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Issues to be addressed
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
2. Latin America between two policy paths3. The policy challenges in the region4. Lessons from the Colombian Experience
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
1. Emerging economies have become engines of economic growth.
2. During the last three decades developing countries have experienced a profound transformation driven by two components: On the one hand a rapid demographic transition. Since 1980
the World population has increased by 2.5 billion people and 95 percent of that growth has taken place in the developing World.
The other element has been a dynamic period of sustainable economic growth. In 1980 developing economies represented 33 percent of the World GDP and today that number is closed to 46 percent.
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
1. By 2050 19 of the top 30 economies by GDP will be countries that we currently describe as ‘emerging’
2. China and India will be the largest and third-largest economies in the world.
3. Eight countries – India, China, Brazil, Russia, Indonesia, Korea, Mexico and Turkey – will be responsible for most of global growth up to 2025
4. Emerging economies will account for 68% of global growth by 2030.
5. In 1980, 5% of goods were sourced globally. By 2000, this was 20%. By 2025, it will be 50%.
6. In 1980, world exports accounted for one-sixth of global GDP. Today it is a quarter. By 2030, it will have risen to a third.
7. By 2030 the urban middle class will rise to 42% of the global population. The number of people with daily income of $10 to $100 a day will rise from 1.8 billion today to 4.9 billion by 2030.
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
According to FAO: Demand for food could increase 50% by 2030
Demand for water has been projected to rise by 30% between 2000 and 2030
The International Energy Agency has said energy needs will grow by 40% by 2030. According to BP China represents 20.3% of the World Energy
Consumption (The world largest energy consumer in 2010 for the first time over the U.S)
Natural Gas consumption has experience its strongest consumption rate since 1984 (7.4%)
Coal share in world energy consumption has reached its highest level since 1970 (29.6%). China represents 49% of the world coal consumption.
In 2010 Global Biofuel consumption grew by 13.4%
How does Latin America fit in this panorama? Between 1980 and today some changes have occured…
1. The inflation tragedy is over: in 1985 regional inflation average was 159%, today is below 6%. This means that fiscal and monetary prudence have become policy principlkes.
2. Debt is no longer a threat: Debt to GDP ratios in the region have passed from 40% in 2002 to 20.4% in 2009
3. Between 2003 and 2007 the region experienced a growth average of 5%...the highest since 1967-1974
4. Democracy has expanded in the region with few exceptions…
5. Regional exports have increased 160% betwee 2002 and 2010
6. In 2008 the region faced a record number in FDI reaching almost 100 US$billion
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
Population
Close to 600 million people
Average age between 24 and
28
Per Capita Income in PPP
close to US$10.000
Poverty reduction
64% of our population is a expanding middle class.
During the last decade 40 million people have left
the poverty lineLife expectancy has
increased from 65 to 75 years.
Child mortality has been reduced by 50 per cent.
Literacy rates are above 94%.
Mobile phone penetration has increased by 78 per
cent.Internet access has increased by 33%
Healthcare coverage has increased by 50 percent.
water and sanitation coverage has reached
80%.
Commodities in time of Demand10 percent of the
World oil reserves.
6 percent of the World Gas reserves Almost 50 percent
of the World cooper reserves. 50 per cent of the
World silver reserves.
13% of the World iron reserves
26% of the World fertile land.
24% of the World beef supply.
Bio Reserves
20 per cent of the World
Biodiversity is concentrated in
the Amazon ring.
Almost 50% of the World
potable water supply.
57% of the world primary
forest
Policy Changes match four range of opportunities
The change process and the potential for the years ahead has happen by accident and it is a consequence of the consistency, congruence and sense of urgency that a group of countries have adopted as their policy cornerstone. Brazil, Mexico, Colombia, Chile, Peru and Uruguay represent 70 per cent of the region’s population and 75% of the regional GDP.
This group of countries have common characteristics that explain their outstanding performance:
1. The strengthening of Liberal Democracy
2. The adoption of an institutional Framework in favor of foreign and national investment.
3. The construction of a sound and sustainable social safety net.
4. The expansion of export markets and the commercial integration with the World (FTA’s)
5. A public administration driven by results.
6. A sound Macroeconomic Administration driven by fiscal and monetary prudence.
7. Better regulatory environment
8. Construction of strategic infrastructure.
9. The consolidation of an innovation agenda leaded by an improvement in education.
10. A well capitalized financial sector and the constant expansion of financial services.
Today countries like Panama, Dominican Republic, Costa Rica, Salvador, Guatemala, Honduras, Belize, Paraguay, as well as most of the Caribbean States, are following that line of behavior
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
Policies have been the root of Latin American Changes
Building Modern
Democracies (5
parameters)Security
Freedoms and Private Initiative
Independent Institutions
Social Cohesion
People Participation
A dynamic Economic
transformation
Investment Target Policies
Maintaining Fiscal and Monetary transformation
Integrate commodity and
knowledge based economies.
