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1. The document discusses how policies can dramatically impact the development of emerging markets, using Latin America as a case study. 2. It outlines two main policy paths in Latin America - the ALBA model of Venezuela, Ecuador, Bolivia, Nicaragua and Cuba, which is anti-US, anti-free trade and lacks investment confidence; and the modern democratic center countries that cooperate with the US, support free trade and have greater political stability. 3. The democratic center countries leading investment and growth are Mexico, Brazil, Chile, Colombia and Peru. The document analyzes some of the main policy challenges still facing countries in the region like improving education and social programs in Peru, and restoring fiscal credibility in Argentina
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- 1. HOW POLICIES CAN DRAMATICALLY CHANGE THE DEVELOPMENT OF EMERGING MARKETS Alvaro Uribe Vélez
- 2. Issues to beaddressed 1. The current context of Emerging Markets and the evolution of Latin America 1980-2012 2. Latin America between two policy paths 3. The policy challenges in the region 4. Lessons from the Colombian Experience
- 3. 1. The currentcontext of Emerging Markets and the evolution of Latin America 1980-2012
- 4. 1. The currentcontext of Emerging Markets and the evolution of Latin America 1980-2012 1. Emerging economies have become engines of economic growth. 2. During the last three decades developing countries have experienced a profound transformation driven by two components: On the one hand a rapid demographic transition. Since 1980 the World population has increased by 2.5 billion people and 95 percent of that growth has taken place in the developing World. The other element has been a dynamic period of sustainable economic growth. In 1980 developing economies represented 33 percent of the World GDP and today that number is closed to 46 percent.
- 5. 1. The currentcontext of Emerging Markets and the evolution of Latin America 1980-2012 1. By 2050 19 of the top 30 economies by GDP will be countries that we currently describe as ‘emerging’ 2. China and India will be the largest and third-largest economies in the world. 3. Eight countries – India, China, Brazil, Russia, Indonesia, Korea, Mexico and Turkey – will be responsible for most of global growth up to 2025 4. Emerging economies will account for 68% of global growth by 2030. 5. In 1980, 5% of goods were sourced globally. By 2000, this was 20%. By 2025, it will be 50%. 6. In 1980, world exports accounted for one-sixth of global GDP. Today it is a quarter. By 2030, it will have risen to a third. 7. By 2030 the urban middle class will rise to 42% of the global population. The number of people with daily income of $10 to $100 a day will rise from 1.8 billion today to 4.9 billion by 2030.
- 6. 1. The currentcontext of Emerging Markets and the evolution of Latin America 1980-2012 According to FAO: Demand for food could increase 50% by 2030 Demand for water has been projected to rise by 30% between 2000 and 2030 The International Energy Agency has said energy needs will grow by 40% by 2030. According to BP China represents 20.3% of the World Energy Consumption (The world largest energy consumer in 2010 for the first time over the U.S) Natural Gas consumption has experience its strongest consumption rate since 1984 (7.4%) Coal share in world energy consumption has reached its highest level since 1970 (29.6%). China represents 49% of the world coal consumption. In 2010 Global Biofuel consumption grew by 13.4%
- 7. 1. The currentcontext of Emerging Markets and the evolution of Latin America 1980-2012 How does Latin America fit in this panorama? Between 1980 and today some changes have occured… 1. The inflation tragedy is over: in 1985 regional inflation average was 159%, today is below 6%. This means that fiscal and monetary prudence have become policy principlkes. 2. Debt is no longer a threat: Debt to GDP ratios in the region have passed from 40% in 2002 to 20.4% in 2009 3. Between 2003 and 2007 the region experienced a growth average of 5%...the highest since 1967-1974 4. Democracy has expanded in the region with few exceptions… 5. Regional exports have increased 160% betwee 2002 and 2010 6. In 2008 the region faced a record number in FDI reaching almost 100 US$billion
- 8. 1. The currentcontext of Emerging Markets and the evolution of Latin America 1980-2012 Policy Changes match four range of opportunities Population Close to 600 million people Average age between 24 and 28 Per Capita Income in PPP close to US$10.000 Poverty reduction 64% of our population is a expanding middle class. During the last decade 40 million people have left the poverty line Life expectancy has increased from 65 to 75 years. Child mortality has been reduced by 50 per cent. Literacy rates are above 94%. Mobile phone penetration has increased by 78 per cent. Internet access has increased by 33% Healthcare coverage has increased by 50 percent. water and sanitation coverage has reached 80%. Commodities in time of Demand 10 percent of the World oil reserves. 6 percent of the World Gas reserves Almost 50 percent of the World cooper reserves. 50 per cent of the World silver reserves. 13% of the World iron reserves 26% of the World fertile land. 24% of the World beef supply. Bio Reserves 20 per cent of the World Biodiversity is concentrated in the Amazon ring. Almost 50% of the World potable water supply. 57% of the world primary forest
