LatinMacroWatch Special Analysis
description
Transcript of LatinMacroWatch Special Analysis
LatinMacroWatch
Special Analysis
LatinMacroWatch
Special Analysis
8-7-028-7-02
LMW: the Big Picture on a Small Screen
A new RES feature
August 7, 2002August 7, 2002
LAC-7 Outlook: The Specter of Capital FlightLAC-7 Outlook:
The Specter of Capital Flight
Prepared for Presentation at IADB Board of Directors, Prepared for Presentation at IADB Board of Directors, WashingtonWashington, DC, DC
33
KEY QUESTIONSKEY QUESTIONS
What’s behind the current sharp growth What’s behind the current sharp growth slowdown in the region? Is there evidence of slowdown in the region? Is there evidence of Contagion? What kind?Contagion? What kind?
Are the G-7 shooting in the right direction? Are the G-7 shooting in the right direction? Should Moral Hazard be their main concern?Should Moral Hazard be their main concern?
How likely is it for the region to enter a new How likely is it for the region to enter a new “lost decade”?“lost decade”?
What is likely to happen in Brazil?What is likely to happen in Brazil?
What should IDB do?What should IDB do?
OUTLINE
I. I. Capital Flight and Macroeconomic Capital Flight and Macroeconomic PerformancePerformance
II.II. The Specter of Capital FlightThe Specter of Capital Flight
III.III. Vulnerabilities to Capital Flight: Recent Vulnerabilities to Capital Flight: Recent Experiences of Argentina, Uruguay and BrazilExperiences of Argentina, Uruguay and Brazil
IV.IV. Summary and the Role of the IADBSummary and the Role of the IADB
LAC-7 Business Cycle: 1997-2002(s.a. GDP, mean annualized quarterly growth rate)
Includes: Argentina Brazil, Chile, Colombia, Mexico, Peru and Venezuela
Deceleration Recession Recovery Stalling
-7%
-5%
-3%
-1%
1%
3%
5%
7%
9%1
997
.I
199
7.II
I
199
8.I
199
8.II
I
199
9.I
199
9.II
I
200
0.I
200
0.II
I
200
1. I
200
1.II
I
200
2.I
70
80
90
100
110
120
130
1998
.II
1998
.III
1998
.IV
1999
.I
1999
.II
1999
.III
1999
.IV
2000
.I
2000
.II
2000
.III
2000
.IV
2001
. I
2001
.II
2001
.III
2001
.IV
2002
.I
Exports
Consumption
Investment
Recession StallingRecovery
LAC-7 Components of Demand(1998.II = 100)
Includes Argentina, Brazil, Chile, Colombia, Mexico, Peru
LAC-7 Capital Flows(4 quarters, millions of US dollars and % of GDP )
Includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela
0
20000
40000
60000
80000
100000
1200001
997
-I
199
7-I
II
199
8-I
199
8-I
II
199
9-I
199
9-I
II
200
0-I
200
0-I
II
200
1-I
200
1-I
II
200
2-I
0%
1%
2%
3%
4%
5%
6%
% of GDP
Millions of US dollars
LAC-7 Non-FDI Capital Flows(4 quarters, millions of US dollars and % of GDP )
Includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela
-60000
-40000
-20000
0
20000
40000
600001
997
-I
199
7-I
II
199
8-I
199
8-I
II
199
9-I
199
9-I
II
200
0-I
200
0-I
II
200
1-I
200
1-I
II
200
2-I
-4%
-3%
-2%
-1%
0%
1%
2%% of GDP
Millions of US dollars
LAC-7 Business Cycle and Capital Flows (GDP and Non FDI Capital Flows, last four quarters)
-3%-2%-1%0%1%2%3%4%5%6%7%
Ma
r-9
6
Se
p-9
6
Ma
r-9
7
Se
p-9
7
Ma