Expand export markets
Create an Entrepreneurship culture (Innovation
agenda)
Closing Social Gaps
Improve education (quality, coverage,
vocational)
Insure Universal Healthcare
Formal Job creation
Access to Finance
Climate Change,
Environment and
Energy Sustainabilit
yExpand renewable sources
Install an energy efficiency
conscience
Improve waste management
Protect the Amazon Ring
Reduce Co2 Emissions
1. The current context of Emerging Markets and the evolution of Latin America 1980-2012
Despite the changes that have been achieved some important challenges remain…
2. Latin America between two policy paths
The regional current Political Map is a “Tale of two cities” like the Charles Dickens Book… (The ALBA and the non Alba Model)
ALBA (Leaders: Venezuela, Ecuador,
Bolivia, Nicaragua and Cuba)
Anti-U.S
Anti-Free Trade
Lack of investment Confidence
Weak institutions
Political Insecurity
Ideology driven countries
Political Polarization
Modern Democratic Center Countries (Brazil, Colombia,
Peru, Chile, México, Uruguay, Paraguay, Panamá, Republic Dominican, Costa Rica, etc)
Cooperation with the U.S
Pro Free Trade
Investment Confidence
Independent Institutions
Political Stability
State Long Term Policies and Mgt by
Results
Organized Party Systems
The Democratic Center takes the lead: • Investment grade countries are in this Group: Mexico, Brazil, Chile, Colombia, Peru and Panama.• Countries with more market access through FTA’S are in this group• Countries with more FDI are in this group• Countries with more Middle Class Expansion are in this group.• Better fiscally sustainable social programs: Chile, Mexico, Brasil and Colombia.Only the group of Countries in the Democratic Center will become the regional active participants of the Emerging Markets Boom…some of the ALBA Members will see some benefits, but without solid long term development agendas, they will face transitory profits…
Venezuela
Inflation
Reduction in oil production
Brain drain
Social conflict
Insecurity
Private initiative in Jeopardy
Bolivia
Loss of citizen support
Quality of live deterioration
Lack of private initiative.
Loss in private investment
Ecuador
Press Liberties in danger
Lack of long term private
investment.
Political stability at the expense of higher tensions.
Oil driven political power
Nicaragua
Institutional deterioration
(Reelection without constitutional
authority)
Corruption
Private initiative: Uncertainty
Shameful Chavistas
2. Latin America between two policy paths
Bad policies are deteriorating the political and economic context in the ALBA Countries….
PeruHumala Challenges
Maintain Investment Confidence(The mining
royalty debate)
Improve social expenditure
targeting
Improve Labor markets• Combat informality
• Improve productivity
Continue with International insertion• Implement the
FTA with USA• Pacific Agenda
with Colombia, Chile and Mexico.
Challenges
Fiscal and Monetary Credibility
Institutional
quality
Capacity to
generate confidenc
e
Solve Public-Private
Conflicts
Trigger FDI
Argentina
Security
Human Insecurity
Legal Insecurity
Political insecurity
Individual Liberties
Property rights at risk
Limit freedom of expression
Limit freedom of
press
Independent
institutions
Courts controlled
by the Executive Branch.
Independent institutions
are controlled
by the Executive
father
One Party controls the Parliament
Citizen participati
on
Limited
Controlled
Instruments vital for political
pressure.
Social Cohesion
Class polarization
Fiscal policy is
unsustainable
Venezuela
Challenges
Regional integratio
n
Urban security
Drug consumpt
ion
Cost of money
Infrastructure
Weak Doing
Business Indicators
Foreign Policy
Brazil
Reform the Police Structure
Citizen participation in the fight
against organized
crime
Strengthen intelligence
Border affairs• Drug
Consumption• Assault Weapons
The security
challenge
Mexico
ChileTwo situations
Characteristics
Economic Stability
Political Stability
Investor Confidence
Innovation and
entrepreneurship agenda.
Quality of live and
opportunities
Youth distrust in Political
Parties and in Government.
Aggressive protests
Dependant on the China
effect
EcuadorThe political condition
Economic
4.5% Fiscal deficit
Oil price has been the driving force.
Investors distrust
4.5% inflation
PoliticalThe President has
concentrated more powers
Conflict with congress and with independent media will
deteriorate as the Government pushes more
interventionist reforms
There is not a clear opposition figure
Urban security has been deteriorating
Bolivia: new problems arise
EconomicPopulism platform loosing
popular support
Fiscal superavit driven by more tax collections
Economic Growth above 4.6% driven by Gas price
Inflation close to 9%
Investors distrust with the exception of foreign
governments corporations
Political2/3 of Congress
controlled by the President Coalition
Hunting of all opposition leaders
Confrontation with Santa Cruz Governor
Ruben Costas.