- 9. 1. The currentcontext of Emerging Markets and the evolution of Latin America 1980-2012 Policies have been the root of Latin American Changes The change process and the potential for the years ahead has happen by accident and it is a consequence of the consistency, congruence and sense of urgency that a group of countries have adopted as their policy cornerstone. Brazil, Mexico, Colombia, Chile, Peru and Uruguay represent 70 per cent of the region’s population and 75% of the regional GDP. This group of countries have common characteristics that explain their outstanding performance: 1. The strengthening of Liberal Democracy 2. The adoption of an institutional Framework in favor of foreign and national investment. 3. The construction of a sound and sustainable social safety net. 4. The expansion of export markets and the commercial integration with the World (FTA’s) 5. A public administration driven by results. 6. A sound Macroeconomic Administration driven by fiscal and monetary prudence. 7. Better regulatory environment 8. Construction of strategic infrastructure. 9. The consolidation of an innovation agenda leaded by an improvement in education. 10. A well capitalized financial sector and the constant expansion of financial services. Today countries like Panama, Dominican Republic, Costa Rica, Salvador, Guatemala, Honduras, Belize, Paraguay, as well as most of the Caribbean States, are following that line of behavior
- 10. 1. The currentcontext of Emerging Markets and the evolution of Latin America 1980-2012 Despite the changes that have been achieved some important challenges remain… Building Modern Democracies (5 parameters) Security Freedoms and Private Initiative Independent Institutions Social Cohesion People Participation A dynamic Economic transformation Investment Target Policies Maintaining Fiscal and Monetary transformation Integrate commodity and knowledge based economies. Expand export markets Create an Entrepreneurship culture (Innovation agenda) Closing Social Gaps Improve education (quality, coverage, vocational) Insure Universal Healthcare Formal Job creation Access to Finance Climate Change, Environment and Energy Sustainability Expand renewable sources Install an energy efficiency conscience Improve waste management Protect the Amazon Ring Reduce Co2 Emissions
- 11. 2. Latin Americabetween two policy paths
- 12. 2. Latin Americabetween two policy paths The regional current Political Map is a “Tale of two cities” like the Charles Dickens Book… (The ALBA and the non Alba Model) ALBA (Leaders: Venezuela, Ecuador, Bolivia, Nicaragua and Cuba) Anti-U.S Anti-Free Trade Lack of investment Confidence Weak institutions Political Insecurity Ideology driven countries Political Polarization Modern Democratic Center Countries (Brazil, Colombia, Peru, Chile, México, Uruguay, Paraguay, Panamá, Republic Dominican, Costa Rica, etc) Cooperation with the U.S Pro Free Trade Investment Confidence Independent Institutions Political Stability State Long Term Policies and Mgt by Results Organized Party Systems The Democratic Center takes the lead: • Investment grade countries are in this Group: Mexico, Brazil, Chile, Colombia, Peru and Panama. • Countries with more market access through FTA’S are in this group • Countries with more FDI are in this group • Countries with more Middle Class Expansion are in this group. • Better fiscally sustainable social programs: Chile, Mexico, Brasil and Colombia. Only the group of Countries in the Democratic Center will become the regional active participants of the Emerging Markets Boom…some of the ALBA Members will see some benefits, but without solid long term development agendas, they will face transitory profits…
- 13. Venezuela Inflation Reductionin oil production Brain drain Social conflict Insecurity Private initiative in Jeopardy Bolivia Loss of citizen support Quality of live deterioration Lack of private initiative. Loss in private investment Ecuador Press Liberties in danger Lack of long term private investment. Political stability at the expense of higher tensions. Oil driven political power Nicaragua Institutional deterioration (Reelection without constitutional authority) Corruption Private initiative: Uncertainty Shameful Chavistas 2. Latin America between two policy paths Bad policies are deteriorating the political and economic context in the ALBA Countries….
