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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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LATIN AMERICAN STRENGTHS
Structure of Presentation
Long-term Trends: Contrast with Asia (Kohli)
Future Scenarios (Loser)
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LATIN AMERICAN STRENGTHS
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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RECENT ECONOMIC AND POLITICALDEVELOPMENTS
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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RECENT ECONOMIC AND POLITICALDEVELOPMENTS
Low Levels of Tertiary Graduates
in Science
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RECENT ECONOMIC AND POLITICALDEVELOPMENTS
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%
COMPARED TO EAST ASIALong-term Trends:
Losing to Other Emerging Markets
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COMPARED TO EAST ASIALong-term Trends:
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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