Claudio Loser

Global Financial Turmoil and Emerging Market Economies

A year ago, the prospects for Emerging Economies (EE) looked very promising. There were concerns about the effect of a shallow recession in the US, but the general perception was that Asia and, to a large extent, Latin America and other regions were doing well. Most thought they had ‘decoupled’ from the advanced economies, and the emerging markets would grow with few restrictions. Since then, the financial crisis has become the worst in the last fifty years. The complex and wide-ranging interaction between the financial world and the real economy already has begun to have serious consequences for the emerging economies. Whereas the conditions in the financial markets have tended to stabilise from the unsustainable position of September–October of 2008, the real economy is weakening and the prospects for an early recovery are remote. Commodity prices have declined by about one half from their peak; demand for manufactured goods is declining sharply all over the world; stock market valuations have declined by about one half or more; and currencies in many emerging countries have depreciated, as capital flows reversed seeking to find a safe heaven. The loss of financial wealth is enormous. The authorities and economic agents were initially taken by surprise by the collapse. Now they are responding to the challenges caused by the rapidly deteriorating external environment. However, there are serious economic and political stumbling blocks that may well cause the recovery to be costly and slow to consolidate. This article reviews the origins of the current crisis in emerging market economies, mainly in Asia and Latin America in the context of the global crisis. It reviews the recent developments on a worldwide basis and how they affected them, even after the process of consolidation observed over the last 10 years or so, including the integration with the rest of the world. The article also discusses what can be realistically expected as financial volatility and recessionary forces may continue to prevail for a while.

Latin America 2040 — Breaking Away from Complacency: An Agenda for Resurgence

This book presents a long term vision of Latin American society and economies, within which current policy debates and actions must be anchored. It presents a set of multigenerational issues that must be tackled in order for countries in the region to reduce inequities, as well as raise their economic growth rates. The authors provide insight and advice regarding: budgetary policy and management, poverty reduction, macroeconomic policy coordination and integration, labor market policy, long-term macroeconomic reforms, innovation and technological development, infrastructure needs, regional cooperation and trade, and governance and political sustainability. This book provides an analysis of the challenges facing economic growth, equality, public safety, education, competitiveness and technology and innovation. In doing so, the authors analyze the reasons for Latin America’s underperformance during the past 30 years, highlighting the issues related to unsustainable economic, social and political policies. The analysis is based on an innovative instrumental-variable-based structural equation model, developed by the Centennial Group. It is used to project the infrastructure needs of 21 countries for 10 sectors through 2040 under alternate growth scenarios. Latin America 2040 presents a strategy to realize the vision for rapid economic growth and faster reduction in disparities during the next three decades by sharply raising their growth rates while achieving more inclusive societies. It offers an agenda for what Latin America’s national leaders, policy makers and private businesses must do to regain the regions past momentum and achieve a much needed resurgence. A Spanish translation of the book will be available in October 2011. A companion video, based on the key messages of the book, can also be viewed.

Emerging Market Economies: Out of Favor But Not Out of Steam

Economic fluctuations are analyzed by economists in order to understand how the economy responds to shocks caused by both the external environment and local events (both political and economic). Adequate knowledge of the causes and consequences of these shocks on the economy allows authorities to design policies that help dampen its adverse effects. In advanced economies, this field is a rich area of research known as empirical business cycle analysis. There is however a dearth of studies of this kind in emerging market economies. This research adopts the econometric techniques used in developed economy empirical business cycle research to examine emerging market economies.

Commodity Terms of Trade in Emerging Markets: A Fragile Blessing

Gains in terms of trade in recent years have been a source of prosperity in Africa, Latin America, and the Middle East. This article discusses in detail the behavior and the impact of terms of trade changes. The evidence shows clearly that GDI and GDP have been directly influenced by this performance. The main question that needs to be faced by the commodity-exporting regions in the world is whether this prosperity will remain for the long haul, or if it will end. Furthermore, how will the economy react if conditions reverse? The answer, as described in this article, is that it will not be easy. A reversal of prices will have a major impact on income, and consequently on growth through the expected multiplier effects of a decline in export income.