- 14. 3. The policychallenges in the region
- 15. Peru Humala Challenges Maintain Investment Confidence (The mining royalty debate) Improve social expenditure targeting Improve Labor markets • Combat informality • Improve productivity Continue with International insertion • Implement the FTA with USA • Pacific Agenda with Colombia, Chile and Mexico.
- 16. Argentina Fiscal and Monetary Credibility Challenges Institutional quality Capacity to generate confidence Trigger FDI Solve Public- Private Conflicts
- 17. Security Human Insecurity Legal Insecurity Political insecurity Individual Liberties Property rights at risk Limit freedom of expression Limit freedom of press Independent institutions Courts controlled by the Executive Branch. Independent institutions are controlled by the Executive father One Party controls the Parliament Citizen participation Limited Controlled Instruments vital for political pressure. Social Cohesion Class polarization Fiscal policy is unsustainable Venezuela
- 18. Urban security Drug consumption Cost of money Challenges Regional integration Infrastructure Weak Doing Business Indicators Foreign Policy Brazil
- 19. Mexico Reform thePolice Structure Citizen participation in the fight against organized crime The security challenge Strengthen intelligence Border affairs • Drug Consumption • Assault Weapons
- 20. Chile Two situations Economic Stability Characteristics Political Stability Investor Confidence Innovation and entrepreneurshi p agenda. Quality of live and opportunities Dependant on the China effect Aggressive protests Youth distrust in Political Parties and in Government.
- 21. Ecuador The politicalcondition Economic 4.5% Fiscal deficit Oil price has been the driving force. Investors distrust 4.5% inflation Political The President has concentrated more powers Conflict with congress and with independent media will deteriorate as the Government pushes more interventionist reforms There is not a clear opposition figure Urban security has been deteriorating
- 22. Bolivia: new problemsarise Economic Populism platform loosing popular support Fiscal superavit driven by more tax collections Economic Growth above 4.6% driven by Gas price Inflation close to 9% Investors distrust with the exception of foreign governments corporations Political 2/3 of Congress controlled by the President Coalition Hunting of all opposition leaders Confrontation with Santa Cruz Governor Ruben Costas. Next week 56 Supreme Court Judges will be elected International Under the influence of Chavez Improvement in the dialogue with the U.S International Market Distrust
- 23. Central America: Thesecurity Drama Country Homicides per 100K Hab Violence and organized crime Violence cost as % of GDP (Live years lost due to handicapped circumstances) Private sector losses due to insecurity (% sales) Violence costs as % of GDP Number of gang members Number of gangs Honduras 43 1,31% 4.5% 9.6% 36.000 112 Guatemala 45 1.43% 3.9% 7.7% 14.000 434 El Salvador 58 1.99% 4.5% 10% 10.500 4 Nicaragua 14 0.96% 3.1% 10% 4.500 268 Costa Rica 8 0.58% 3.6% 2.660 6 Panamá 11 0.63% 2.5% 1.385 94
- 24. Not the samestories A region of different development stories The 7 giants (Brazil, Mexico, Argentina, Chile, Colombia, Peru and Uruguay) a) 70 of the Region population. b) 85% of the Region GDP c) Poverty reduction d) High levels of investment e) Commercial integration f) Institutional stability Central America a) 3% of the Region GDP (US$163 Billion) b) 7% of the Region population (43 million) c) Income inequality d) Moderate investment levels e) Low tax collections f) Fragile energy matrix Caribbean a) 4% of the Region Population b) 2% of the Region GDP c) Tourism dependence d) Natural disaster risks e) Low industrial base f) Need for long term access to markets
- 25. 4. Lessons fromthe Colombian Experience