r-9
8
Se
p-9
8
Ma
r-9
9
Se
p-9
9
Ma
r-0
0
Se
p-0
0
Ma
r-0
1
Se
p-0
1
Ma
r-0
2
GD
P (
yoy
% c
han
ge)
-4%
-3%
-2%
-1%
0%
1%
2%
No
n F
DI C
apit
al F
low
s (%
GD
P)
GDP
Non FDI Capital Flows
OUTLINE
I. I. Capital Flight and Macroeconomic Capital Flight and Macroeconomic PerformancePerformance
II.II. The Specter of Capital FlightThe Specter of Capital Flight
III.III. Vulnerabilities to Capital Flight: Recent Vulnerabilities to Capital Flight: Recent Experiences of Argentina, Uruguay and BrazilExperiences of Argentina, Uruguay and Brazil
IV.IV. Summary and the Role of the IADBSummary and the Role of the IADB
1111
-20
0
20
40
60
80
100
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Net Private Capital Flows to LAC(Billions of real US dollars of May 2002, deflated by US CPI)
Source: WEO, IMF
1212
0
10
20
30
40
50
60
70
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Net Direct Investment to LAC(Billions of real US dollars of May 2002, deflated by US CPI)
Source: WEO, IMF
1313
-60
-40
-20
0
20
40
60
80
100
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Financial Flows to LAC(Billions of real US dollars of May 2002, deflated by US CPI)
Financial Flows= Net Portfolio Investment + Othe Ner Investment
Source: WEO, IMF
1414
Cumulative Total Private Capital Flows to LAC (Billions of real US dollars of May 2002, deflated by US CPI)
Source: WEO, IMF
0
50
100
150
200
250
300
350
400
450
500
-60
-40
-20
0
20
40
60
801974-1981 1982-1989
FDI Total Private Flows
Financial Flows
FDI Total Private Flows
Financial Flows
1515
Cumulative Total Private Capital Flows to LAC (Billions of real US dollars of May 2002, deflated by US CPI)
Source: WEO, IMF
0
100
200
300
400
500
600
-100
-50
0
50
100
150
200
250
FDI Total Private Flows
Financial Flows
1990-1998 1999-2001
FDI Total Private Flows
Financial Flows
1616
0
100
200
300
400
500
600
700
Financial Flows FDI Total Private Flows
Cumulative Total Private Capital Flows to LAC: 1990-2001(Billions of real US dollars of May 2002, deflated by US CPI)
Source: WEO, IMF
1717
Cumulative Total Private Capital Flows to Asia (Billions of real US dollars of May 2002, deflated by US CPI)
Source: WEO, IMF
0
100
200
300
400
500
600
-200
-150
-100
-50
0
50
100
150
1989-1997 1998-1999
FDI Total Private Flows
Financial Flows
FDI Total Private Flows
Financial Flows
OUTLINE
I. I. Capital Flight and Macroeconomic Capital Flight and Macroeconomic PerformancePerformance
II.II. The Specter of Capital FlightThe Specter of Capital Flight
III.III. Vulnerabilities to Capital Flight: Recent Vulnerabilities to Capital Flight: Recent Experiences of Argentina, Uruguay and BrazilExperiences of Argentina, Uruguay and Brazil
IV.IV. Summary and the Role of the IADBSummary and the Role of the IADB
Exposure of the Public Sector to Capital Flight(Public Debt in % of GDP)
5%
15%
25%
35%
45%
55%
65%
Uruguay Argentina Brazil Chile
In US$
In domestic currency
Current levelsPre- Capital Flight levels
0%
10%
20%
30%
40%
50%
60%
70%
80%
Argentina Uruguay Brazil Chile
