Latin America and the

Caribbean: Challenges and

Opportunities in a Time of Crisis

Alicia Bárcena
Executive Secretary of ECLAC
Woodrow Wilson International Center for Scholars
Washington D.C., 11 September 2009
 Dilemmas and uncertainties
after the crisis

Old and new forms of protectionism

A new international financial architecture or just
cosmetic changes?
Will there be more regulation? What will
be the combination of public policies?
Bilateralism (chinamerica) as opposed to
multilateralism (open regionalism)
Uncertainty concerning climate change
Unemployment, informality and poverty
Fragile democracies
MANAGING FIVE TRANSITIONS

From market supremacy to a new role for the

State
From traditional to new geopolitical and
economic alliances
From social exclusion to an inclusive
development
From exclusive R&D to extensive innovation
for all
From oil-based to a carbon-free sustainable
economy
 SHORT HISTORY OF THE CRISIS
 The known links: subprime crisis-
investment banks-financial systems-crisis
in confidence
 The reconfirmed link: transfer to the real
economy. No decoupling
 The proven effects: lower economic
activity, negative growth, drop in
international trade and FDI, reduction in
remittances.
FRUSTRATION IN THE REGION AFTER
BOOM YEARS (2003-2008)
Solid fiscal policies and improved levels of public debt profile
Increased exchange rate flexibility and unprecedented
international reserves (+150% between 2003 and 2008)
Surplus in the regional current account coupled with
economic growth
Ready access to external financing
Increased trade (I + X) (value: 138%; volume: 49%)
Terms of trade improved by 25% in the region
Per capita GDP grew by more than 3% per year for five
consecutive years
Unemployment diminished from 11% to 7.5% coupled with
the creation of more quality jobs
Poverty rates fell by 10 percentage points (from 44% to 34%)
Estimates for a prompt recovery are negative
for 2009 in the 4 main channels
Foreign
Remittances Commodity External
direct
and tourism prices demand
investment

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official data.
 Exports of LAC fell by 31% and imports fell by
29% in value in the first half of 2009
LATIN AMERICA AND THE CARIBBEAN: MERCHANDISE EXPORT AND IMPORT
GROWTH IN THE FIRST HALF OF 2008 AND 2009
(Growth rates relative to the year-earlier period)

EXPORTS IMPORTS

Caribbean countries -36.7 18.1

-2 4 .3 2 4 .4
Mexico -31.6 17.1
-3 2 .1 1 4 .6
Central America Common Market -11.2 13.1
-30.0
-2 9 .2 2 4 .3
Mexico and Central America 16.7

Chile -38.8 8.1

-3 1 .7 1 5 .9
Andean Community -42.0 44.9 -3 5 .1 4 2 .0
MERCOSUR -21.7 27.5 -1 5 .8 2 9 .7
South America -31.2 29.4 -3 1 .8 5 0 .3
Latin America and the Caribbean -30.9 23.9
-2 7 .3 4 2 .2
In volume -80 -60 -40 -20 0 20 40 60 80 -2 9 .1 2 8 .6
exports fell by
15.3% January - June2009 January - June2008
-8 0 -6 0 -4 0 -2 0 0 20 40 60 80
In volume
All export destinations were affected but January - June 2009
imports January
fell by - June 200
those to China have dropped the least 25.3%

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official data.
Inflows of FDI are expected to fall,
after peaking historically in 2008
LATIN AMERICA AND THE CARIBBEAN: FOREIGN DIRECT INVESTMENT
(Millions of dollars)

13%

140 000

120 000 51%

100 000

80 000

60 000

40 000

20 000

0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

South Am erica Mexico, Central America and the Caribbean Total

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.
Remittances have fallen significantly
LATIN AMERICA AND THE CARIBBEAN: MIGRANTS’ QUARTERLY REMITTANCES
(Annual growth rates with respect to the same period of the previous year)
40%

30%

20%

10%

0%

-10%

Guatemala El Salvador Mexico Nicaragua

-20% DominicanRep. Ecuador Colombia Jamaica

-30%
1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.
 LONG HISTORY OF THE CRISIS
 Development model based on deregulation
 Model based on the segmentation and increased
predominance of the financial sector over the
productive
 Production patterns that are jeopardizing the
future habitability of the planet
 Globalization patterns with high concentrations of
wealth
 Paradigms such as the “invisible hand” and
“trickle down theory” are no longer credible
Simultaneous economic contraction in so many countries since the
Great Depression (nearly 80% of the world’s economies and GDP)

NUMBER OF COUNTRIES IN RECESSION IN THE SAME YEAR a

(Percentages of total number of countries)

100 100
Great Depression Others 19% Current
90 economic 90
Countries
80 with GDP crisis 80
contraction
World War I 81%
70 70

