Logrando una sociedad más próspera e inclusiva

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Caracas, Venezuela

July 12, 2012


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LATIN AMERICAN STRENGTHS

What is different about this study?

Long-term perspective 30 years

Uses a model of global economy

Draws lessons from Asian experience

Does not offer projections but scenarios

Focuses on range of multi-generational

issues and links across them


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Structure of Presentation

Long-term Trends: Contrast with Asia (Kohli)

Future Scenarios (Loser)


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Latin Americas Strengths

Latin America is arguably the most richly endowed developing

region of the world:

Vast areas of fertile land

Abundant water resources

Amazoniaworlds largest tropical forest

Harvest of the oceans

Mineral resources

Close physical proximity to North American and Europe

Strong historical performance until 1980

Income levels relative to the US rose from 12% in 1965 to

17.7% in 1981

A middle-income region by 1980

Regional infrastructure investments (Pan American highway)


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RECENT ECONOMIC AND POLITICALDEVELOPMENTS

Poverty Conditions are Improving

18.622.5

18.6

12.8 13.1 12.3 12.8

21.9

25.8

25.8

20.4 19.919.1 17.6

0

10

20

30

40

50

60

1980 1990 1999 2008 2009 2010 2011

Poor

Indigent


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Education Expenditure is Average


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RECENT ECONOMIC AND POLITICALDEVELOPMENTSSchool Attendance Disparities


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RECENT ECONOMIC AND POLITICALDEVELOPMENTSLow Achievement in Science


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Low Levels of Tertiary Graduates

in Science


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Equality in

Public Education Spending


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RECENT ECONOMIC AND POLITICAL

DEVELOPMENTSRecent Economic and

Political Developments

Average economic growth of 4.7% in 2003-08 (4% 2003-11)

Not accompanied with inflation or external imbalances

Absolute poverty and inequities have declined noticeably in

Brazil and Mexico during last decade

The global financial crisis affected Latin America only

moderately compared to the OECD countries V-shapedrecovery

Higher commodity prices have helped to drive growth


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12

0.0

50.0

100.0

150.0

200.0

250.0

1997M1

1997M6

1997M11

1998M4

1998M9

1999M2

1999M7

1999M12

2000M5

2000M10

2001M3

2001M8

2002M1

2002M6

2002M11

2003M4

2003M9

2004M2

2004M7

2004M12

2005M5

2005M10

2006M3

2006M8

2007M1

2007M6

2007M11

2008M4

2008M9

2009M2

2009M7

2009M12

2010M05

2010M10

2011M03

2011M08

2012M01

All Commodities

All Commodities

100.0

105.0

110.0

115.0

120.0

125.0130.0

135.0

140.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Per capita income(1994=100)

Per capita income (1994=100)

Income and Commodity Prices


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COMPARED TO EAST ASIALong-term Trends:

GDP Growth Lagging

0

1

2

3

4

5

6

7

Latin America

World

Emerging andDev. WOrld


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Latin America has essentially been stagnant relative to the rest of the world

since the 1980s

Latin Americas share ofdeveloping country GDP:

1981: 31%; 2009: 20%

Latin Americas share of global GDP:

1965: 5.6%; 2005: 5.7%


Losing to Other Emerging Markets


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Losing to Other Emerging Markets


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LATIN AMERICAN WEAKNESSESLong-term Trends: Worlds Highest

Disparities and Inequities

32.233.6

38.9 38.9 39.1

44.7

53.2

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

High Income Europe and

Central Asia

South Asia North Afr ica

and the

Middle East

East Asia and

the Pacific

Sub-Saharan

Africa

Latin America

and the

Caribbean

Ginicoefficient

Evolution of the Gini Coefficient (in %)

35

40

45

50

55

60

Early 1990s Late 1990s Early 2000s Mid - 2000s

0


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LATIN AMERICAN WEAKNESSESLong-term Trends:

Mired in Middle Income Trap


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LATIN AMERICAN WEAKNESSESWhat is Middle Income Trap?