Exposure of the Private Sector to Capital Flight(Share of foreign currency loans to the non financial private sector)
Current levelsPre- Capital Flight levels
Exposure of the Financial System to the Public SectorCredit to the public sector in % of total assets
0%
5%
10%
15%
20%
25%
30%
Brazil Argentina Uruguay Chile
Current levelPre- Capital Flight levelCurrent level
Vulnerability to Capital Flight: A Summary
Brazil ChileArgentina Uruguay
Financial Mismatches of the Private Sector
= High vulnerability
= Medium vulnerability
= Low vulnerability
Financial mismatches of the Public Sector
Public Debt to GDP
Banking System Exposure to the Public Sector
BRAZIL
600
800
1000
1200
1400
1600
1800
2000
2200
24001/
2/01
3/2/
01
5/2/
01
7/2/
01
9/2/
01
11/2
/01
1/2/
02
3/2/
02
5/2/
02
7/2/
02
basi
s po
ints
1.9
2.1
2.3
2.5
2.7
2.9
3.1
R$
per
dolla
r
nominal exchange rate
EMBI+ spread
Exchange Rate and Country Risk
Public Debt(% of GDP)
45
47
49
51
53
55
57
59
61
En
e-0
0
Ma
r-0
0
Ma
y-0
0
Jul-
00
Se
p-0
0
No
v-00
En
e-0
1
Ma
r-0
1
Ma
y-0
1
Jul-
01
Se
p-0
1
No
v-01
En
e-0
2
Ma
r-0
2
Ma
y-0
2
Level: US$ 263.8 billion (58.6% of GDP)
Public Debt StructureJune 2002
Indexed to the Interest Rate
40%
Fixed
Rate 7%
Others
9%
External or FX indexed Public Debt
44%
Banks’ Exposure to the Public Sector Public Bond Holdings
0%
50%
100%
150%
200%
250%
300%
350%
In % of Banks’ Assets In % of Banks’ Net Worth
Fiscal SustainabilityApril 2002
54.5% 10.9% 3.5% 3.9%
Public Debt (% of GDP) Interest Rate Growth Rate
Primary Balance
3.4%
Required Observed
Adjustment = 0.5%
Public Debt Dynamics
April 2002
Fiscal Impact of:
54.5% 10.9% 3.5% 3.9%
Public Debt (% of GDP)
Interest Rate
Growth Rate
Primary Balance that stabilizes Debt
10% real depreciation
57.2% 10.9% 3.5% +0.2%
10% real depreciation
57.2% 10.9% 3.5% +0.2%
Public Debt Dynamics
April 2002
Fiscal Impact of:
54.5% 10.9% 3.5% 3.9%
Public Debt (% of GDP)
Interest Rate
Growth Rate
Primary Balance that stabilizes Debt
1% increase in the domestic interest rate
54.5% 11.4% 3.5% +0.3%
10% real depreciation
57.2% 10.9% 3.5% +0.2%
1% increase in the domestic interest rate
54.5% 11.4% 3.5% +0.3%
April 2002
Fiscal Impact of:
54.5% 10.9% 3.5% 3.9%
Public Debt (% of GDP)
Interest Rate
Growth Rate
Primary Balance that stabilizes Debt
1% reduction in the growth rate
54.5% 10.9% 2.5% +0.6%
Public Debt Dynamics
Liquidity Requirements of the Public Sector
(Millions of US dollars)July 02 - Dec 02 July 02 - June 03
I. FISCAL DEFICIT (est.) 11,535 20,787
II. PUBLIC DEBT AMORTIZATIONS 46,768 88,861
Domestic Debt 41,005 75,282
External Debt 5,763 13,580
III. (I) + (II) 58,303 109,649
IV. MONETARY BASE 19,000 19,000
V. POTENTIAL LIQUIDITY REQUIREMENTS: (III) + (IV) 77,303 128,649
Liquid International Resources of the Public Sector(Millions of US dollars)
I. International Reserves (end June without IMF loan) 32,000
II. IMF Credit Line 10,000
III. Total Available Liquid Funds ( I+II) 42,000
Note: Under the IMF agreement there is an agreed floor for reserves of US$ 15 billion.
In % of July02-Dec02 Liquidity Req.
