1 IMF SEMINAR ON REFORMS AND GROWTH IN LATIN AMERICA High Level IMF Seminar on Reforms and Growth in...

1

IMF SEMINAR ON REFORMS IMF SEMINAR ON REFORMS AND GROWTH IN LATIN AND GROWTH IN LATIN AMERICA AMERICA

High Level IMF Seminar on Reforms and Growth in Latin America

Washington May 5th 2006

2

11 Macroeconomic Policies for GrowthMacroeconomic Policies for Growth

Building Social and Political Coalitions for ReformBuilding Social and Political Coalitions for Reform22

Institutional Reform and GrowthInstitutional Reform and Growth33

3

Latin America’s growth remains not Latin America’s growth remains not only low but also highly volatile…only low but also highly volatile…

Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006

Based on International Financial Statistics, IMF 2005Based on International Financial Statistics, IMF 2005

Volatility calculated as standard deviation of GDP growthVolatility calculated as standard deviation of GDP growth

over 10-year periodsover 10-year periods

AverageAverage

Potential GDP growth in Latin America (%)

0

1

2

3

4

5

6

7

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

Annual va

riati

on (%

)

.

5.3%

2.4%

Output Volatility (%)

0

0.5

1

1.5

2

2.5

3

3.5

4

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

Dev

iati

on o

f %

change

.

1.7%

2.8%

2.0%

4

While Latin American countries While Latin American countries experienced a falling down…experienced a falling down…

1950

1960

1970

1980

1990

2000/06

2000/06

1990

1980 1970

1960

1950

1950

1960

1970

1980

1990

2000/06

-4

-3

-2

-1

0

1

2

3

-30 -10 10 30 50 70 90deviation (%) of GDP per capita with respect to world average

($ 1990)

GD

P p

er c

apita

gro

wth

min

us w

orld

per

cap

ita g

row

th

(% a

nnua

lized

)

Mexico Chile Brazil

Annual growth (%) calculated as the average annual growth rate for the last six decades; Deviation (%) in the beginning of each decadeSource: based on Groningen Growth and Development Centre and The Conference Board, Total Economy Database, 2005

5

… …some, more than others, during the some, more than others, during the 1950-2005 period …1950-2005 period …

2000/06

1990

1980

1970 1960

1950

1950

19601970

1980

1990

2000/06

1980

1970

1960

1950

1990

2000/06

-6

-5

-4

-3

-2

-1

0

1

2

-50 0 50 100 150 200 250 300deviation (%) of GDP per capita with respect to world average

($ 1990)

GD

P p

er c

apita

gro

wth

min

us w

orld

per

cap

ita g

row

th

(% a

nnua

lized

)

Venezuela ArgentinaColombia


6

..deepening the gap between them and ..deepening the gap between them and developed countries …developed countries …

1950

19601970

1980

1990

2000/061950

1960

1970

19802000/06

1990

2000/06

1990

1950

1960 1970

1980

-1,5

-0,5

0,5

1,5

2,5

3,5

4,5

50 100 150 200 250 300 350deviation (%) of GDP per capita with respect to world average

($ 1990)

GD

P p

er c

apita

gro

wth

min

us w

orld

per

cap

ita g

row

th

(% a

nnua

lized

)

Finland Norway Ireland


7

……deepening the gap with developed deepening the gap with developed countries…countries…

2000/06

1990

1960

1970

1980

1950

1990

2000/06

1980

1970

1960

1950

2000/06

1990

1980

1970

1960

1950

-3,5

-2,5

-1,5

-0,5

0,5

1,5

2,5

3,5

4,5

0 50 100 150 200 250deviation (%) of GDP per capita with respect to world average

($ 1990)

GD

P p

er c

apita

gro

wth

min

us w

orld

per

cap

ita g

row

th

(% a

nnua

lized

)

Spain Portugal Italy


8

……the Asian countries experienced the Asian countries experienced an historical jumpan historical jump