Next week 56 Supreme Court Judges will be
elected
International
Under the influence of Chavez
Improvement in the dialogue with the U.S
International Market Distrust
Country Homicides per 100K
Hab
Violence cost as % of GDP (Live years
lost due to handicapped
circumstances)
Private sector losses due to
insecurity (% sales)
Violence costs as % of
GDP
Number of gang
members
Number of gangs
Honduras 43 1,31% 4.5% 9.6% 36.000 112
Guatemala
45 1.43% 3.9% 7.7% 14.000 434
El Salvador
58 1.99% 4.5% 10% 10.500 4
Nicaragua
14 0.96% 3.1% 10% 4.500 268
Costa Rica
8 0.58% 3.6% 2.660 6
Panamá 11 0.63% 2.5% 1.385 94
Central America: The security Drama
Violence and organized crime
Not the same stories
A region of different development stories
The 7 giants (Brazil, Mexico, Argentina, Chile, Colombia,
Peru and Uruguay)a) 70 of the Region population.b) 85% of the Region GDPc) Poverty reductiond) High levels of investmente) Commercial integrationf) Institutional stability
Central Americaa) 3% of the Region GDP (US$163 Billion)b) 7% of the Region population (43 million)c) Income inequalityd) Moderate investment levelse) Low tax collectionsf) Fragile energy matrix
Caribbeana) 4% of the Region Populationb) 2% of the Region GDPc) Tourism dependenced) Natural disaster riskse) Low industrial basef) Need for long term access to markets
Security
28.837 homicides
2882 kidnappings
69 homicides per 100.000 habitants
1645 terrorist attacks
350 mayors out of their municipalities
158 municipalities without police
Economy
Average Economic Growth 1994-2001: 2.1%
GDP per Capita: US$2377
Investment as % of GDP: 16.5%
Exports: US$11.975 million
FDI: US$2.100 million
Inflation: 6.99%
Fiscal balance: -3.2%
SocialUnemployment: 16.2%
Health Coverage: 25 million Colombians.
Pension affiliates: 4.5 million
Poverty: 57%
Education Coverage: Primary 97%, High school:
57%, University: 24%.
Mobil Phone Lines: 4.6 million
Internet coverage: 1.9 million
Ten years ago Colombia was a fragile state…The Colombian Paradox: a long and stable democracy in a permanent threat from terrorist groups, drug dealers and
organized crime…
Colombia faced a Confidence DeficitThe elusive quest for
peaceMany governments exhausted all their
political capital attempting to reach
peace through political dialogue…the result
was military strengthening from illegal armed groups and a rapid growth in
their criminal activities (68% thought the
country was going in a negative track)
Terrorist Groups (Guerrillas and
Paramilitaries) had created a sense of
defeat in the Colombian people.
Fear impacted in the Colombian people
Mindset
The lack of investment
The drain of human capital
The sense of danger in Colombian roads.
The expansion of massive kidnappings created an emotional
domino effect
Building Confidence became our priority
We introduced a comprehensive policy framework…
Social Cohesi
on
Investment with fraternit
y
Democratic Security
Confidence
Security as a Democratic Value
Security for all
Confront all
criminal organizati
ons
Security without martial
law
Security with
freedoms and
human rights
protection
Security in coordinati
on with the people
Investment Target
Security:HumanLegal
Political
Sound Macroeconomic
s
Incentives
Access to
markets
Competitiveness factors:• Infrastructure
• Regulation• Connectivity• Logistical chain
Social Cohesion
Highest quality in education
Universal healthcare
Access to Finance
Stable Jobs and
entrepreneurial spirit
Connectivity
Our policy achievements generated a turning point
Indicator 2002 2010
Homicides 28838 7400
Kidnappings 2882 123
Homicides per 100K Habitants
69 16.3
Terrorist attacks
1645 250
Municipalities without mayors
presence
350 0
Municipalities without
police
158 0
Indicator 2002 2010
Average Economic Growth
2.1% 4.3%
GDP per Capita
2377 5300
Invest % GDP
16.5% 24.6%
Exports US$11.000
US$ 39.000
FDI US$2.100
US$ 7.000
Inflation 6.9% 2.5%
Indicator 2002 2010
Unemployment
16.2% 11.6%
Health Coverage
25.1 million
43.1 million
Pension affiliates
4.5 million 7.1 million
Poverty 57% 38%
Education coverage (Primary, Hs, University)
97%57%24%
100%79.4%35.5%
Mobile phone users
4.6 million lines
41 million lines
• Reached the highest economic growth in more than 20 years.
• The largest education, health and connectivity coverage in its history.
• The largest poverty reduction in Colombian history
• The biggest FDI rates in history• The lowest violence records in 30
years
• Expanded the middle class• Highest exports in
Colombian History.• Paramilitary groups
dismantled• FARC structure severely
dismantled• Per Capita income more
than doubled
Colombia’s current challenges
Security
Maintain Macro-Vision and Micro-
Management
Continue dismantling all
terrorist organizations
Continue dismantling drug cartels apparatus.
Strengthen Citizen Security agendas
with local authorities
Economic
Face new trends of currency
appreciationMaintain and
increase FDI flows (Security,
incentives and stability rules)Fiscal Policy to
face new countercyclical
challenges
Increase tax collections
Expand new trade markets through
FTA’s
Social Cohesi
onFight labor
informality and create quality jobs
Insure education and health quality
Expand vocational training coverage
Create Entrepreneurial Family Transfers
program
Political
Judicial reform.
Strengthen Democratic Center
Improve local institutional
capacity
New law implementation
(Victims and land)
Prevent the emergence of
populist movements