A New Vision for Mexico 2042: Achieving Prosperity for All

The basic objective of this article is to identify the priority issues that could influence Mexico’s long-term economic growth path, and to outline a balanced action program necessary to effectively address these issues. It includes reforms and actions that would simultaneously achieve much higher and more inclusive growth, and would thus restore the sense of pride and optimism among Mexicans that has been eroding in recent years. The issues discussed are of such importance that the legacy of the next presidency could be determined by the administration’s willingness and ability to implement the agenda outlined in this article.

Cross-border Trade and Investment among Emerging Economies Lessons from Differing Experiences in Africa, Asia and Latin America

Over the last quarter century or so, the volume of world trade grew at an average rate of 6 per cent. This increase in trade has not been homogenous among regions. Asia has been engaged in a major and admirable transformation. Latin America has pursued integration efforts for long, but with poorer results, and together with Africa it continues to rely on its resource base for growth in trade. The structure of trade in emerging market economies is analysed by examining the geographic and commodity structure of trade as well as trade integration efforts. Increases in trade can be attributed to several reasons: increased formal integration, better use of comparative advantage in relation to the advanced economies, and more complementarily among developing countries. The integration of trade in Asia is attributed largely to market forces but less so in other areas, particularly Latin America. The article also reviews the rise in Foreign Direct Investment (FDI), particularly the role of emerging countries as destinations and origins of capital flows. The flows to Asia and Latin America are equivalent to almost one-fourth of the total FDI. Within the total flows, there is a growing role of investments originating in and directed to emerging economies (EEs), particularly within Asia. FDI flows from emerging markets (EMs) are strong in mining, but the areas of investment are being diversified at a rapid pace.

Financial Wealth Sustained but High Gains and a Collapse for the Ages: An Estimate of Cycles of Buildup and Destruction of Wealth 2002–09

Financial wealth over the last decades has become the clearest sign of economic advancement and well-being. The collapse of financial markets in the last 2 years has been a cataclysmic event. The loss of financial wealth has been enormous, and the consequences for the economies of the world are commensurate. The loss of capital value of financial assets worldwide may have reached US

External Debt Management and Balance of Payments Policies (Politique pour la gestion de la dette extérieure et la balance des paiements) (Gestión de la deuda externa y políticas de balanza de pagos)

50 trillion in 2008, the equivalent of 1 year of world gross domestic product or about one-quarter of total financial wealth before the crisis. While there has been some recovery so far in 2009, conditions under which financial markets have been operated for a few decades are unlikely to be replicated soon. The generation of wealth witnessed in recent years may come back, but in a much more sedate and controlled financial system, and subject to stricter rules. The impact of the current crisis has affected all regions of the world, showing that the decoupling theory that had been prevalent during earlier years was misplaced. There were particularly large declines in the case of Developing Asia and the European Union. This is explained by the impact of the decline in stock market values by almost one-half, and the reduction in the values of financial assets and higher spreads on debts. The decline had a direct effect on the performance of economies worldwide, with the decline in activity observed in 2009 of about 3 percent a year consistent with the loss of wealth described here. The implications of the loss of wealth, even if partially reversed, for the future are complex. It has been absolutely essential for governments to continue supporting demand, in the face of the existing collapse of private demand. However, the injection of liquidity and the rapid increase in government debt has a limit, to avoid a negative reaction by the public. Otherwise, the loss of wealth already experienced may be combined with increased inflation and a loss of confidence in public debt instruments that would aggravate rather than correct the existing level of economic distress.