60 60
World War II First oil crisis
50 50

40 Second oil crisi 40

30 30

20 20

10 10

0 0
1
5
9
3
7
1
5
9
3
7
1
5
9
3
7
1
5
9
3
7
1
5
9
3
7
1
5
9
1
0
9
0
9
1
0
9
1
9
1
9
1
2
9
1
2
9
1
2
9
1
3
9
1
3
9
1
4
9
1
4
9
1
4
9
1
5
9
1
5
9
1
6
9
1
6
9
1
6
9
1
7
9
1
7
9
1
8
9
1
8
9
1
8
9
1
9
1
9
1
0
2
0
2
0
2
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from Maddison and IMF estimates for
the most recent periods (2009).
a Covers 29 economies. Growth rates are expressed in constant internationally comparable currency.
 Will the future be different:
New Normality with lower potential GDP in developed
countries

170 Pre-crisis Post-crisis

PIB potencial

160

150

t o 1. 5 %
mien
.4% e crec i
to 2 Tasa d
140
i m i en
2006 2007
r ec 2008 2009 2010 2011 2012 2013 2014

d ec
sa
Ta

Fuente: Sobre la base de la OCDE (2009) y el FMI (2009).

Años
 …much less aggregate demand from
US

3.5 mundo pre-crisis mundo post-crisis

3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
1990-2000 2001-2007 2008-2015

Consumo Privado + Inversión Gasto Público Sector Externo

Fuente: EIU (2009)

 …less trade (%)

Mundo pre-crisis Crisis

15.0

10.0

5.0

0.0
2004 2005 2006 2007 2008 2009 2010
-5.0

-10.0

-15.0

-20.0

Fuente: OCDE (2009)

 Past experience shows….
Comparison between GDP-percapita with poverty rates
(Dlls and percentages)

5000 48.3 50
4800 48
45.7
4597
4600 46
43.3 43.5 44.3
4400 42.5 44
42.0
PIB per cápita

4200 40.5 42
4000 39.8 40
Recuperación en el nivel de pobreza: 25 años
3800 36.3 38
Recuperación del PIB: 14 años 3886
3600 3746 34.1 36
3620 3650
3400 33.2 34
3432
3200 3321 32
3000 30
1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010
1978

PIB per cápita Pobre za

 MAJOR GAPS
 INEQUALITY AND POVERTY RATES

 INCOME DISTRIBUTION AND SOCIAL

PROTECTION

 EDUCATION

 PRODUCTIVITY

 INVESTMENT
THE MOST UNEQUAL REGION OF THE WORLD
Gini Coefficient in comparison with other regions
Frustration in terms of labor market and poverty rates:
Regional unemployment rate could exceed 9% in 2009

LATIN AMERICA AND THE CARIBBEAN: POVERTY, EXTREME POVERTY AND UNEMPLOYMENT RATES a
(Percentages)

60 12
48,3
50 43,8 44,0 10
40,5
40 43,5 8
36,3
30 34,1 33,2 6
22.5
18.6 19.0 18.5 19.4
20 4
13.3 12.6 12.9
10 2

0 0
1980 1990 1997 1999 2002 2006 2007 2008 2009

Very poor Poor Unemployment rate (right hand side)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted
in the respective countries.
a
Figures for poverty and extreme poverty rates are based on estimates for 19 countries of the region, including Haiti. The figures appearing above
the bars are percentages of the population. Figures for 2008 and 2009 are forecasts.
Vicious circle in the life cycle

• Education,
• Deficits in education translate
in unemployment, informality
and low proctivity
• Salary gaps, lack of social
protection in increasing ageing
population
 EXPORT-LED MODEL NEED TO CHANGE
Comparison between productivity and exports

250
Fuente: División de Desarrollo Productivo y Empresarial, CEPAL
 PRODUCTIVITY GAP ADDS TO THE ENERGY
CONSUMPTION GAP
Índices de brecha energética y productividad relativa, 1996-2006

250

200

150

100

50

0
1996 2001 2002 2003 2004 2005 2006

Brecha Enérgica AL/EEUU

Pr relativa
Linear (Brecha Enérgica AL/EEUU)
Linear (Pr relativa)

Fuente: División de Desarrollo Productivo y Empresarial, CEPAL

 ENERGY INTENSITY
(BEP/1OOO US$ a precios de 2000)
Indice 1980=100

110 110

100 100

90 90

80 80

70 70

60 60
1980
1981

1983
1984
1985
1986

1988
1989
1990
1991
1992

1994

1996
1997
1998
1999
2000
2001
2002
2003

2005
2006
2007
1982

1987

1993

1995

2004
OECD Total América Latina y Caribe

Fuente: Elaboración propia con base en SIEE de OLADE, y base de datos de la AIE
Technological frontier: patents in 2006
Biotecnología Nanotecnología
EEUU 41,5 % EEUU 40,3 %
Japón 11,9 % Japón 19,0 %