1950

1960

1970

1980

1990

2000/06

1950

19601970

1980

19802000/06

-2,5

-1,5

-0,5

0,5

1,5

2,5

3,5

4,5

5,5

-85 -75 -65 -55 -45deviation (%) of GDP per capita with respect to world average

($ 1990)

GD

P p

er c

apita

gro

wth

min

us w

orld

per

cap

ita g

row

th

(% a

nnua

lized

)

China India


9

Three reasons why Latin America is not Three reasons why Latin America is not catching up:catching up:

1.11.1 Weak global trade integrationWeak global trade integration

Volatile natural resources endowmentsVolatile natural resources endowments1.21.2

Strong financial dependenceStrong financial dependence1.31.3

10

With the exception of Mexico and With the exception of Mexico and Chile Latin America still remains closed to Chile Latin America still remains closed to

exchanges…exchanges…

Total value of merchandise exports valued free on board

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

1900

1905

1910

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

Mil

lions

US d

oll

ars

.

Argentina Brazil Chile

Colombia Mexico Peru

Venezuela


Based on Based on Oxford Latin American History DatabaseOxford Latin American History Database

1.11.1

11

… …with a slight improvement in the last with a slight improvement in the last decade…decade…


Based on Based on International Financial Statistics, IMFInternational Financial Statistics, IMF

1.11.1

Latin America's export volume

70

90

110

130

150

170

190

1996 1997 1998 1999 2000 2001 2002 2003 2004

Export

index

indic

ato

r (1

996=10

0)

Argentina Brazil Chile Colombia

Mexico Peru Venezuela

12

… …but falling behind world but falling behind world performanceperformance

Latin America's export volume

100

120

140

160

180

200

220

1999 2000 2001 2002 2003 2004 2005

Index

of to

tal ex

port

s (B

ase

yea

r 19

99)

.

Latin America & Caribbean Latin America (ex-Brazil)

Asia World


Based on Based on International Financial Statistics, IMF and Asian Development BankInternational Financial Statistics, IMF and Asian Development Bank

1.11.1

13





14

Latin America is endowed with natural Latin America is endowed with natural resources and is dependent on commodity resources and is dependent on commodity

marketsmarkets

Commodity prices

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1900

1905

1910

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

US$ n

om

inal in

dex

1970

=10

0 .

Non Energy Comm PricesCommodity prices (including energy)Petroleum Metals


Based on Based on Oxford Latin American History Database and IMF Pink SheetOxford Latin American History Database and IMF Pink Sheet

1.21.2

15

Growth relies on performance of Growth relies on performance of primary products and price fluctuations…primary products and price fluctuations…

Source: BBVA; BBVA-MAP Latam index monitors the trading prices of commodities in the regionSource: BBVA; BBVA-MAP Latam index monitors the trading prices of commodities in the region

1.2 1.2

0

1

2

3

4

5

619

91

1993

1995

1997

1999

2001

2003

Vari

ati

on (%

)

.

0

10

20

30

Vari

ati

on (%

)

.

Oil Price (Brent)

GDP variation (%)

GDP and trading prices of commodities (1991-2005)

16

… …as a result macroeconomic as a result macroeconomic volatility has been a major issue for volatility has been a major issue for

Latin America…Latin America…

AverageAverage

Source: Ricardo Haussmann and Helmut Reisen, OECD (1996)

Volatility of real GDP Growth (1970-1992)

0

12

3

45

6

78

9

MENA Sub-SaharanAfrica

LatinAmerica

South Asia East Asianmiracle

OECD

Sta

ndar

d d

evia

tion (G

DP)

.

1.2 1.2

17

… …price volatility in particular has price volatility in particular has been historically high…been historically high…


Based on Based on Oxford Latin American History Database and IMF Pink SheetOxford Latin American History Database and IMF Pink Sheet

1.2 1.2

Non-energy commodities

0

10

20

30

40

50

60

70

80

1900

1906

1912

1918

1924

1930

1936

1942

1948

1954

1960

1966

1972

1978

1984

1990

Sta

nd

ard d

evia

tion (

%)

.

