile
Colombia
Mexico
Venezuela
Peru
Ecuador
Source: Market Estimates
Latin America also reflects the global outlook. Although 2005 still looks
favorable, estimates point to slower growth in 2005-2006, especially in
Argentina and Ecuador.
The Unusual Global Economic Growth of
2004 will not be repeated in 2005-2006
Real GDP Growth in Central American Countries: 2004 - 2005
7
6
5
4
2004
2005F
3
2
1
0
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
Dominican R.
Source:CEPAL
Most Central American nations reflect the world economic outlook.
What policy decisions made by the
industrialized world help explain the current
economic cycle?
I.
In contrast with 2004, this year the US Federal Reserve is less
worried about consolidating the economic recovery and more
about inflation. That is why rates will rise continuously.
US Fed Funds Rate
(percentages)
Euro Area Main Refinancing Rate
Japan Overnight Call
(percentages)
(percentages)
7
1
6
0.8
5
4
5
0.6
4
3
3
0.4
2
0.2
2
0
1
1
0
-1
-0.2
-2
-0.4
0
1999
2000
2001
2002
Nominal
2003
2004
May05
Real
Sourece: IMF, International Financial Statistics and Federal Reserve
1999
2000
2001
2002
Nominal
2003
2004
May05
Real
Source: IMF, International Financial Statistics and Central Bank of Japan
-1
2001
2002
2003
Nominal
2004
May-05
Real
Source: IMF, International Financial Statistics and Central Bank of Europe
Since Japanese growth rates are still very low, the nominal interest
rate will be zero in 2005. However, European rates are under
pressure to rise.
What policy decisions made by the
industrialized world help explain the current
economic cycle?
I.
Low interest rates allowed a significant rise in housing prices and this
induced a “wealth” effect that kept consumption stable in the United
States, in spite of the stock market drop of 2000-2002.
GDP and Components Growth
(percentages)
15
Estimate
10
5
0
-5
-10
1998
Fuente: Deutsche Bank
1999
2000
2001
Invstmnt
2002
Consump
2003
2004
2005
2006
GDP Growth
US authorities maintained this expansive monetary policy until
investment recovered. Once investment recovered in 2004, monetary
policy gradually reverted ---and will remain subject to adjustments
during 2005-2006, introduced to contain possible inflation episodes.
What policy decisions made by the
industrialized world help explain the current
economic cycle?
II.
An expansive monetary policy was supplemented by an expansive
fiscal policy in industrial nations.
Fiscal Statements
(% of GDP)
2003
2004
2005
USA
-2.9
-3.5
-3.2
Japan
-7.8
-7.7
-7.2
Europe
-2.7
-2.9
-2.7
Source: National Statistics, IMF and market estimates
But, in contrast with the estimated monetary adjustment (at least
in the US), no significant reduction is foreseen in the fiscal
deficits of industrialized nations. The fiscal adjustment will be
slower than the monetary adjustment.
What Asian policy decisions help explain the
current economic cycle?
III.
The export-centered growth strategy pursued by China
and other Asian emerging nations has increased the
global products supply. This main factor helps explain
the coexistence of expansive policies with low inflation
levels in the industrialized world.
To a large extent the Asian current account
surplus finances the high current account
deficit of the United States.
What Asian policy decisions help explain the
current economic cycle?
III. Higher than 8% growth in China will not fall in 2005. What may be
questioned is the sustainability of this growth (as will be seen ahead).
The role of China as a significant world economic player is
manifested in the extremely rapid growth of its trade.
Comparison between the Trade Indexes of China and the World
7000
6000
1977 = 100
5000
4000
3000
2000
1000
0
Chinese Trade in Goods
Source: Lardy, IIE (2004)
Total World Trade
The “productivity” effect is reflected in
global economic behavior
Global Growth of Productivity
World Average
Western & Northern Europe
Southern Europe
Eastern Europe / Central Asia
North America (NAFTA)
Latin America
Africa
Middle East
East Asia / Pacific
South Asia
-6
1990-95
1995-2003
-5
-4
-3
-2
-1
0
1
2
3
4
Sources: GGDC; The Conference Board
While Asia and North America stand out for their impressive
productivity growth during the last decade, productivity
growth in Europe and Latin America has slowed down.