In % of July02-May03 Liquidity Req.
54%
33%
Total Gross Private External DebtIn millions of US$
50000
70000
90000
110000
130000
150000
1700001
997
-IV
199
8-I
199
8-I
I
199
8-I
II
199
8-I
V
199
9-I
199
9-I
I
199
9-I
II
199
9-I
V
200
0-I
200
0-I
I
200
0-I
II
200
0-I
V
200
1-I
200
1-I
I
200
1-I
II
200
1-I
V
Liquidity Requirements of the Private Sector
(Millions of US dollars)
July 02 - Dec 02 July 02 - June 03
EXTERNAL DEBT AMORTIZATIONS 16,370 28,309
Medium and Long Term 9,694 14,957
Short Term 6,676 13,352
Capital flight and financial collapse can generate:
severe productive disruptionssevere productive disruptions
political instabilitypolitical instability
social unrestsocial unrest
… … and these conditions may validate the initial and these conditions may validate the initial flight. Furthermore the disruptive effects of the flight. Furthermore the disruptive effects of the flight of financial capital can frighten FDI and flight of financial capital can frighten FDI and thereby multiply its effects. thereby multiply its effects.
OUTLINE
I. I. Capital Flight and Macroeconomic Capital Flight and Macroeconomic PerformancePerformance
II.II. The Specter of Capital FlightThe Specter of Capital Flight
III.III. Vulnerabilities to Capital Flight: Recent Vulnerabilities to Capital Flight: Recent Experiences of Argentina, Uruguay and BrazilExperiences of Argentina, Uruguay and Brazil
IV.IV. Summary and the Role of the IADBSummary and the Role of the IADB
3838
SUMMARYSUMMARY
There are clear signs of Capital Flight since the 1998 There are clear signs of Capital Flight since the 1998 Russian Crisis.Russian Crisis.
Economic Contagion is not obvious, although the whole Economic Contagion is not obvious, although the whole region is suffering from higher spreads.region is suffering from higher spreads.
The depth and spread of crises in region may be rooted The depth and spread of crises in region may be rooted in in G-7 Pontious Pilate approach to financial crisis in G-7 Pontious Pilate approach to financial crisis in
EMs, caused by fear of a Moral Hazard epidemic.EMs, caused by fear of a Moral Hazard epidemic.Political cycle and backward-looking politicians who Political cycle and backward-looking politicians who
fail to see the enormous rebound potential of the fail to see the enormous rebound potential of the region.region.
Financial vulnerabilitiesFinancial vulnerabilities
3939
ROLE OF THE IADBROLE OF THE IADB
Help to convey the regional view about the Help to convey the regional view about the cause of, and remedies for, the current crises--cause of, and remedies for, the current crises--partly to counteract the Moral Hazard obsession:partly to counteract the Moral Hazard obsession:it is time for the IADB to move forward from it is time for the IADB to move forward from
the end of the line, and make its voice heard the end of the line, and make its voice heard and heededand heeded at the planning stage! at the planning stage!
Design social programs that help prevent social Design social programs that help prevent social unrest, a serious deterrent for FDI (the main unrest, a serious deterrent for FDI (the main source of international finance in the region).source of international finance in the region).
Design social programs to ameliorate the impact Design social programs to ameliorate the impact of crises on poverty.of crises on poverty.
Enhance competitiveness programs and support Enhance competitiveness programs and support of FTAA negotiations.of FTAA negotiations.
August 7, 2002August 7, 2002
LAC-7 Outlook: The Specter of Capital FlightLAC-7 Outlook:
The Specter of Capital Flight
Prepared for Presentation at IADB Board of Directors, Prepared for Presentation at IADB Board of Directors, WashingtonWashington, DC, DC
LatinMacroWatch
Special Analysis
LatinMacroWatch
Special Analysis
8-7-028-7-02
LMW: the Big Picture on a Small Screen
A new RES feature