1

Promosalons

Paris 20 February 2006

Javier SantisoChief Development Economist & Deputy Director

OECD Development Centre

LATIN AMERICA:LATIN AMERICA:The political economy of the possibleThe political economy of the possible

2

LATIN AMERICA: IN THE GARDEN OF LATIN AMERICA: IN THE GARDEN OF DELIGHTS?DELIGHTS?

3

Utopia in Latin America: from a spacial search to a temporal search.

A search which has impregnated the history of Latin American political economy: from structuralism to monetarism, from Marxism to Liberalism. In the 20th Century the whole Continent was dancing a waltz of paradigms.

The famous decalogue of the Washington Consensus: yet another variation on this waltz.

THE FLOOD OF PARADIGMS IN LATIN THE FLOOD OF PARADIGMS IN LATIN AMERICAAMERICA

4

FROM MARXISM TO LIBERALISM: FROM MARXISM TO LIBERALISM: MODELS TO BE CREATEDMODELS TO BE CREATED

“The great ideological storms” (Isaiah Berlin).

A few decades ago one of the key words in the entire continent was “Revolution”; a projective concept which denotes a temporal Beyond.

Whether Cuban or Chilean, Marxist or Liberal, the Revolution will feed the time of tomorrows and the sacrifices of the immediate present.

The flood, as Albert Hirschman describes it, brought with it an “angry desire to conclude”, where rigid economic models constituted numerous invitations to design alternatives with no chiaroscuro; either all or nothing.

5

The transormations of the Latin American continent are now obvious.

In the region as a whole, the conceptual and practical framework of political economies have been transformed.

Democracy and the Market have taken over from Revolution and the State on the altar of references.

To sum up, a complete vocabulary and grammar have disappeared from the political and economic repertoire allowing a new ideology to emerge.

DEMOCRACY AND THE MARKET: THE DEMOCRACY AND THE MARKET: THE NEW ALPHABETNEW ALPHABET

6

The great transformation which took place in Latin America at the end of this century does not herald the arrival of the Good Liberal.

There was no transfer from one paradigm to another, instead a new cognitive style emerged.

We witness the failure of the whole idea of political utopia and the politicial economy of the impossible.

The failure of a cognitive style of macroeconomy of populism, similar to the purist monetarism of the Chicago Boys has only been the defense and illustration of the same concept.

THE GREAT TRANSFORMATION OF LATIN THE GREAT TRANSFORMATION OF LATIN AMERICAAMERICA

7

Perhaps we should not spend too much time mourning the passing away of the great reforming impulses.

A detailed study carried out by Hausmann and Rodrik in 2004, proves that most economic accelerations were not preceded by reforming big-bangs, or by marked politicial or economic ruptures.

This empirical study covers a wide range of 83 sustained world growth patterms between 1957 and 1992 (above two percentage points over a period of at least eight years).

A BLESSING IN DISGUISE FOR LATIN A BLESSING IN DISGUISE FOR LATIN AMERICA?AMERICA?

8

THE EMERGENCE OF THE POLITICAL THE EMERGENCE OF THE POLITICAL ECONOMY OF THE POSSIBLEECONOMY OF THE POSSIBLE

The strategy used by Ulysses: leaders know that they could be in danger of succumbing to the temptation of the sirens chanting the economic politics of the impossible.

They are cautious and they tie themselves to the masts of the fiscal and monetary institutions they have contribute to build.

Two strategies of development are being outlined – and sometimes combined- in the region: one is an anchor of endogenous credibility, coming from within, and the other isan anchor of exognous credibility, getting its inspiration from external factors.

9

THE POLITICAL ECONOMY OF THE POSSIBLE:THE POLITICAL ECONOMY OF THE POSSIBLE:THE LATAM SILENT TRANSFORMATIONTHE LATAM SILENT TRANSFORMATION

10

11 Latin America’s CrusadeLatin America’s Crusade

The Great Latin American TransformationThe Great Latin American Transformation22

11

33 ConclusionConclusion

11

CEPAL: Latin American Economic Commission

THE BIG CHALLENGE: THE LIFE AFTER THE BIG CHALLENGE: THE LIFE AFTER THE “WASHINGTON CONSENSUS”THE “WASHINGTON CONSENSUS”

Index of Structural Reforms in Latin America

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

CEPAL

IDB

IDB: Inter American Development Bank

Source: Based on CEPAL and IDB

12

A DISAPPOINTING PERFORMANCE IN A DISAPPOINTING PERFORMANCE IN THE REGION…THE REGION…

Source: Based on World Bank

Not only was growth poor but it was also very volatile.