Commodity prices (including energy)

0

10

20

30

40

50

60

70

80

1900

1906

1912

1918

1924

1930

1936

1942

1948

1954

1960

1966

1972

1978

1984

1990

Sta

ndard

dev

iati

on (%

) .

Metals

0

10

20

30

40

50

60

70

80

1900

1905

1910

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

Sta

nd

ard

dev

iati

on (%

) .

Evolution of Price Volatility (1900-2000)

Petroleum

0

10

20

30

40

50

60

70

80

1900

1905

1910

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

Sta

ndard

dev

iati

on (%

)

.

18

……although the situation has although the situation has improved over recent yearsimproved over recent years

Source: IMF, 2005Source: IMF, 2005

PeriodDomestic

OutputFixed

Investment1870-1929 6.49 107.8

Argentina 1930-1970 4.56 67.961971-2004 5.01 16.39

1870-1929 4.84 37.16Brazil 1930-1970 3.25 29.56

1971-2004 2.94 15.82

1870-1929 6.25 76.05Chile 1930-1970 7.69 64.6

1971-2004 5.35 16.1

1870-1929 7.29 79Mexico 1930-1970 2.9 102.36

1971-2004 3.3 14.93

Cyclical Volatility Estimates (standard deviations in %)

1.2 1.2

19

… …current account imbalances remain current account imbalances remain persistent todaypersistent today

AverageAverage


1.2 1.2

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

Venezuela Colombia Chile Mexico Argentina Peru Brazil

Dev

iati

on

(%

)

.

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

Korea Thailand Singapore China Indonesia India

Dev

iati

on

(%

)

,

Current Account volatility (1976-2005)

20





21


Based on IMF, World Bank, National DataBased on IMF, World Bank, National Data

Debt ratios have decreased, but they Debt ratios have decreased, but they remain high with respect to other remain high with respect to other

economies…economies…

AverageAverage

0

100

200

300

400

500

India Indonesia Philippines Thailand Korea China Malaysia

Deb

t as

% o

f Exp

orts

.

1.3 1.3

0

100

200

300

400

500

Argentina Peru Brazil Colombia Chile Venezuela Mexico

Deb

t as

% o

f Export

s .

Average debt ratios as percentage of exports (1996-2005)

22

The failure to The failure to boost internal boost internal savings rates is persistent in the savings rates is persistent in the

region...region...


Based on Global Development Finance, The World Bank, 2005Based on Global Development Finance, The World Bank, 2005

Evolution of regional saving rates (as a percentage of GDP)

5

10

15

20

25

30

35

40

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Net

nat

ional

sav

ings

(%

of G

DP)

.

East Asia & Pacific Latin America & Caribbean

South Asia World

1.3 1.3

23

… …making Latin America still highly making Latin America still highly dependent on foreign capitaldependent on foreign capital

Regional averageRegional average



1.3 1.3

0

5

10

15

20

25

30

35

40

Venezuela Chile Mexico Peru Brazil Argentina Colombia

Net

nat

ion

al s

avin

gs

(% o

f G

NI)

.

0

5

10

15

20

25

30

35

40

Singapore China Malaysia Thailand Indonesia IndiaN

et n

atio

nal

sav

ings

(%

of G

NI)

.

Net National savings by country (1996-2005)

24

Dependency of the region on external Dependency of the region on external capital is not new…capital is not new…

Foreign Direct Investment as a share of GDP

0

0.5

1

1.5

2

2.5

3

1900 1914 1929 1938 1967 1980 1990

%

Latin America Asia Africa Total


Based on “Foreign Capital in Latin America in the Nineteeth and Twentieth Centuries” Taylor, A. (2003)Based on “Foreign Capital in Latin America in the Nineteeth and Twentieth Centuries” Taylor, A. (2003)

1.3 1.3

25

… …and today Latin America’s and today Latin America’s investment ratios remain low and limit investment ratios remain low and limit

growth potentialgrowth potential

Outwards FDI flows by region

0

10

20

30

40

50

60

70

80

90

1985

1988

1991

1994

1997

2000

2003

Bil

lions

of doll

ars

.