THE INTERNATIONAL CONTEXT AND ITS
EFFECTS ON LATIN AMERICA
The dramatic rise in the price of non-agricultural commodities has benefited many
nations in the region, but has negatively affected net oil importers.
Goldman Sachs Commodity Index
(January 1998 = 100)
700
600
500
400
300
200
100
Source: Bloomberg
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
0
1988
•
THE INTERNATIONAL CONTEXT AND ITS
EFFECTS ON LATIN AMERICA
The Price of Coffee (in New York)
300
US cents per pound
250
200
150
100
50
Other Mild Arabicas
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
Brazil
Sources: IMF, International Financial Statistics & International Coffee Organization
But a series of agricultural “commodities” such as sugar and coffee
have also shown significant recovery.
THE INTERNATIONAL CONTEXT AND ITS
EFFECTS ON LATIN AMERICA
Improved commodity prices influence the non-oil mining products exported
by Latin America. For example the prices of gold and copper have risen
significantly, and market estimates indicate the price of gold will continue to
rise in 2005 and 2006. Although a moderate drop is predicted for copper
forward prices, not all analysts agree and some expect the excess global
demand that keeps prices high to be maintained.
Copper Prices: Spots and Futures
Gold Prices: Spots and Futures
Futuros
3500
600
Futures
3000
US Dólares/Tonelada Métrica
400
300
200
100
2000
1500
1000
Source: World Gold Council y NYMEX
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
Dec-92
Dec-91
500
Dec-90
0
2500
1990
US Dólares/Onza
500
Fuente: Bloomberg and NYMEX
The combination of low interest rates in industrialized nations, a weak dollar
and volatile stock markets has supported rising prices in precious metals in
recent years.
THE INTERNATIONAL CONTEXT AND ITS
EFFECTS ON LATIN AMERICA
Capital inflows in emerging nations will continue in 2005
and Latin America will benefit from this.
Net Private Inflows into Emerging
Markets, by Region
(in billions of dollars)
2002 2003 2004e 2005p
Total
124.9 210.6 279.0
275.8
Latin America
17.3
25.2
26.1
39.4
Europe
45.6
65.6
97.4
101.1
Africa/Middle East
1.5
3.5
9.2
9.8
Asia/Pacific
60.5 116.3 146.3
Source IIF, 2005
125.6
THE INTERNATIONAL CONTEXT AND ITS
EFFECTS ON LATIN AMERICA
-
-
-
The larger volume of capital inflows is due to a combination of
factors, including the following:
Still ample liquidity at the global level (although diminishing)
A weakening dollar creates incentives for capital outflows to other
countries, including emerging nations.
A greater interest in “funds dedicated to emerging nations” counters a
reduction in international bank loans.
Increased foreign direct investment motivated by the US economic
recovery and the favorable macroeconomic figures of many nations in
the region, including current account statements that still show a
surplus (although diminishing). Brazil and Mexico will receive the
largest portion of direct foreign investment in the region.
Improved foreign debt sustainability indicators, since various regional
nations took advantage of low interest rates to place “relatively
cheap” longer-term bonds in order to repurchase expensive debt.
THE INTERNATIONAL CONTEXT AND ITS
EFFECTS ON LATIN AMERICA
Latin American Share of Total Net Private Direct Foreign Investment
in Emerging and Developing Nations
(in billions of US dollars)
250
200
150
100
50
0
1996
1997
1998
Source: IMF, WEO (September 2004)
1999
2000
Latin America
2001
2002
2003
2004F
2005F
Others
One additional positive factor is that not only has Foreign Direct
Investment increased; the Latin American share of total Foreign
Direct Investment in developing nations has remained stable, and
seems to be more “resistant” to international interest rate variations
as well.