Sout East Asia 7.7%

World 3.3%

USA 3.1%

Latin America 2.8%

EU 2.3%

last 25 years

Latin America 2.3%

South East Asia 2.2%

USA 2.1%

EU 1.1%

World 1.0%

Volatibility of growth

last 25 years

Source: Based on World Bank

13

……THE CONSEQUENCE HAS BEEN A THE CONSEQUENCE HAS BEEN A DIVERGENCE IN THE EVOLUTION OF DIVERGENCE IN THE EVOLUTION OF

INCOME PER CAPITAINCOME PER CAPITA

With the exception of the 70s when Latin America attained an average growth rate of 6% ...

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

70's 80's 90's 00's

Crecimiento promedio

Sudeste asiático

América Latina

EEUU

UE

… during succeeding decades the income per capita gap between the developped regions widened. 8600

29700

Evolución del PIB per cápita ($ PPP)

0

5000

10000

15000

20000

25000

30000

35000

40000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Fuente: BBVA en base a FMI

América Latina

UE (15)

EEUU

14

HOWEVER, 2003 BROUGHT A CHANGE HOWEVER, 2003 BROUGHT A CHANGE IN TENDENCY...IN TENDENCY...

Source: BBVA

4.0E+10

4.5E+10

5.0E+10

5.5E+10

6.0E+10

6.5E+10

7.0E+10

7.5E+10

8.0E+10

8.5E+10

9.0E+10

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

-4%

-2%

0%

2%

4%

6%

8%

Crecimiento Latam y cambios de tendencia

Indicador de cambios de tendencia

Crecimiento

During the second half of the 90’s, the tendency in regional growth broke down and suffered a deceleration.

Since 2003, the region is booming in a synchronised way.

The indicator for the change in tendency is an index of measurement for changes in the cycle. It marks the beginning of expansive and recessive stages of the economic cycles.

15

AN UPWARD TURN BEGAN WITH A NEW AN UPWARD TURN BEGAN WITH A NEW CYCLE IN 2004-2006....CYCLE IN 2004-2006....

Latin American Cycles

The last cycle in the region was very long (11 years), especially compared to previous ones which lasted 8 years.

Source : BBVA

8 años 8 años 11 años

1980

1987

1997

1983

19912003

Average LengthExpansions: 5,3 yearsDecelerations: 4 years

16

ARE WE REACHING A NEW CYCLE?ARE WE REACHING A NEW CYCLE?

Cycles in Latin America

Source: BBVA

8 años 8 años 11 años

Moreover, there were two “sharp interruptions” (the Tequila crisis in 1995 and the Russian crisis in 1998).

2004

17

THE SCENARIO OF US AND WORLD THE SCENARIO OF US AND WORLD ACTIVITY IS KEY ACTIVITY IS KEY

In spite of the fact that variable factors such as the cost of raw materials cause the opposite economic effect in Latin America as opposed to developped countries, regional growth is closely linked to the growth patterns of USA.

Correlation = 0,80

Cyclical Situation in USA and Latin America

Source: Based on ECLAC and IMF

USA

Latin America

Tendency

18

THE WORLD OUTLOOK FOR THE THE WORLD OUTLOOK FOR THE FOLLOWING YEARS IS GOODFOLLOWING YEARS IS GOOD

0

1

2

3

4

5

6

19

811

982

19

831

984

19

851

986

19

871

988

19

891

990

19

911

992

19

931

994

19

951

996

19

971

998

19

992

000

20

012

002

20

032

004

20

052

006

World growth exLatam%

Source: OECD

Growth in USA remained strong in 2005 and will keep growing in 2006.

China will continue to boost world demand in 2006 having grown 9,9% in 2005 and 9,6% on average over the last 25 years.

Evolution of income percapita

(constant dollars in 1996)

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Brazil

China

19

CHINA CONTRIBUTE TO GROWTH IN CHINA CONTRIBUTE TO GROWTH IN LATIN AMERICALATIN AMERICA

Source: Based on domestic sources, before the revised figures released in Jnauary 2006.