UE27 27,4 % UE27 26,7 %

Alemania 7 % Korea 2,7 %
Reino Unido 4,5 %
Canadá 2,0 %
Francia 3,6 %

España 1,3 % Australia 1,1 %

Canadá 3,2 % China 1,0 %
Korea 3 %
India 0,2 %
China 1,9 %
América Latina 0,3 %
India 0,9 %
Brasil 0,3 %
Fuente: Cepal (2008), sobre datos de OCDE
Fuente: OECD, 2008 Patent Database, 2008
 INVESTMENT GAP
Inversión como % del PIB en dólares del 2000
2 5 .0
2 4 .0 2 3 ,0 %
2 3 .0
2 2 .0
2 1 .0
2 0 .0 1 9 ,4 % 1 8 ,7 % 1 8 ,9 %
1 8 ,2 %
1 9 .0 1 7 ,6 %
1 8 .0
1 7 .0
1 6 .0
1 5 .0
1 4 .0
1 3 .0
1 2 .0
1 1 .0
1 0 .0
1950

1984

2004
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982

1986
1988
1990
1992
1994
1996
1998
2000
2002

2006
2008
But the crisis also put in evidence
important gaps

Weakness of domestic productive structures:

 Strong presence of industries extracting natural
resources without value added
 Little or no innovation
Wider productivity gap in the face of the
emergence of new technological demands
The international competitiveness of the countries
of the region remains limited to either “maquila” or
sectors intensive in natural resources
 EXCLUSION IN EDUCATION

18 COUNTRIES: EDUCATION LEVELS BY (1990-2005)

Quintil I Quintil V

120
92.9 97.5
100 84.1 79.6
80
61
60
53.9

40
20.5 22.6
14.8
20 7.9
0.2 0.7
0
Conclusión Conclusión Conclusión Conclusión Conclusión Conclusión
primaria secundaria terciaria primaria secundaria terciaria

1990 2005

Fuente: CEPAL (2007). Panorama Social de América Latina 2007.

/a. El porcentaje de conclusión de la primaria se estimó sobre la población de 15 a 19 años, en la secundaria se

consideró como universo la población de 20 a 24 años y en la terciaria a la población de 25 a 29 años.
26
 The capacity to respond to the crisis
is different among countries
LATIN AMERICA AND THE CARIBBEAN: SCOPE OF THE MEASURES ADOPTED TO 31-05-09 IN
ORDER TO DEAL WITH THE CRISIS
(Number of countries that have adopted the measure)

19
18
17

16
M oneta
a Lower
15
14
13
12

11

b M oney
10
9

7
6

5
4

2
1

0
a b c d e f g h i j k l m
Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of official information.
But the space to finance counter-cyclical
policies is shrinking
LATIN AMERICA AND THE CARIBBEAN: CURRENT ACOUNT AND FISCAL BALANCE, 2000-2009 a
(Percentage of GDP)

2.0
2005 2006 Twin
1.5 surpluses
2004
1.0
2003
Current account balance

0.5 2007
0.0
-0.5
2002
-1.0 2008

-1.5
-2.0
2001
-2.5 2009 Twin deficits
-3.0
-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.
a
The 2009 figures are forecasts. Fis cal balance
 A new role for the State
Define a long term vision: a pre-analytical
framework
A new fiscal policy with a new social covenant
Chose the right mix of public policies
Search a more proactive relation with the market
Protect the most vulnerable sectors
Ensure inclusive development through spreading
of technology and innovation
Fostering a green economy
The crisis highlights the need
for a new fiscal covenant

Main objective: to foster equality

From assistance-based to
universality based on rights
Tax reform based on efficiency
and progressiveness
Tax revenues are low and constrains public
expenditure

LATIN AMERICA AND THE CARIBBEAN: FISCAL REVENUE AND SOCIAL SPENDING
(Percentage of GDP)

45 Other public revenue

40
Tax revenue
35
30 Public social spending
25
20
15
10
5
0
Chile

Panama

Peru *
Colombia *

Mexico

Guatemala
Costa Rica *

Dominican Rep.
Ecuador
Brazil *

Nicaragua

Uruguay

Honduras

Paraguay

El Salvador
Argentina *
Bolivia (Pl.St.of)

Venezuela (Bol.Rep.of)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.
 Tax policies are regressive in the
majority of Latin American countries
LATIN AMERICA AND THE CARIBBEAN: GINI COEFFICIENT BEFORE AND AFTER TAXES
(Coefficients)

Argentina (1997)

Mexico (1989)

Chile (1996)

EU15 (2001)

Spain (2001)

Germany (2001)

Gpost Gpre
Sw eden (2001)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Gómez Sabaini, “Repensar lo social en tiempos de crisis”,
May 2009. 0.300 0.350 0.400 0.450 0.500 0.550 0.600
 POLITICS IS BACK

Provision of public goods

Universal social protection
Innovation and knowledge
Productive convergence
Energy efficiency and security
Cut back carbon emissions
Regional and subregional
integration beyond trade