THE INTERNATIONAL CONTEXT AND ITS
EFFECTS ON LATIN AMERICA
Latin America EMBI 1994 - 2005
(December 1994 = 100)
800
Russian
Crisis
Mexican
Crisis
Brazilian
Crisis
Argentinean
Crisis
700
Asian
Crisis
Ecuadoran
Crisis
600
Argentina
Brazil
Ecuador
Latin America
Mexico
Peru
Venezuela
500
400
300
200
100
Apr-05
Dec-04
Apr-04
Aug-04
Dec-03
Apr-03
Aug-03
Aug-02
Dec-02
Apr-02
Aug-01
Dec-01
Apr-01
Dec-00
Apr-00
Aug-00
Dec-99
Apr-99
Aug-99
Dec-98
Apr-98
Aug-98
Aug-97
Dec-97
Apr-97
Aug-96
Dec-96
Apr-96
Dec-95
Apr-95
Aug-95
Dec-94
0
Fuente: JP Morgan
The improved international situation is reflected in a higher EMBI (bond
prices), with the exception of Argentina.
THE INTERNATIONAL CONTEXT AND ITS
EFFECTS ON LATIN AMERICA
EMBI+(2004-May 2005) Percentage Return
(percentage)
EMBI+(2003) Percentage Return
(percentage)
120
100
25
20
80
15
60
10
40
20
0
Fuente: JP Morgan
5
0
Fuente: JP Morgan
However, the projected reduction in global liquidity generated by
expectations surrounding US interest rate adjustments has led to
greater variability in the price of bonds, and considerably lower
returns for investors, for the period 2004-May 2005 compared with
2003.
THE RISKS
The greatest risk to global economic stability is that the governments
of key nations (the United States, Europe and China) fail to adopt the
necessary measures to correct major macroeconomic imbalances.
• Europeans and Asians believe the principal imbalance is the low
level of savings (especially fiscal savings) and excessive imports
from the US.
• The US government says the opposite, that is, the problem is
excessive Asian and European savings and very low levels of
imports by those nations.
• Europeans and Asians believe the most important solution is the
revaluation of the Chinese currency and thus more Chinese
imports and less exports. What is ironic about this proposal is that
a revaluation of the yuan would mean that China would reduce its
purchases of US Treasury Bonds!
All of them are right. No single measure (fiscal
and/or monetary/exchange) would in itself suffice.
THE RISKS
I.
THE TIMING AND MAGNITUDE OF INTEREST RATE HIKES IN THE
UNITED STATES
1. Expectations
International financial markets expect the Fed to rise interest rates to a “neutral”
position, that is, to a rate compatible with the return to “full employment growth” and a
stable inflation rate (of about 2%).
Market estimates suggest a “neutral rate” of about 4%, but also including “overshooting”
to curtail inflation episodes and/or excessive depreciation of the dollar.
Fed Funds Rate Market Estimate
(percentages)
6
5
4
3
2
1
0
2004T1 2004T2 2004T3 2004T4 2005T1 2005T2 2005T3 2005T4 2006T1 2006T2 2006T3
Source: Market estimates
This expected path has allowed investors to “adjust” their positions and prevented
distortions in international financial markets.
THE RISKS
I.
THE TIMING AND MAGNITUDE OF INTEREST RATE HIKES IN THE
UNITED STATES
2.
Uncertainty
•
Although the “long term” focus of US interest rates is known, there is
great short term uncertainty due to the following:
•
The Federal Reserve may accelerate interest hikes if :
–
–
–
Inflation rises rapidly beyond expectations
The depreciation of the dollar leads to financial instability
Very slowly rising interest rates produce a mortgage market “bubble” …
United States: House Price Index / CPI
140
130
120
110
100
90
04T2
03T3
02T4
02T1
01T2
00T3
99T4
99T1
98T2
97T3
96T4
96T1
95T2
94T3
93T4
93T1
80
Office of the Federal Housing Enterprise Oversight, IFS
…And already some significant signs point to an overheated mortgage market…
THE RISKS
2.
THE TIMING AND MAGNITUDE OF INTEREST RATE HIKES IN THE
UNITED STATES
Uncertainty
Besides, the Federal Reserve gives great significance to “unit
labor costs” as an inflation indicator, and these costs have been
rising significantly while productivity growth has slowed down.