0

1

2

3

4

5

6

7

8

9

10

1997 1999 2001 2003 2005

Growth of GDP in China(Annual percentage

variation)

0

1

2

3

4

5

6

7

8

9

10

Chile

Arg

enti

na

Perú

Bra

sil

Uru

guay

Venezu

ela

Colo

mbia

Méxic

o

Exports to China in 2003(Percentage of total)

20

Venezuela 83.1%

Peru 70.7%

Chile 59.1%

Colombia 46.3%

Argentina 38.0%

Brazil 29.6%

Mexico 14.6%

Latam 31.2%

Source: BBVA

over total exports (2004)

Exports of commodities

60

70

80

90

100

110

120

130

140

150

160

170

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Source: BBVA

BBVA-MAP Index of Latin America commodity prices (100 =jan03)

TOTAL

Without oil

COMMODITY BOOM HAS BEEN A BONANZACOMMODITY BOOM HAS BEEN A BONANZA

21

… … BOOSTING GROWTHBOOSTING GROWTH

The higher volatility in the price of these products is reflected in the cycle.

-1%

0%

1%

2%

3%

4%

5%

6%

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04 -30%

-20%

-10%

0%

10%

20%

30%GDP and BBVA MAP Latam

Source: BBVA

GDP growth

Crecim BBVA-MAP

The BBVA-MAP Latin America is a price indicator for net exports of raw materials in the region.

Correlación = 0,65

22

11 Latin America’s CrusadeLatin America’s Crusade

The Great Latin American TransformationThe Great Latin American Transformation22

11

33 ConclusionConclusion

23

THE GREAT TRANSFORMATION: THE MONETARY MAST

0

50

100

150

200

250

Latin America Total Emerging Markets

Inflation (%)

Source: Based on IMF

24

With the sole exception of Venezuela, significant advances are being achieved in the reduction of fiscal deficit.

In the last recessive phase the consensus in fiscal discipline became apparent.

THE GREAT TRANSFORMATION: THE FISCAL MAST

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%Public deficit (% over GDP)

1999

2004p

Source : BBVA

25

THE GREAT TRANSFORMATION: THE EXTERNAL ANCHOR

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

(e)

Commercial Openings in Latin America

Source: BBVA

0% 10% 20% 30% 40% 50% 60% 70%

Mexico

Chile

Venezuela

Uruguay

Argentina

Colombia

Peru

Brazil

Commercial Openings in 2004

Source: BBVA en base a fuentes nacionales

-3,2

-4,3

-3,1

-2,3 -2,5

-0,5

0,1

1,30,7

-5

-4

-3

-2

-1

0

1

2

1997 1998 1999 2000 2001 2002 2003 2004 2005

Current Account Latam

Source BBVA

% s

obre

PIB

26

The political economy of the possible: ChileThe political economy of the possible: Chile

27

CHILE HAS INNOVATED IN ECONOMIC CHILE HAS INNOVATED IN ECONOMIC POLICY ...POLICY ...

Year Goal Adopted and Initial Inflation

Chile

CanadaN. Zealand

Israel

UK

Finland

Suecia

Spain

Australia

Rep. Czechj

KoreaPoland

S.Africa

Brazil ThailandSuiza

Island

Norway

Colombia

Mexico

Peru

0

5

10

15

20

25

30

35

40

45

1990 1992 1994 1996 1998 2000 2002

Ta

sa d

e In

fla

ció

n (

%)

Source: Central Bank of Chile

28

… … FAVOURING GRADUAL ADJUSTMENTS FAVOURING GRADUAL ADJUSTMENTS ……

Anual Inflation (%)

0

5

10

15

20

25

30

3519

83

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Source: BBVA

29

… … AGAINST THE “RAGE DE VOULOIR AGAINST THE “RAGE DE VOULOIR CONCLURE”CONCLURE”

0

20

40

60

80

100

120

1960-64 1965-70 1971-73 1974-81 1982-84 1985-95 1995-00 2000-05

Average Tariff (%)

Country Subscribed Validity

Bolivia 06/04/1993 07/07/1993Colombia 06/12/1993 01/01/1994Ecuador 20/12/1994 01/01/1995Mercosur 25/06/1996 01/10/1996Perú 22/06/1998 01/07/1998Cuba 21/08/1998Venezuela 02/04/1993 01/07/1993Canadá 05/12/1996 05/07/1997Corea del Sur 15/02/2003 01/04/2004Costa Rica 18/10/1999 14/02/2002El Salvador 18/10/1999 03/06/2002EEUU 06/06/2003 01/01/2004Guatemala 18/10/1999Honduras 18/10/1999México 01/10/1998 01/08/1999Nicaragua 18/10/1999UE 18/11/2002 01/02/2003 .