Latin America Asia

Source: International Financial Statistics,IMF and UNCTADSource: International Financial Statistics,IMF and UNCTAD

1.3 1.3

26

Four policy lessons for Latin America:Four policy lessons for Latin America:

2.12.1 CompetitivenessCompetitiveness

Trade diversificationTrade diversification2.22.2

Financial integrationFinancial integration2.32.3

Macroeconomic stabilizationMacroeconomic stabilization2.42.4

27

Source: C.HJ.Kwan, Nomura Institute of Capital Markets ResearchSource: C.HJ.Kwan, Nomura Institute of Capital Markets ResearchSource: OECD Development Centre, 2006Source: OECD Development Centre, 2006

Based on Working Paper by Blázquez, Rodríguez and Santiso, 2006Based on Working Paper by Blázquez, Rodríguez and Santiso, 2006

Competition is increasingly important: Competition is increasingly important: China is a wake up call for more reforms in the China is a wake up call for more reforms in the

regionregion

Asian countries competition* vs. Chinese exports to US, %

010203040506070

*Value of exports to US from China in same product categories as country´s exports, as % of country´s total exports to US

Latin American countries competition* vs. Chinese main export products

0%

10%

20%

30%

40%

50%

60%

*Arithmetic average of the following indexes: CC= and CS=

where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in time t.

å --n

njt

nit aa

2

11

åå

å

n

njt

n

nit

n

njt

nit

aa

aa

22 )()(

2.1 2.1

(2005) (2005)

% o

f exp

ort

s

% o

f exp

ort

s

28

Four policy lessons for Latin Four policy lessons for Latin America:America:





29

Trade diversification is required, so more Trade diversification is required, so more financial independence from external capital flowsfinancial independence from external capital flows

Source: BBVA; BBVA-MAP Latam index monitors the trading prices of commodities in the regionSource: BBVA; BBVA-MAP Latam index monitors the trading prices of commodities in the region

AverageAverage

Commodity exports as a share of total exports (2005)

0

10

20

30

40

50

60

70

80

90

Venezuela Peru Chile Colombia Argentina Brazil Mexico

%

2.2 2.2

30






31

There is still room for more local There is still room for more local savings and deepening of financial savings and deepening of financial

markets markets

OECD Countries

0

20

40

60

80

100

120

% o

f GD

P .

Non OECD Countries

0

20

40

60

80

100

120

% o

f G

DP

.

Importance of Pension funds in the Economy (2004)

Source: OECD Global Pension Statistics, 2005

2.3 2.3

AverageAverage

32

There is also still room for deeper There is also still room for deeper financial integration :financial integration :

Source: Schularick, 2006

Based on GDP figures from Maddison (1995, 2001)) in 1990 international dollars (PPP), and gross foreign investment data from Woodruff (1966) and Wilkins (1989) for 1913/14.

2.3 2.3

Average 1913 Average 1913 Average 2000 Average 2000

International Financial Integration Index (1913 vs 2000)

0

1

2

3

4

5

6

7

8

9

Brazil Turkey Argentina Mexico Chile Russia India China

Inte

grati

on Index

(0-1

0)

.

Integration Index 1913

Integration Index 2000

33






34

Source: Global Development Finance, The World Bank, 2005Source: Global Development Finance, The World Bank, 2005

Macroeconomic stabilization can Macroeconomic stabilization can still be improved:still be improved:

2.4 2.4

Evolution of international reserves

0

200

400

600

800

1000

1200

1400

1600

1800

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Res

erve

s (R

ES)

Bil

lion

s of (

U$)

. 02 East Asia & Pacific 04 Latin America & Caribbean

06 South Asia All developing countries

35

……stabilization through reserves can be stabilization through reserves can be difficultdifficult

Source: OECD Development Center, 2006Source: OECD Development Center, 2006


2.4 2.4

0

50

100

150

200

250

Brazil Mexico Argentina Chile Venezuela Peru Colombia

Res

erve

s (R

ES) B

illi

ons

of U

S$

.