Unit Labor Costs and Productivity in the US
6
5
4
cambio % anual
I.
3
2
1
0
-1
-2
-3
2002
2003
Productivity
2004
Unit Labor Costs
Source: Bureau of Labor Statistics, Deutsche Bank
2005
THE RISKS
I.
THE TIMING AND MAGNITUDE OF INTEREST RATE HIKES IN THE
UNITED STATES
• An excessive interest rate hike may revert
capital flows into the region.
• The greatest problem is the “rebirth” of the
debt sustainability problems of several Latin
American nations.
THE RISKS
II.
INTERNATIONAL LIQUIDITY IS ALSO AFFECTED BY THE
DOWNGRADING OF MAJOR INTERNATIONAL COMPANIES
• The General Motors and Ford downgrades led to
significant losses in financial institutions (including hedge
funds) that had collateral in the stocks and bonds of
those companies.
• This has raised risk aversion among investors and is
increasing the cost for companies of obtaining financing
through bonds.
THE RISKS
FISCAL DEFICITS IN THE INDUSTRIALIZED WORLD,
ESPECIALLY IN THE UNITED STATES, CAN PRODUCE
UNCERTAINTY IN INTERNATIONAL MARKETS.
Scenarios of the United States' Federal Budget 2004 - 2014
400
200
0
2000
US$ Billions
III.
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-200
-400
-600
-800
Scenario 1:
- Temporary tax cuts are extended.
- AMT is reformed (Alternative Minimum Tax)
-1000
Scenario 1
Congressional Budget Office Projection
Source: Baily, IIE (2004) and Congressional Budget Office (CBO), USA
•
Due to medium term fiscal pressures originated in social security and Medicare in
the US (stemming from the relative increase in the retirement age population),
short term fiscal correctives are required. Otherwise the fiscal position runs the
risk of becoming unsustainable, which would then require an excessively strong
and prolonged adjustment. The negative effects produced in Latin America by a
strong adjustment related to economic contraction in the US are obvious,
especially in the context of new free trade treaties.
THE RISKS
III.
FISCAL DEFICITS IN THE INDUSTRIAL WORLD, ESPECIALLY IN
THE UNITED STATES, CAN PRODUCE UNCERTAINTY IN
INTERNATIONAL MARKETS.
• Given the new Bush administration’s intent of
making the 2001 tax breaks “permanent,” there
is greater risk that the fiscal deficit may
increase in the coming years.
• If a higher fiscal deficit materializes, additional
pressure may be generated for a strong
interest rate hike, with the resulting negative
effects on Latin America.
THE RISKS
IV.
THE ENORMOUS US CURRENT ACCOUNT DEFICIT REQUIERES
GREATER DEPRECIATION OF THE DOLLAR WITH RESPECT TO
THE EURO AND ASIAN CURRENCIES
The Parallel Deficits: Fiscal Deficit and Current Account
Deficit in the United States
(as % of GDP)
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
1996
1997
1998
1999
Fiscal Balance
2000
2001
2002
2003
2004
Current Account Balance
Source: Congressional Budget Office and Bureau of Economic Analysis
•
Correcting this imbalance is believed to require close to a 20%
depreciation in the effective real exchange rate of the US.
THE RISKS
IV.
THE ENORMOUS US CURRENT ACCOUNT DEFICIT REQUIERES
GREATER DEPRECIATION OF THE DOLLAR WITH RESPECT TO
THE EURO AND ASIAN CURRENCIES
… and forward markets reflect the long term trend, especially regarding the
yen.
JPY per USD: Spot and Forward
140
USD per EUR: Spot and Forward
1.5
Forward
Forward
1.4
130
1.3
120
1.2
110
1.1
100
1
90
Fuente: JP Morgan
Fuente: JP Morgan
In spite of the recent slight appreciation of the dollar, long term
equilibrium is expected to require a more depreciated dollar.