Free Trade Agreements

In the 1960s, there was already consensus in favour of an opening. The debate centred on two main issues:The spread of opening and the advantage/disadvantage of differentiated tariffs. With the return of democracy, The process of unilateral and joint reductions of tariffs was complemented with bilateral treaties.

30

Evolution of the Pension System in Latin America (in % of GDP)

0%

5%

10%

15%

20%

25%

30%

1 2 3 4 5 6 7 8 9 1 11

Num. periods

ARGENTINA BOLIVIA COLOMBIACOSTA RICA CHILE EL SALVADORMEXICO PERU URUGUAY

Return of Democracy

SUCCESSFUL POLICIES ARE CONTINUED: SUCCESSFUL POLICIES ARE CONTINUED: PENSION SYSTEMPENSION SYSTEM

31

…….. BUT WITH GRADUAL INCREASES.. BUT WITH GRADUAL INCREASES

0%

10%

20%

30%

40%

50%

60%

70%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Num. periods

ARGENTINA BOLIVIA COLOMBIA COSTA RICA CHILE

EL SALVADOR MEXICO PERU URUGUAY

Retorno a democrácia

Evolution of Pension Funds in Latin America (in % of GDP)

32

The political economy of the possible: MexicoThe political economy of the possible: Mexico

33

MONETARY ANCHOR: THE CENTRAL BANK MONETARY ANCHOR: THE CENTRAL BANK A KEY ACTOR FOR LOWERING INFLATIONA KEY ACTOR FOR LOWERING INFLATION

Source: Banxico

Inflation(Percentage)

0

20

40

60

80

100

120

140

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

Difference between underlying inflation and Banxico goal

(Percentage)

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

may-9

8

sep

-98

ene-9

9

may-9

9

sep

-99

ene-0

0

may-0

0

sep

-00

ene-0

1

may-0

1

sep

-01

ene-0

2

may-0

2

sep

-02

ene-0

3

may-0

3

sep

-03

ene-0

4

may-0

4

sep

-04

... Perspectives are now anchored at levels around

4%.

As in the rest of the region inflation has been considerably reduced ...

34

FISCAL ANCHOR: HEALTHY PUBLIC FISCAL ANCHOR: HEALTHY PUBLIC FINANCESFINANCES

Source: Banxico figures

Public Sector financing requirements(Percentage of GDP)

-10

-5

0

5

10

15

20

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

Income from OilAs a percentage of the total)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

.. .. however, the government still depends on oil to finance it’s expenditures.

Public debt has been considerably reduced ...

35

EXTERNAL ANCHOR: THE EMERGENCE OF A EXTERNAL ANCHOR: THE EMERGENCE OF A GLOBAL TRADERGLOBAL TRADER

Mexican exports increased on average by 17% each year between 1989 and 2004 ...

Total Exports

0

20

40

60

80

100

120

140

160

180

200

1980/12 1984/12 1988/12 1992/12 1996/12 2000/12 2004/12

Degree of Openness((X+M)/PIB)

20

25

30

35

40

45

50

55

60

China Chile Mex Tur Col Arg Perú Bra Ind

... Which has resulted in a greater degree of openness

Source: INEGI and Banxico

36

THE COUNTRY NOW DEPENDS A LOT THE COUNTRY NOW DEPENDS A LOT LESS ON RAW MATERIALES LESS ON RAW MATERIALES

The export of manufactured goods grew on average between 1990 and 2000, about 28% per year and now accounts for 90% of total exports.

Exports

0

20

40

60

80

100

120

140

160

180

200

1980/12 1984/12 1988/12 1992/12 1996/12 2000/12 2004/12

No petroleras

Petroleras0,0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1,0

Arg

entin

a

Bol

ivia

Bra

sil

Chi

le

Col

ombi

a

Cos

ta R

ica

Ecua

dor

El S

alva

dor

Gua

tem

ala

Hon

dura

s

Méx

ico

Nic

arag

ua

Para

guay

Perú

Uru

guay

Vene

zuel

a

1986-1988 1999-2001

Herfindahl-Hirschman Index Exports by receiver countries (1986-1988 y 1999-2001).