0

50

100

150

200

250

China India Thailand Malaysia IndonesiaR

eser

ves

(RES) B

illi

ons

of U

S$ .

Average International Reserves (1996-2005)

36

Other stabilization mechanisms, Other stabilization mechanisms, such as fiscal, need to be enforcedsuch as fiscal, need to be enforced

Source: OECD Development Center, 2006Source: OECD Development Center, 2006

Based on Eduardo Lora, Inter-American Development Bank, 2006Based on Eduardo Lora, Inter-American Development Bank, 2006

AverageAverage

2.4 2.4

Tax revenue as a share of GDP (%) 2005

0

5

10

15

20

25

30

35

40

Brazil Chile Colombia Argentina Peru Mexico Venezuela

%

37

Concluding remarksConcluding remarks

• There are lessons for enhancing convergence of Latin American countries:

Competition is increasing: China is a wake up call to foster more reforms in Latin America towards competitiveness and productivity

Trade diversification is needed and would help to reduce vulnerabilities of the region

More financial integration is decisive as well as increasing financial independence

Reforms aiming at macroeconomic stabilization are needed for raising growth on a sustained basis

38

33 Institutional Reform and GrowthInstitutional Reform and Growth


Macroeconomic Policies for GrowthMacroeconomic Policies for Growth11

39

Democratic governments have reached Democratic governments have reached stability, but they are still youngstability, but they are still young

AverageAverage

Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.

MIT Press. Cambridge, Massachusetts, 2006MIT Press. Cambridge, Massachusetts, 2006

Based on the Inter-American Development BankBased on the Inter-American Development Bank

Democratic regimes in Latin America since transition (1978-2005)

0

5

10

15

20

25

30

35

40

Colombia Venezuela Peru Mexico Argentina Brazil Chile

Yea

rs

40

Political landscape may adjust as Latin Political landscape may adjust as Latin America faces several elections in America faces several elections in

2006…2006…

Source: Based on electoral authorities and local pressSource: Based on electoral authorities and local press

Country Election Date

Chile Presidential (2nd round) 15-Jan

Legislative 12-Mar

Presidential 28-May

Presidential 2nd round (if needed) 18-Jun

Presidential / Legislative 9-Apr

Presidential 2nd round (if needed) 7-May

Mexico Presidential / Legislative 2-Jul

Presidential / legislative / state 3-Oct

Presidential 2nd round (if needed) 29-Oct

Venezuela Presidential 3-Dec

Colombia

Peru

Brazil

41

……with the impact of presidential with the impact of presidential elections being different across elections being different across

countriescountries

Source: IADB Politics of Policies Report, 2006 and UNDP, 2005Source: IADB Politics of Policies Report, 2006 and UNDP, 2005

AverageAverage

Overall legislative Powers of Presidents in Latin America (2005)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Chile Brazil Colombia Peru Argentina Venezuela Mexico

Ov

era

ll l

eg

isla

tiv

e p

ow

ers

(a

ve

rag

es

)

.

42

Democratic temporality of mandates is Democratic temporality of mandates is important for the region…important for the region…

Terms of presidential mandates and possibilies of reelection in Latin America in 2006

CountryLength of

actual mandate

Length of previous mandate

Year of change

Immediate re-election

Non-Immediate re-election

Re-election forbidden

Year of change

Argentina 4 6 1994 1994

Brazil 4 5 1994 1997

Chile 6 (4 since 2005) 8 1993 / 2005

Colombia 4 4 1991

Mexico 6 6

Peru 5 5 1993

Venezuela 6 5 1999 1998

Total 4.7 5 7 4 8 6 9

Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.

MIT Press. Cambridge, Massachusetts, 2006MIT Press. Cambridge, Massachusetts, 2006

Based on the Inter-American Development Bank, 2006Based on the Inter-American Development Bank, 2006

43

……although economic performance although economic performance becomes less dependent on political becomes less dependent on political

cycles…cycles…

Source: OECD Development Centre.Source: OECD Development Centre.