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
Jan-01
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
0.6
Jan-03
60
Jul-02
0.7
Jan-02
70
Jul-01
0.8
Jan-01
80
Jul-01
0.9
THE RISKS
IV.
WHAT ARE THE RISKS FACED BY LATIN AMERICA DUE TO THE
US BALANCE OF PAYMENTS IMBALANCE?
• The first one is that a strong depreciation of the dollar would
raise production costs for US companies (due to more
expensive imports) and lead to a generalized reduction in
imported inputs. An attenuating factor, however, is the possibility
of substituting US imports from markets with “appreciated”
currencies by markets whose export products are denominated
in dollars.
• The second one is that a severe depreciation of the US dollar
would raise the US inflation rate, leading the Fed to sharply
raise interest rates.
• The third one is that a severe depreciation of the US dollar
would reduce the real value of the international reserves kept in
Latin American nations. This is why certain sales of dollars by
the central banks of both emerging and industrial nations (such
as Norway, for example) have been recently observed.
THE RISKS
V.
THE POSSIBLE OVERHEATING OF THE CHINESE ECONOMY INVOLVES
SYSTEMIC RISKS DUE TO CHINA’S GROWING IMPORTANCE IN
INTERNATIONAL COMMERCIAL AND FINANCIAL MARKETS.
China is the world’s largest consumer of copper, zinc, iron and steel, and the world’s second
oil importer (after Japan). It is therefore relevant in determining the prices of commodities.
China: Inversión como participación del PIB, 1999 - 2004
55
50
45
40
35
30
1999
T
2000
2001
2002
2003
2004
Fuente: National Bureau of Statistics of China
The tremendous expansion of investment in China, financed with sharp growth in domestic
credit (achieved especially through government banks) is not sustainable. Although some
analysts argue that the Chinese economy will gradually cool down, crisis risks are still
present because current policies implemented by authorities to curtail excessive growth in
money and credit are still very limited. China already had this experience in the early 1990s,
but then it lacked the international importance it now has.
THE RISKS
THE POSSIBLE OVERHEATING OF THE CHINESE ECONOMY INVOLVES
SYSTEMIC RISKS DUE TO CHINA’S GROWING IMPORTANCE IN
INTERNATIONAL COMMERCIAL AND FINANCIAL MARKETS.
China: Residential Property Sales Price Index
(annual change in percentages)
19
650
18
600
17
550
12
10
500
Jun-04
Reservas Internacionales
Fuente: IMF, International Financial Statistics (Marzo 2004) y Banco Central de China
Mar-04
2004
Dec-03
Préstamos en RMB
2003
Sep-03
2002
Jun-03
2001
0
Mar-03
150
Dec-02
10
2
Sep-02
200
Jun-02
11
Mar-02
250
Dec-01
12
4
Sep-01
300
Jun-01
13
6
Mar-01
350
Sep-00
400
14
8
Jun-00
450
15
Mar-00
16
Billones USD
Trilliones RMB
China: Credit and International Reserves
Dec-00
V.
Fuente: CEIC, datos oficiales
•
Although international reserves have increased significantly, domestic credit has been
growing at excessively high rates, increasing potential financial fragility.
•
The good news is that the probability of a financial crisis in China is still modest –but it will
continue to increase of efforts are not made to “cool” the economy.
•
Another fragility indicator is the accelerated growth seen in mortgage market prices.
THE RISKS
V.
THE POSSIBLE OVERHEATING OF THE CHINESE ECONOMY INVOLVES
SYSTEMIC RISKS DUE TO CHINA’S GROWING IMPORTANCE IN
INTERNATIONAL COMMERCIAL AND FINANCIAL MARKETS.
The risks originate in the possible effects in international markets of a “hard
landing” of the Chinese economy.
•
Pressure for a drop in the price of export commodities from many Latin American
nations, not only due to reduced direct demand from China, but also to the indirect
effect produced on aggregate demand from the rest of Asia.
•
Global recessive pressures stemming from the fact that China accounts for more than
20% of the growth in global trade in recent years.
•
Pressures that reduce demand for US Treasury Bonds, which further exposes the
balance of payments imbalances of the US.