37

MOREOVER, TLCAN HAS MEANT THAT THE MOREOVER, TLCAN HAS MEANT THAT THE COUNTRY HAS BECOME “ANCHORED” TO THE COUNTRY HAS BECOME “ANCHORED” TO THE

ECONOMY OF USAECONOMY OF USA

The new productive structure has caused the economic cycle to become more stable , and volatility has become a thing of the past.

GDP in Mexico and Industrial Production in USA .(Percentage of Anual Exchange)

-8

-6

-4

-2

0

2

4

6

8

10

19

96

19

97

19

98

19

99

20

00

20

01

p/

20

02

20

03

20

04

Mexico GDP

US industrial production.

Recovery of GDP(Índice=100 maximum)

80

85

90

95

100

105

110

-2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

1981 1985 1994 2000

Quarters after the crisis

Source: INEGI and Banxico

38

The political economy of the possible: BrazilThe political economy of the possible: Brazil

39

EXTERNAL TRANSFORMATIONEXTERNAL TRANSFORMATION

Following the 1999 devaluation which give way to the floating of the real, the economy has gradually opened up, making it less vulnerable to external shocks.

Source: Based on BCB figures

0%

5%

10%

15%

20%

25%

30%

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Commercial opening(Exports + Imports) / GDP

40

TRADE OPENESS AND CATCHING UP TRADE OPENESS AND CATCHING UP PROCESSPROCESS

Successful Asian emerging countries were able to simultaneously combine growth with a trade openness proccess.

Brazil has recently started to open up its economy. It is also obtaining record trade surpluses: nearly 45 billion dollars in 2005; up 25% from the previous year.

-1,0

-0,8

-0,6

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0

0,0 0,2 0,4 0,6 0,8 1,0 1,2

Thailand Taiwan South Korea Japan India China

2001-04

1951-55

2001-04

1951-55

Trade openness and development

Real tradeopenness(as a % of GDP)

Dev

iation

ofRea

l GDP pe

rcap

ita with

resp

ectt

owor

ldav

erag

e(in

loga

rith

ms)

Source: BBVA using Penn World Tables and IMF data

1951-55

2001-04

0%

5%

10%

15%

20%

25%

30%

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Brazilian Real Trade Openness(as a % of GDP)

Source: BBVA

41

Top 100 firms in Latin-America

45

40

8

31 1 1 1

0

10

20

30

40

50

Brazil Mexico Chile Argentina Ecuador Colombia Peru Venezuela

Source: America Economia 2005

BRAZILIAN FIRMS BEGAN TO EXPAND BRAZILIAN FIRMS BEGAN TO EXPAND OVERSEASOVERSEAS

Rk Firm Sector Exports04 (US$ Mill) % of sales % of sales

3 Petrobras Petroleum 6.728,7 16,5 11,212 Vale do Rio Doce Mining 2.433,5 23,5 30,632 Grupo Votorantim Holding 1.544,6 26,6 18,948 Usiminas Steel 1.137,3 24,7 9,121 Gerdau Steel 1.066,7 14,4 11,663 Gerdau Açominas Steel 935,6 24,5 22,440 Telesp Telecom 821,7 16,4 -66 CSN Steel 746,6 20,2 20,2

144 CST Steel 611,9 31,9 53,594 Cemig Electricity 521,7 19,4 -20 Electrobras Electricity 487,2 6,5 -62 Embraer Aerospace 473,1 12,3 86,952 Ambev-CBB Drinks 437,6 9,7 -

208 Aracruz Celulose Paper 402,5 31,3 61,8102 Balgo Mineira Steel 391,6 15,5 -143 Cosipa Steel 363,2 18,8 33,531 Telemar Norte Leste Telecom 345,5 5,9 -16 Odebrecht Holding 320,2 3,9 -

Utility

42

Number of firms in Forbes 2000

0

5

10

15

20

25

30

35

India Spain China Brazil Mexico Chile

Source: Forbes 2000

BRAZILIAN FIRMS RALLIED MEXICAN BRAZILIAN FIRMS RALLIED MEXICAN MULTILATINASMULTILATINAS

The 50 more profitable firms

19

16

7

3

1 1 1 1 1

0

5

10

15

20

Brazil Mexico Chile Argentina Colombia Ecuador Panama Peru Venezuela

Source: America Economia 2005

43

THE CHINESE BONANZATHE CHINESE BONANZA

Brazilian products hardly compete at all with Chinese goods in international goods markets, and, moreover, the tendency is for these levels to drop.