BBased on Banco de Mexico, 2006ased on Banco de Mexico, 2006

Mexico Exchange rate depreciation (monthly)

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

%

Electoral periods

44

Governments continue to pursue Governments continue to pursue structural reforms for boosting structural reforms for boosting

growth…growth…Political reforms Economic reforms

Andeans State reform Free Trade Agreement (FTA) with United States

ICMS 1 (reduction of brackets)

Pension (pending amendments)

Central Bank authonomy

Labor reform

Union reform

Utilities regulation

Tax reforms

Region transfers reforms

Social Security (ISSSTE)

Labor reform

Energy sector Reform

Fiscal Reform

Education reforms

Pensions reforms

Education reforms

Labor reforms

Brazil State reform

Colombia State reform

Mexico State reform

ChileState reform

45

Governments need to enforce the Governments need to enforce the continuity of their policiescontinuity of their policies

Source: IADB Politics of Policies Report, 2006 Source: IADB Politics of Policies Report, 2006

Policy Stability Index (2005)

0 0.5 1 1.5 2 2.5 3 3.5 4

Venezuela

Argentina

Peru

Mexico

Colombia

Brazil

Chile

Stability Index (1-4 scale)

AverageAverage

46

Emerging democracies need to be Emerging democracies need to be consolidated:consolidated:

Source: IADB Politics of Policies Report, 2006 Source: IADB Politics of Policies Report, 2006

(2005)

47

……as they are decisive for the functioning as they are decisive for the functioning of democracy and the quality of policiesof democracy and the quality of policies

Source: IADB Politics of Policies Report, 2006 and UNDP, 2005 Source: IADB Politics of Policies Report, 2006 and UNDP, 2005

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0

Congressional Capability Index (1-3 scale)

Poli

cy I

ndex

(1-

4 s

cale

)

Congressional Capabilities and the Quality of Policies

48


• Political developments are promising:

Emerging democracies in Latin America are still consolidating

Governments need to enforce the continuity of their economic policies

Improving Congress capabilities will be crucial for the quality of these policies

49

33 Institutional Reform and GrowthInstitutional Reform and Growth


Macroeconomic Policies for GrowthMacroeconomic Policies for Growth11

50

Latin America’s competitiveness lies Latin America’s competitiveness lies behind other regions due to behind other regions due to

institutional flaws…institutional flaws…

Days to register a business

0

10

20

30

40

50

60

70

LatinAmerica

East Asia andPacific

South Asia OECD

Num

ber

of days

.

Cost of registration

0

10

20

30

40

50

60

LatinAmerica


South Asia OECD

% o

f G

NP p

er c

apit

a

.

1. Registration requirements

AverageAverage

Source: Doing Business, The World Bank 2006Source: Doing Business, The World Bank 2006

51

Policy towards the suppleness of labor Policy towards the suppleness of labor regulations can still be enforced…regulations can still be enforced…

2. Labor market costs

Hiring cost (% of salary)

0

5

10

15

20

25

LatinAmerica


South Asia OECD

% o

f sa

lary

.

Firing cost (weeks of wages)

0

10

20

30

40

50

60

70

80

LatinAmerica


South Asia OECD

Wee

ks

of w

age

s

.

AverageAverage


52

The fiscal setting is key to enhancing The fiscal setting is key to enhancing competitive markets in the region…competitive markets in the region…

3. Fiscal barriers

Number of taxes

0

10

20

30

40

50

60

LatinAmerica


South Asia OECD

Num

ber

of ta

xes

.

Total tax payable

0

10

20

30

40

50

60

LatinAmerica


South Asia OECD%

of G

ross

pro

fit

.

AverageAverage


53

There is still room for improving There is still room for improving business regulationsbusiness regulations


4. Temporal indicators of business regulation

Days to comply with licences

0

50

100

150

200

250

LatinAmerica


South Asia OECD

Num

ber

of days

.

Years to close a business

0

0.5

11.5

2

2.5

33.5

4

4.5

LatinAmerica


South Asia OECDN

um

ber

of ye

ars

.