•
Increased volatility in international financial markets. Experience demonstrates that
this volatility tends to increase risk aversion and reduce the financing available to
emerging nations.
•
Given the large accumulation of international reserves, no devaluation of the yuan is
foreseen, nor any short term improvement in Chinese international competitiveness
that could harm Latin American nations that compete with Chinese exports.
THE RISKS
V.
AN ADDITIONAL RISK ORIGINATED IN CHINA
The expiration of the textile trade quotas that took place towards the end
of 2004 (for WTO member nations) may produce additional pressure in
favor of textile price reductions (and these products are also exported by
some Latin American nations).
Nevertheless international analysts don’t think this represents a major
risk, because US importers prefer not to concentrate their trade on
China, especially after the temporary imposition of import quotas on
Chinese products headed for the US and given that Europe is also
considering restrictions on Chinese imports.
THE RISKS
CONTINUED HIGH OIL PRICES POSE A MAJOR GLOBAL RISK
This is due to already mentioned factors (economic recovery in the United States,
overheating in China), the high frequency of weather shocks that raise demand for
energy products, and supply factors, including those derived from the Irak conflict.
Oil Prices (West Texas Intermediate): Spot and Futures
60
Futures
50
US Dllars per barrel
40
30
20
Feb-07
Aug-06
Feb-06
Aug-05
Feb-05
Aug-04
Feb-04
Aug-03
Feb-03
Aug-02
Feb-02
Aug-01
Feb-01
Aug-00
Feb-00
0
Aug-99
10
Feb-99
VI.
Source: Bloomberg and NYMEX
Although estimates point downward, prices in the futures market are extremely
high. This is because the price of oil has experienced a “permanent” increase
due to a substantial increase in global demand.
THE RISKS
BESIDES, THE PROBLEM WITH ESTIMATES IS THAT ANALYSTS
SYSTEMATICALLY SUBESTIMATE THE OBSERVED PRICE OF OIL.
Price of Brent Oil: Estimates and Observed Price
45
40
US Dollars per barrel
VI.
35
30
25
20
15
10
1999
2000
2001
2002
Estimated price at start of year
Source: Deutsche Bank, Reuters, Bloomberg
And this happened again in 2005.
2003
2004
Observed price
2005
THE RISKS
VI.
THE RISKS THAT HIGH OIL PRICES RAISE FOR LATIN AMERICA:
•
One risk basically consists of pressure exerted to “accommodate” oil
price increases by relaxing monetary policy. Fortunately this risk has not
materialized because most Latin American nations have implemented a
restrictive monetary policy.
•
Another important risk is the fact that recent estimates calculate that
each sustained increase of US $10 per barrel in the price of oil reduces
global growth by about ½ percent per year.
THE RISKS
VII.
A “LATIN AMERICAN EXPORT” RISK: DISSATISFACTION WITH THE
RESULTS OF DEMOCRACY AND THE MARKET ECONOMY.
Percentage of respondents who are
“barely satisfied" or "not satisfied"
with democracy and its results.
Source: Latinobarómetro
•
Recent surveys point to a high level of dissatisfaction with democracy and the results
of reform in the population. The percentage of dissatisfied respondents is higher than
50% in all nations.
•
This poses a serious risk to the continuation of the reform processes that the region
requires, and must be addressed to prevent reform reversals.
A RISK SUMMARY
• The greatest risk for Latin America is a reduction
in global liquidity, given that the Federal Reserve
will continue to raise interest rates in order to
correct, at least in part, global macroeconomic
imbalances.
A SUMMARY OF OPPORTUNITIES
• Since the resolution of macroeconomic imbalances in leading
nations in 2006 will imply a reduction in global growth, higher
international interest rates and reduced capital flows into the region,
2005 looks like a “window of opportunities” for Latin America.
• This is the best time to consolidate fiscal accounts, avoid debt
problems and accelerate institutional reforms.
• Delaying these efforts may be very costly for the region. However,
given the level of discontent among the population with the results of
reforms already implemented, the inclusion of different social
segments and the search for a consensus are essential.