- 26. Ten years agoColombia was a fragile state… The Colombian Paradox: a long and stable democracy in a permanent threat from terrorist groups, drug dealers and organized crime… Security 28.837 homicides 2882 kidnappings 69 homicides per 100.000 habitants 1645 terrorist attacks 350 mayors out of their municipalities 158 municipalities without police Economy Average Economic Growth 1994- 2001: 2.1% GDP per Capita: US$2377 Investment as % of GDP: 16.5% Exports: US$11.975 million FDI: US$2.100 million Inflation: 6.99% Fiscal balance: -3.2% Social Unemployment: 16.2% Health Coverage: 25 million Colombians. Pension affiliates: 4.5 million Poverty: 57% Education Coverage: Primary 97%, High school: 57%, University: 24%. Mobil Phone Lines: 4.6 million Internet coverage: 1.9 million
- 27. Building Confidence becameour Colombia faced a Confidence Deficit The elusive quest for peace Many governments exhausted all their political capital attempting to reach peace through political dialogue…the result was military strengthening from illegal armed groups and a rapid growth in their criminal activities (68% thought the country was going in a negative track) Terrorist Groups (Guerrillas and Paramilitaries) had created a sense of defeat in the Colombian people. Fear impacted in the Colombian people Mindset The lack of investment The drain of human capital The sense of danger in Colombian roads. The expansion of massive kidnappings created an emotional domino effect priority
- 28. We introduced acomprehensive policy framework… Social Cohesion Investment with fraternity Democratic Security Confidence Security as a Democratic Value Security for all Confront all criminal organizations Security without martial law Security with freedoms and human rights protection Security in coordination with the people Investment Target Security: Human Legal Political Sound Macroeconomics Incentive s Access to markets Competitiveness factors: • Infrastructure • Regulation • Connectivity • Logistical chain Social Cohesion Highest quality in education Universal healthcare Access to Finance Stable Jobs and entrepreneurial spirit Connectivity
- 29. Our policy achievementsgenerated a turning point Indicator 2002 2010 Homicides 28838 7400 Kidnappings 2882 123 Homicides per 100K Habitants 69 16.3 Terrorist attacks 1645 250 Municipalities without mayors presence 350 0 Municipalities without police 158 0 Indicator 2002 2010 Average Economic Growth 2.1% 4.3% GDP per Capita 2377 5300 Invest % GDP 16.5% 24.6% Exports US$11. 000 US$ 39.000 FDI US$2.1 00 US$ 7.000 Inflation 6.9% 2.5% Indicator 2002 2010 Unemployment 16.2% 11.6% Health Coverage 25.1 million 43.1 million Pension affiliates 4.5 million 7.1 million Poverty 57% 38% Education coverage (Primary, Hs, University) 97% 57% 24% 100% 79.4% 35.5% Mobile phone users 4.6 million lines 41 million lines • Reached the highest economic growth in more than 20 years. • The largest education, health and connectivity coverage in its history. • The largest poverty reduction in Colombian history • The biggest FDI rates in history • The lowest violence records in 30 years • Expanded the middle class • Highest exports in Colombian History. • Paramilitary groups dismantled • FARC structure severely dismantled • Per Capita income more than doubled
- 30. Colombia’s current challenges Security Maintain Macro-Vision and Micro-Management Continue dismantling all terrorist organizations Continue dismantling drug cartels apparatus. Strengthen Citizen Security agendas with local authorities Economic Face new trends of currency appreciation Maintain and increase FDI flows (Security, incentives and stability rules) Fiscal Policy to face new countercyclical challenges Increase tax collections Expand new trade markets through FTA’s Social Cohesion Fight labor informality and create quality jobs Insure education and health quality Expand vocational training coverage Create Entrepreneurial Family Transfers program Political Judicial reform. Strengthen Democratic Center Improve local institutional capacity New law implementation (Victims and land) Prevent the emergence of populist movements
- 31. WWW.ALVAROURIBEVELEZ. COM MiamiMarch 2012