How Aging Societies May Affect Global Growth Prospects

En el documento se analiza la interrelacion entre la programacion financiera, la balanza de pagos y el uso de lineamientos cuantitativos para la obtencion de prestamos externos a mediano plazo. Estos aspectos de la politica externa no siempre han sido integrados. En consecuencia, debido a los diferentes plazos en que se encuadra la formulacion de las medidas de politica, las politicas financieras a corto plazo pueden no concordar con lineamientos de gestion de la deuda externa apropiados en el mediano plazo. Se presenta un marco analitico para examinar el impacto de la obtencion de prestamos externos en el crecimiento de la economia, interna, los flujos financieros y la balanza de pagos. Dicho marco se basa en un modelo macroeconomico relativamente sencillo, en el que el efecto de los flujos de capital en la tasa de crecimiento puede analizarse en una perspectiva multiperiodica. El modelo permite determinar politicas coordinadas de demanda agregada, tipo de cambio y gestion de la deuda externa encaminadas a lograr el equilibrio interno y externo a corto y a mediano plazo. Se describen lineamientos para la gestion de la deuda externa y las consiguientes politicas de balanza de pagos de las economias que enfrentan una posible limitacion de la oferta de prestamos externos a mediano plazo. Estas limitaciones a la eventual evolucion de la cuenta de capital pueden reducir considerablemente la gama de las politicas que se puedan seguir en un programa financiero viable. La formulacion de este programa exige que la evolucion de la cuenta corriente se armonice con la disponibilidad probable de financiamiento externo. Estas limitaciones al financiamiento externo no deben interpretarse sencillamente como restricciones a la disponibilidad global de financiamiento externo en un periodo dado. El pais deudor confronta diferentes condiciones y grados de disponibilidad de diversas clases de prestamos. Por ello, los lineamientos para la gestion de la deuda deben garantizar que la magnitud y las condiciones de los nuevos prestamos reporten la mayor transferencia neta sostenible de recursos, y definir en consecuencia el limite superior de la cuenta corriente. Los resultados de la cuenta corriente requieren que se coordinen las politicas de demande y de tipo de cambio a fin de lograr la estabilidad financiera a mediano plazo. Los lineamientos cuantitativos para la gestion de la deuda ayudan a un pais a armonizar sus necesidades de financiamiento con el financiamiento externo de que puede disponer a mediano plazo.En el documento se analiza la interrelacion entre la programacion financiera, la balanza de pagos y el uso de lineamientos cuantitativos para la obtencion de prestamos externos a mediano plazo. Estos aspectos de la politica externa no siempre han sido integrados. En consecuencia, debido a los diferentes plazos en que se encuadra la formulacion de las medidas de politica, las politicas financieras a corto plazo pueden no concordar con lineamientos de gestion de la deuda externa apropiados en el mediano plazo. Se presenta un marco analitico para examinar el impacto de la obtencion de prestamos externos en el crecimiento de la economia, interna, los flujos financieros y la balanza de pagos. Dicho marco se basa en un modelo macroeconomico relativamente sencillo, en el que el efecto de los flujos de capital en la tasa de crecimiento puede analizarse en una perspectiva multiperiodica. El modelo permite determinar politicas coordinadas de demanda agregada, tipo de cambio y gestion de la deuda externa encaminadas a lograr el equilibrio interno y externo a corto y a mediano plazo. Se describen lineamientos para la gestion de la deuda externa y las consiguientes politicas de balanza de pagos de las economias que enfrentan una posible limitacion de la oferta de prestamos externos a mediano plazo. Estas limitaciones a la eventual evolucion de la cuenta de capital pueden reducir considerablemente la gama de las politicas que se puedan seguir en un programa financiero viable. La formulacion de este programa exige que la evolucion de la cuenta corriente se armonice con la disponibilidad probable de financiamiento externo. Estas limitaciones al financiamiento externo no deben interpretarse sencillamente como restricciones a la disponibilidad global de financiamiento externo en un periodo dado. El pais deudor confronta diferentes condiciones y grados de disponibilidad de diversas clases de prestamos. Por ello, los lineamientos para la gestion de la deuda deben garantizar que la magnitud y las condiciones de los nuevos prestamos reporten la mayor transferencia neta sostenible de recursos, y definir en consecuencia el limite superior de la cuenta corriente. Los resultados de la cuenta corriente requieren que se coordinen las politicas de demande y de tipo de cambio a fin de lograr la estabilidad financiera a mediano plazo. Los lineamientos cuantitativos para la gestion de la deuda ayudan a un pais a armonizar sus necesidades de financiamiento con el financiamiento externo de que puede disponer a mediano plazo.

The impact of commodity terms of trade in Africa: Curse, blessing, or manageable reality?

Over the next few decades, the United Nations (UN) has projected that the world will experience significant demographic shifts due to lower birth rates and longer lifespans.1 The world’s population aged 65 and above will increase from 12 percent today to 16 percent in 2050, doubling the old-age dependency ratio2 to 25.2. These demographic shifts would have material implications. Population aging and its dynamics will influence a number of economic variables and behavioral responses, particularly economic growth, productivity, labor force participation, consumption choice, personal savings and thus investment, and public finances. Population aging is unavoidable, but public policies and technological advances may limit some of its adverse effects.