the global crisis: impact on latin america · march 16, 2009. 1 zglobal crisis and deleveraging...
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The Global Crisis: Impact on Latin America
Gilbert Terrier,March 16, 2009
1
Global crisis and deleveragingLatin America in better position this timeHowever, with differences across countriesAnd further risks down the roadHow best to prepare?
Outline of the presentation
2
Unusually high commodity prices Strong capital inflows in some countries (though not as strong as in East. Europe)Optimistic expectations for potential output growth
Global bubble: important implications for LAC
3
Global outlook deteriorating fast
Collapse in growth in advanced economies with clear spillovers to EMContinued global deleveragingGlobal trade sharply contracting (esp. Asia), commodity prices down
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
2004Q1 2005Q1 2006Q1 2007Q1 2008Q1
USEuro AreaJapan
Real GDP Growth in Advanced Economies(q/q annualized)
Source: Haver Analytics.
4
What are the key channels of transmission?
Fall in commodity prices impact on current accounts
Trade linkages also relevant, though the region is still relatively closed
0
100
200
300
400
500
600
700
95 97 99 01 03 05 07 090
100
200
300
400
500
600
700
Food and beverage
Metals
Oil, Gas and Coal
Commodity Prices (2002=100)
Sources: WEO; and Fund staff estimates.
5
Main shocks from external financial conditions and the capital account
Strong impact of deleveraging on banks and corporatesCorporate access to foreign financing much tighter; and large corporate rollover needs in some casesRepatriation of capital to safe havens (US)
Private and Quasi-Sovereign Corporate Financing in LAC(Billions of U.S. dollars)
0
10
20
30
40
50
60
70
Q12007
Q2 Q3 Q4 Q12008
Q2 Q3 Q4
Syndicated foreign loansForeign placed bondsDomestically placed bonds
1998–02 03–06average
6
Severe and fast impact on real economy in LAC
-15
-10
-5
0
5
10
15
20
25
30
35
Mar-05 Dec-05 Sep-06 Jun-07 Mar-08 Dec-08
Merchandise ExportsMerchandise Imports
LA 7(Change from a year in the monthy value of exports and imports)
-10
-5
0
5
10
15
2004Q1 2005Q1 2006Q1 2007Q1 2008Q1
China IndiaBrazil Mexico
Industrial Production(y-o-y percentage change )
7
Global crisis and deleveragingLatin America in better position this timeHowever, with differences across countriesAnd further risks down the roadHow best to prepare?
Outline of the presentation
8
External and public debt levels have come down
0
10
20
30
40
50
60
70
80
2002 2004 2006 20080
0.5
1
1.5
2
2.5
3
3.5
4
Public debtCentral Government Deficit (right scale)
LAC Public Debt and Central Government Deficit(% of GDP)
0
10
20
30
40
50
60
LAC CEEE Emerg. Asia
1998 2001 2008
Total External Debt(% of GDP)
9
Lower external current account deficits
Current account deficits declined in LACMuch better position than Central and Eastern Europe, but worse than Asia
-6
-4
-2
0
2
4
6
8
LAC CEEE Emerg. Asia
199820012008
External Current Account Deficit(percent of GDP)
10
International reserves at more comfortable levels
0
2
4
6
8
10
12
LAC CEEE Emerg. Asia
1998 2001 2008
Reserves in Months of Imports(ratio)
0.0
0.5
1.0
1.5
2.0
2.5
BRA PER VEN CHL ARG COL MEX
Reserve Coverage of Aggegrate External Financing Requirements, 2009(ratio)
11
Moderate credit and NPLs ratios
2008 Credit to the Private Sector(percent of GDP)
0
20
40
60
80
100
120
140
ARGBRACHLCOLMEXPERVENCHNKORTH
AHUNPOLUKR
average
2008 NPLs(percent of total credit)
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
ARG BRA CHL COL MEX PER VEN
12
Flexible exchange rates: key shock absorber in some countries
Exchange rates(Jan. 2007=100)
80
90
100
110
120
130
140
150
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
80
90
100
110
120
130
140BRA
CHL COL
PER
MEX
13
Global crisis and deleveragingLatin America in better position this timeHowever, with differences across countriesAnd further risks down the roadHow best to prepare?