AverageAverage

54

The institutional costs for productivity The institutional costs for productivity are not only financial but temporal…are not only financial but temporal…

Number of days needed to open a business

020406080

100120140160

Bra

zil

Venez

uela

Thaila

nd

Peru

Indi

a

Argen

tina

Colom

bia

Méx

ico

China

Sout

h Kor

ea

Chile

Uru

guay

Money needed to open a business (in US$)

0

500

1000

1500

2000

2500

Spai

n

Uru

guay

Sout

h Kor

ea

Méx

ico

Venez

uela

Peru

Colom

bia

Chile

Bra

zil

Argen

tina

Indi

a

China

Number of days needed to enforce a contract

0100200300400500600

Colom

bia

Peru

Bra

zil

Indi

a

Venez

uela

Uru

guay

Méx

ico

Argen

tina

Chile

China

Spai

n

Sout

h Kor

ea

Money needed toenforce a contract (in US$)

0

500

1000

1500

2000

2500

Venez

uela

Spai

n

Uru

guay

Chile

Argen

tina

Peru

Méx

ico

Indi

a

Sout

h Kor

ea

China

Colom

bia

Bra

zil

Nu

mb

er

of

days

Nu

mb

er

of

days

UD

$U

S$


55

Low confidence in institutions affect Low confidence in institutions affect their efficiency, and further reforms are their efficiency, and further reforms are

neededneededEffectiveness of lawmaking bodies (2004-2005)

0

0.5

1

1.5

2

2.5

3

3.5

4

Chile Brazil Colombia Mexico Peru Argentina Venezuela

1=V

ery

inef

fect

ive

7=V

ery

effe

ctiv

e

.

Mean score given by business executives (World Economic Forum))

AverageAverage

Source: IADB, 2006 Source: IADB, 2006

Based on Latinobarometer (1996–2004), World Economic Forum (2005), and Saiegh (2005) Based on Latinobarometer (1996–2004), World Economic Forum (2005), and Saiegh (2005)

56

Investor protection is important, if not Investor protection is important, if not sufficient, for boosting investmentsufficient, for boosting investment

AverageAverage

0

1

2

3

4

5

6

7

8

9

10

Singapore India Thailand Indonesia Korea China Philippines

Indic

es 0

-10

.

0

1

2

3

4

5

6

7

8

9

10

Peru Chile Colombia Argentina Brazil Mexico Venezuela

Indic

es

0-1

0

.

Strength of investor protection (2005)


57

Institutions are not the sole guarantee Institutions are not the sole guarantee for improving the investment climatefor improving the investment climate

Outwards FDI flows by region

0102030405060708090

1991 1994 1997 2000 2003

Bil

lions

of doll

ars

Latin America Asia

Source: World Bank and Cherchye and Moesen, 2005 Source: World Bank and Cherchye and Moesen, 2005

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Mexico Chile Argentina Colombia India China

Inst

ituti

onal

Qual

ity

.

Synthetic indicators of institutional quality (2005)

58

More importantly, the quality of policy More importantly, the quality of policy making needs to be addressed…making needs to be addressed…

Source: IADB Politics of Policies Report, 2006 and World Economic Forum, 2005Source: IADB Politics of Policies Report, 2006 and World Economic Forum, 2005

0 0.5 1 1.5 2 2.5 3 3.5 4

Stability

Enforcement andimplementation

Public regardedness

Efficiency

Policy index

Scale 1-4

OECD

East Asia

LatinAmerica

Key features of Public Policies: Inter-regional comparison

59


• Strengthening the institutional framework is part of

the process:

Latin American institutions remain perfectible

Institutional costs are not only financial but also temporal

Although institutions are not the magic box (and tool) for

better performance, improving the quality of the policy

making process remains a pending issue

60

Thank you for Thank you for your attention!your attention!

1 IMF SEMINAR ON REFORMS AND GROWTH IN LATIN AMERICA High Level IMF Seminar on Reforms and Growth in...

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