Commercial Competition with China

0.200.250.30

0.350.400.450.500.550.600.650.70

0.25 0.35 0.45 0.55 0.65

México

Source: Blázquez, Rodríguez y Santiso, 2005

TailandiaHungría

EEUU Rep. Checa

España

PoloniaJapón

Brazil

Coe

f de

conf

orm

idad

Coef de especializaciónCommercial competition between China and Brazil

25%

27%

30% 30%

28%

25%

23%24%25%26%27%28%29%30%31%

1998 1999 2000 2001 2002 2003Source: Blázquez, Rodríguez y Santiso, 2005

44

11 Latin America’s CrusadeLatin America’s Crusade

The Great Latin American TransformationThe Great Latin American Transformation22

11

33 ConclusionConclusion

45

VENEZUELA

ECUADOR

PERÚ

PARAGUAY

ARGENTINA

URUGUAY

MÉXICO

BRAZIL

COLOMBIA

CHILE

EL SALVADOR

NICARAGUA

HONDURAS

COSTA RICA

GUATEMALA

PANAMÁ

REPÚBLICA DOMINICANA

BOLIVIA

Next presidential elections

2007 - 200920062004 - 2005

Latin America 2006: The political cycle is Latin America 2006: The political cycle is backback

46

The timing game: Political cycles and crises The timing game: Political cycles and crises in Latin America used to be synchronized, in Latin America used to be synchronized,

1970-20001970-2000

Nominal exchange rate depreciationand government change

0,94

0,96

0,98

1

1,02

1,04

1,06

1,08

1,1

1,12

1,14

1,16

-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9

Source: Frieden, Ghezzi y Stein, 2001

Country`s Total Elections 1 Colombia 13 1989 172 Costa Rica 11 1990 143 Guatemala 11 1991 34 Ecuador 10 1992 05 Chile 10 1993 106Peru 10 1994 187 Honduras 10 1995 68 Paraguay 9 1996 89Brazil 9 1997 7

10 El Salvador 9 1998 1511Republica Dom. 9 1999 1212 Uruguay 9 2000 1113Mexico 9 2001 414 Argentina 8 2002 1315 Nicaragua 8 2003 816Panama 8 2004 617 Venezuela 8 2005 518 Bolivia 7 2006 11

47

During the period 2000-2005, some During the period 2000-2005, some countries achieved a decoupling: The case countries achieved a decoupling: The case

of Mexicoof Mexico

-30

-20

-10

0

10

20

30

40

50

60

7001

/01/

1975

01/1

0/19

76

01/0

7/19

78

01/0

4/19

80

01/0

1/19

82

01/1

0/19

83

01/0

7/19

85

01/0

4/19

87

01/0

1/19

89

01/1

0/19

90

01/0

7/19

92

01/0

4/19

94

01/0

1/19

96

01/1

0/19

97

01/0

7/19

99

01/0

4/20

01

Source: Jorge Blázquez and Javier Santiso, 2004.

Timing of Presidential Elections and Timing of Presidential Elections and Exchange Rate Depreciations in Mexico, Exchange Rate Depreciations in Mexico,

1975-20001975-2000 Election Year

Election Year

Election Year

48

While others had overcome the test of While others had overcome the test of fire more recently: The case of Brazilfire more recently: The case of Brazil

20%

25%

30%

35%

40%

45%

-180

-80

20

120

220

320

420

520

bp

Voter intention for Lula in the opinion polls

(left)

Spread Brazil-Emerging Countries and Electoral Polls1994

20%

22%

24%

26%

28%

30%

32%

-100

-50

0

50

100

150

200

pb.

Voter intention for Lula in the opinion polls

(left)

Spread Brazil-Emerging Countries and Electoral Polls1998

Source: Based on Juan Martínez and Javier

Santiso, 2003.

20%

25%

30%

35%

40%

45%

0

200

400

600

800

1000

1200

1400

Voter intention for Lula in the opinion polls

(left)

bp.Spread Brazil-Emerging Countries and Electoral Polls2002

Source: Datafolha, JP Morgan

49

Thank youThank youfor your attention!for your attention!