The Shifting Wealth of Nations, a Latin American Perspective

The Shifting Wealth of Nations

A Latin American Perspective

Centre d’Analyse Stratégique – Premier

Ministre

23 September – Paris, France

Javier Santiso

Director and Chief Economist

OECD Development Centre

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Decoupling or Rebalancing?Decoupling or Rebalancing?11

The Macroeconomic Anchoring in Latin The Macroeconomic Anchoring in Latin AmericaAmerica

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A Key Partnership: Latin America and AsiaA Key Partnership: Latin America and Asia33

Overview

44 Looking at the FutureLooking at the Future

A fundamental shift

• Emerging economies are refinding their position in the global economy - a rebalancing of the wealth of nations.

• We can no longer talk of “decoupling”, since the Centre is no longer the Centre, and the Periphery no longer Periphery.

• What impacts does this rebalancing have on current economic events?

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The perspective is shifting

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Joaquín Torres García - América Invertida, 1943

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Emerging countries’ increased presence in the world economy

Source: OECD Development Centre, 2008; based on Maddison (2003 and 2007).

• China’s economy is estimated to overtake the US by 2015 even when you account for a slow-down in growth as the technological frontier is reached (Maddison 2007/ OECD Development Centre)

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A Global Rebalancing effect…

Source: OECD Development Centre, 2008; based on Maddison 2007 .

11Source: OECD Development Centre, based on IMF

…with emerging countries increasingly driving growth

• The composition of growth and output is changing. High contribution of Emerging countries is driving world growth.

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Source: OECD Development Centre 2007, based on Thomson Datastream (Economist Intelligence Unit).

Note: Emerging countries refer to Latin American and Asian only.

Emerging economies have become major actors in

mobilising capital

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Trade patterns have evolved substantially after BRICs entry

Source: OECD Development Centre, based on World Development Indicators, 2008.

Shift in World Merchandise Trade

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Emerging Market Multinationals are growing in

presence

Source: OECD Development Centre, based on Fortune 500, 2007

Source: OECD Development Centre, based on UNCTAD, World Investment Report, 2007

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Traditional partners are becoming less important

Source: OECD Development Centre, based on WITS/Comtrade

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Emerging economies have accumulated foreign

reserves…

Source: OECD Development Centre, based on Economist Intelligence Unit

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…with the successive creation of Sovereign Wealth Funds

• Increasingly important in the financial world, Sovereign Wealth Funds are predominantly an emerging world phenomenon.

Source: OECD Development Centre, based on Deutsche Bank

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A predominantly emerging-world phenomenon

Sovereign Wealth Funds (SWFs) by origin , 2008

NumberTotal assets (USD bn)

Middle East 7 1533

Asia 9 867

OECD 10 489

Russia & Central Asia 4 177

Africa 7 109

Latin America 4 23

Pacific islands 6 1.2

Total 47 3,194

Source: OECD Development Centre, based on Deutsche Bank

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22


Overview


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Latin America has managed to anchor its macroeconomic

stance

Source: OECD Development Centre, based on Thompson DataStream and EUI, 2008.

Primary Fiscal Balance (% GDP)

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GDP growth comes in hand with credible economic policies

Source: OECD Development Centre, based on ECLAC database 2008

Inflation (% change)

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External position in the region has been reinforced

Source: OECD Development Centre, based on Thompson DataStream and EUI, 2008.

Current Account Balance (% GDP)

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Public debt has come down…• Favourable external conditions have been exploited to

accomplish remarkably good public debt management.• Buybacks of external debt, international bonds in local

currency…

Source: OECD Development Centre, based on JP Morgan

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… coupled with a reduction of the debt service

• Excellent debt management has improved public solvency and challenged the “original sin”.

Sovereign Debt Service, % of GDP Sovereign Debt Service, % of GDP

Source: OECD Development Centre, based on JP Morgan

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22


Overview


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A third pillar of growth: Asia

• Trade with China and India is increasing all over the emerging world.

• For the first time, Latin American are faced with three centres of growth: The US, Europe and China.

Source: OECD Development Centre, Latin American Economic Outlook 2008

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China - an increasingly important destination for EM

exports

Source: OECD Development Centre, 2008 based on WITS Comtrade

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China and Commodity Prices• Chinese and Indian demand for commodities as well as commodity

prices are on the increase.

• This is good news in the short term, both for Latin American and African exporters. It could be bad news in the long run.

Source: OECD Development Centre, Latin American Economic Outlook 2008

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Increasing commodity prices is benefiting a number of emerging country exports, though there is also a downside in terms of increasing food prices.

China and Commodity Prices

Source: OECD Development Centre, based on World Bank, 2008

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Higher diversity in export destinations, but higher concentration in products exported.

Latin America

Source: OECD Development Centre, Latin American Economic Outlook, 2008

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22


Overview


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Effect of Recessions

Source: OECD Development Centre, based on IMF 2008

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Effect of Recessions

Source: OECD Development Centre, based on IMF 2008

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Emerging Countries and US GDP

• …Emerging Countries have been performing better so far

Source: OECD Development Centre, based on IMF.

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Latin America and US GDP• There is however great difference in the US growth correlation between different Latin American

countries.• Also, Latin America appears to be less dependent on US growth as interaction with the Asian giants

increases.

Source: OECD Development Centre, based on IMF. Source: OECD Development Centre, based on Credit Suisse

36Source: OECD Development Centre, based on Latin American Consensus Forecasts, 2008. Note: The OECD is not an official provider for macroeconomic forecasts in Latin America. Data presented is based on monthly surveys in financial institutions.

The economic consensus in the region is (still) positive

R eal G DP Co nsu mer Pr ic es C urrent A cc oun t]% inc rea se % inc rea se Ba la nce USD bn

A rg entin a 6.2 10.4 4.7B oliv ia 4.5 9.1 1.3B raz il 4.7 4.1 -3 .6C hile 4.9 3.6 4.3C olom bia 5.4 4.4 -6 .8C osta R ic a 5.1 7.7 -1 .4D om inic an R epub lic 4.7 5.7 -1 .4E c ua dor 2.2 3.2 0.5M exico 3.2 3.8 -12.8P an am a 7.5 3.9 -1 .8P arag ua y 4.1 7.2 -0 .4P eru 6.8 2.3 1.1U rug ua y 4.7 6.2 -0 .4V en ez uela 6.0 20.9 14.4

L a tin Am eric a 4.5 5.6 -2 .0

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Thank you!

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The Shifting Wealth of Nations, a Latin American Perspective