Countries stagnate for long periods after reaching middle incomestatus

Inability to converge with advanced economies

Short periods of growth offset by periods of decline

Unable to compete with low income (low wage) economies in

manufacturing and unable to compete with advanced economies in

high skills innovations

Unable to restructure: inability to move resources from low

productivity to high productive activities

Lack of specialization, higher level skills

Small size of middle class


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LATIN AMERICAN WEAKNESSESWhat is different in (East) Asia?

Political leaders intensely focused on economic issues Pragmatism in policy making not driven by ideology

Worlds highest growth rates

Much greater emphasis on human development and meritocracy

in education

Equitable distribution of income and assets

Much more open economies (trade to GDP ratio of 160% for NICs

vs. 42%)

Much higher savings (50% vs. 25% of GDP) and investment rates

than LAC (including infrastructure)

Deeper financial systems

Fast growing middle-class

Dynamism and can do spirit of private sector


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LATIN AMERICAN WEAKNESSES

High income inequality Virtually stagnant total factor productivity Low savings and physical capital accumulation

Poor infrastructure

Low growth rates

Informality, among the highest

Latin Americas Weakness


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2030: LIKELY OUTCOME WITH REVERSAL OF

PAST TRENDS

Business as Usual Convergence 7% growth

2009 2040 2040 2040

Global GDP (US$ trill,2009)

53 168.4 184.6 188.8

Latin America GDP (US$

trill, 2009) 3.36 8.5 24.7 28.9

ratio to Global GDP 0.063 0.051 0.134 0.153

Non-LAC GDP per capita

(US$, 2009) 8458 19675 19675 19675

Latin America GDP per

capita (US$, 2009) 5915 12318 35501 41853

ratio to Global GDP per

capita0.739 0.636 1.832 2.160

2040: Likely Outcome with

Reversal of Past Trends

Latin America needs

higher growth rates to

increase its share of global

GDP

With 7% growth, Latin

America can achieve above-average GDP per capita


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2030: LIKELY OUTCOME WITH BUSINESS AS

USUAL

GDP per capita growth rate of 1%-3%

World outpaces Latin America

2040: Likely Outcome with

Reversal of Trends-6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2009 2015 2020 2030 2040

Sharein

GDP

Share of LATAM in World GDP

LATAM BAU LATAM Converg

LATAM High Growth

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2009 2015 2020 2030 2040

PCInco

me

Per Capita Income- AlternativeScenarios(market ER)

World Excluding LATAM

LATAM BAU

LATAM Converg


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WHAT ARE NEEDED?

1.) More inclusion

2.) Higher productivity

3.) Greater competition and openness

Three Pillars


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WHAT ARE NEEDED?More Inclusion

Striving for a more inclusive society

is not a tradeoff between equity and

growth, but a win-win Necessary actions:

Removal of numerous current

structural inequalities Providing access to quality

education and other public

services including rural

infrastructure

Breaking the current economic

dominance by entrenched vestedinterests

Ensuring jobs and finance to

those who are left at the margins

of the society

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Quality of Education 2008

0

1

2

3

4

5

6

7

Infrastructure 2008


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WHAT WILL IT TAKE?Higher Productivity

More emphasis is required on: Improved human capital Much higherinvestment

rates Economic competitiveness Continuous improvements in

total factor productivity Betterbusinessenvironment

More innovation andtechnological development

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Investment and Savings (10 yearaverage)

Investment

Savings

0

1

2

3

4

5

6

Global Competitive Index2009-2010

0

20

40

60

80

100

120

140

160

1980 1990 2000 2007

Total Factor Productivity

High Income

NICs

Latin America

Devloping East Asia

China

India0

20

40

60

80

100120

140

Ease of Doing Businesscomparative rankings 2010

(rankings from 1 to 177)

0

1

2

3

4

5

6

7

Technology Readiness 2008


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WHAT WILL IT TAKE?Greater Competition

and Openness

Closer links with fast growing Asia Dismantling of remaining barriers to trade and

investment

Reasoning:

The vast majority of Latin American

economies are too small on their own to

attain economies of scale

Greater openness is needed to take

advantage of the positive neighborhood

effects

Latin America must gradually reduce its

dependence on the slow growing

economies of North America and Europe

Dismantling barriers to trade with and

investment from global markets will help to

curb the current monopolistic power of

large companies

0

20

40

6080

100

120

140

160

Trade/GDP ratio (adjusted forpopulation)


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THE ROLE OF CAF

Champion the new vision of Latin America

The Role of CAF (1)

Realign CAF operations to support above vision by adopting

Inclusion and Growth as the two fundamental objectives of all CAF

activities


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THE ROLE OF CAF

To promote growth:

Continue emphasis on national and regional infrastructure

development

Focus on tertiary (private) education

Support innovation and technology hubs Foster greater competition within countries

Redouble efforts to support regional cooperation (including physical

connectivity)

Act as intellectual bridge between Asia and Latin America

To promote inclusion:

Advocate policies that tackle structural inequities

Support faster development of rural infrastructure, low cost housing,

(affordable) mobile telecommunications, rural finance

Support basic education to address ethnic and gender inequality

The Role of CAF (2)


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G O CO S G G G O S O C


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THE REGION COMPARES WELL WITH EMERGING REGIONS, BUT NOT ADVANCED

ECONOMIES

(GDP P. CAPITA PPP , US$, 2010))

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

30PPP

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Latin America Advanced Economies NICs

WHERE DOES LA STAND


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WHERE DOES LA STAND

0

1

2

3

4

5

6

Quality of Education

0

1

2

3

4

5

6

7Infrastructure

0

1

2

3

4

5

6

7

Technology Readiness

0

20

40

60

80

100

120

140

Ease of Doing Business comparativerankings 2010 (177)


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33

Productivity and Competitiveness

0

200

400

600

800

1000

1200

1400

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Total Factor Productivity

Latin America Advanced Economies

NICs India

China

0

1

2

3

4

5

6

Global Competitiveness Index


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Informality and Economic Development/


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INVESTMENT AND SAVINGS (10 YEAR AVERAGE)

0

5

10

15

20

25

30

35

40

HighIncome

Asia NICs DevelopingAfrica

LatinAmerica

Investment Savings

0

5

10

15

20

25

30

35

40

Investment Savings


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GINI COEFICIENT- SELECTED REGIONS

32.233.6

38.9 38.9 39.1

44.7

53.2

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

High Income Europe and

Central Asia

South Asia North Africa

and the

Middle East

East As ia and

the Pacific

Sub-Saharan

Africa

Latin America

and the

Caribbean

Ginicoefficient

20

25

30

35

40

45

50

55

60

1985-1990 1991-1995 1996-2000 2001-2005 2006-2010

United States Av LATAM AvChIn


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VARIOUS COUNTRIES PICKED UP IN RECENT YEARS

GDP PC

37

80.0

100.0

120.0

140.0

160.0

180.0

200.0

220.0

240.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

China

India

Uruguay

Peru

Argentina adjusted

Korea

Colombia

Brazil

Turkey

Chile

Mexico

Japan

United States


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VARIOUS COUNTRIES PICKED UP IN RECENT YEARS

38

80.0

90.0

100.0

110.0

120.0

130.0

140.0

150.0

160.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Peru

Argentina adjusted

Colombia

Brazil

Chile

Venezuela

Mexico


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GDP GROWTH RATES -PAST AND PROJECTED

Country 2007-11 2012-13

Panama 8.8 7.0

Peru 7.2 5.6Argentina(official) 7.1 4.0

Dominican Republic 6.7 4.3

Uruguay 5.8 4.0

Paraguay 5.3 3.2

Argentina corrected 5.1 1.5

Colombia 4.8 4.5

Costa Rica 4.5 4.0

Bolivia 4.5 5.0Ecuador 4.3 3.1

Chile 4.2 4.4

Brazil 4.2 3.5

Venezuela 3.9 3.6

Guatemala 3.7 3.2

Honduras 3.5 3.5

Nicaragua 3.0 3.9Trinidad and Tobago 2.7 2.0

Mexico 2.1 3.7Haiti 1.6 7.4

El Salvador 1.5 2.3

Barbados 0.6 1.2

Jamaica 0.1 1.0

Latin America 3.8 3.8

39


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PUBLIC DEBT TO GDP IS DECLINING, WHILE THAT OF THE ADVANCED COUNTRIES

GROWS

40

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011 2012

Brazil

Mexico

Argentina

LATAM

Adv. G-20

Public Debt Ratio to GDP (in%)

Human Development Index/ Per Capita Income PPP US$/


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41

Human Development Index/

I

Per Capita Income- PPP US$/

I

Norway 1 Qatar 88,222 1

Australia 2 Luxembourg 81,466 2

Netherlands 3 Singapore 56,694 3

United States 4 Norway 51,959 4

New Zealand 5 BruneiDarussalam 48,333 5

Canada 6United Arab

Emirates47,439 6 1st Quartile

Ireland 7 United States 46,860 7

Liechtenstein 8 Hong Kong SAR 45,944 8

Germany 9 Switzerland 41,950 9

Sweden 10 Netherlands 40,973 10

Chile 44 Argentina 15,901 53

Argentina 45 Chile 15,040 58

Uruguay 48 Mexico 14,406 61

Mexico 57 Uruguay 14,339 62 2nd Quartile

Peru 80 Venezuela 12,048 72

Venezuela 73 Brazil 11,273 77

Ecuador 83 South Africa 10,518 80

Brazil 84 Colombia 9,593 84

Colombia 87 Peru 9,358 86

China 101 Ecuador 7,828 93

South Africa 123 China 7,544 95 3rd Quartile

India 134 India 3,408 128

Congo D R (last) 187 Congo D R 329 182 4th Quartile

Source: UNDP-Human DevelopmentReports-2011 Source: IMF-WEO-Sept 2011

Ease of Doing Business Rank/ Competitiveness Rank/ Corruption Perception/Economic Freedom/

L


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L

Singapore 1 Switzerland 1 New Zealand 1 Hong Kong 1

Hong Kong,

China2 Singapore 2 Denmark 2 Singapore 2

New Zealand 3 Sweden 3 Finland 2 Australia 3

United States 4 Finland 4 Sweden 4 New Zealand 4

Denmark 5 United States 5 Singapore 5 Switzerland 5

Norway 6 Germany 6 Norway 6 Canada 6 1st Quartile

United Kingdom 7 Netherlands 7 Netherlands 7 Ireland 7

Korea, Rep. 8 Denmark 8 Australia 8 Denmark 8

Iceland 9 Japan 9 Switzerland 8 United States 9

Ireland 10 United Kingdom 10 Canada 10 Bahrain 10

South Africa 35 China 26 Chile 22Chile 11

Peru 41 Chile 31 Uruguay 25Peru 41

Colombia 42 Panama 49 Cuba 61Colombia 45

Chile 43 South Africa 50 South Africa 64Mexico 47 2nd Quartile

Mexico 53 Brazil 53 Brazil 73Panama 61

Panama 61 India 56 Colombia 80 South Africa 75

Uruguay 90 Mexico 58 Peru 80Brazil 113

China 91 Peru 67 India 95 India 124 3rd Quartile

Argentina 113 Colombia 68 Mexico 100 China 135

Brazil 126 Argentina 85 Argentina 100 Argentina 137

India 132 Ecuador 101 Bolivia 118 Bolivia 147

Ecuador 130 Venezuela 124 Ecuador 120 Ecuador 158 4th Quartile

Venezuela, R.B. 177 Chad 142 Venezuela 172 Venezuela 175

Chad (last) 183 Somalia(last) 182 North Korea 179

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