Outline of the presentation
14
However, important asymmetries across the region
Terms of Trade 1/(Index 2000=100)
Source: IMF staff calculations.1/ PPP-GDP weighted average.
50
75
100
125
150
175
200
2000 01 02 03 04 05 06 07 08 09
Inflation targeting, commodity exporters
Other commodity exporters
Commodity importers Proj.
-8
-6
-4
-2
0
2
4
6
8
10
12
14
2000 01 02 03 04 05 06 07 08 09
Inflation targeting, commodity exporters
Commodityimporters
Other commodity exporters
Proj.
Real GDP Growth 1/(Annual percent change)
Source: IMF staff calculations.1/ PPP-GDP weighted average.
IT commodity exporters includes Brazil, Chile, Colombia, Mexico, and Peru. Other commodity exporters includes Argentina, Bolivia, Ecuador, Venezuela, and Trinidad and Tobago. Commodity importers includes the remaining LAC countries.
15
Also varying exposure through trade
Trade linkages less relevant than in other regions (Asia)
But strong ties to the US in Mexico, Central America, and the Caribbean
Impact also through remittances and tourism
LAC Total Exports(In percent of GDP)
-2
2
6
10
14
18
22
Total USA INTRA LAC EU CHINA RoW
2001 2008
Source: Direction of Trade.
16
Corporate balance sheets generally improved
Lower on-balance sheetexposure to FX debt
Stronger balance sheets in LA7 non-financial listed firms
020406080
100120140160180200
1994 1996 1998 2000 2002 2004 20060510152025303540
FX liabilities (% of FX assets and exports)Share of FX liabilities (right scale)
00.5
11.5
22.5
33.5
4
Quick ratio 1/ Leverage Return onassets (%)
1998-2002 2003-2007
1/ Current assets (net of inventories) / current liabilities.
17
Spreads have moved up
Corporate Spreads (all asset class, basis points)
Source: Credit Suisse.
0
200
400
600
800
1000
1200
1400
Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09
Latin America
Emerging Asia
U.S.
EMBI+ sovereign spreads(basis points)
Source: Datastream
200
400
600
800
1000
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Latin America
Europe
Asia
18
Corporate vulnerabilities persisted, not always identified ex ante
In general, lower corporate exposure to FX debt
Off-balance sheet exposure through derivative positions
Substantial losses in some corporates in BRA and MEX following sharp FX depreciations
Large corporate rollover needs in 09-10
020406080
100120140160180200
1994 1996 1998 2000 2002 2004 20060510152025303540
FX liabilities (% of FX assets and exports)Share of FX liabilities (right scale)
Lower on-balance sheetexposure to FX debt
19
Global crisis and deleveragingLatin America in better position this timeHowever, with differences across countriesAnd further risks down the roadHow best to prepare?
Outline of the presentation
20
Risks going forward: reversal of credit boom
Credit risks important
Liquidity hoarding by banks (credit squeeze)
NPLs may rise sharply
-10
0
10
20
30
40
50
60
70
80
-10
0
10
20
30
40
50
60
70
80
In flation targeting, commodity exporters
Other commodity exporters
Commodity importers
08Dec
072000 01 02 03 04 05 06
Credit to the Private Sector 1/(12-month percent change)
21
Risks going forward: domestic liquidity conditions
Lower foreign financing leading to tighter domestic liquidity Active policy response has helped
Provision of domestic liquidityCut in monetary policy ratesSpecial FX lines for corporates
2
5
8
11
14
17
20
23
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
0
20
40
60
80
100
120
Argentina(right scale)
Chile
MexicoBrazil
Local Currency Interest Rates(percent; one-year swap)
22
Risks going forward: commodity prices moving south?
Commodity prices remain well above 2002 levelSome speculation that they could rise—partly linked to fate of US dollarBut also potential to go down
Max in 2008 Ave. 2002
Food and Beverage -29 48
Oil, Gas and Coal -58 101
Metals -54 61
1/ Commodity indices measured in dollar terms.
Percentage difference of current level of commodity prices 1/
23
Risks going forward: further considerations
Risks of protectionismSome movements toward trade restrictionsSubtle “buy domestic” campaigns as well
Protracted global deleveragingContinued tight foreign financing conditionsRollover risks for credit linesLower FDI
24
Global crisis and deleveragingLatin America in better position this timeHowever, with differences across countriesAnd further risks down the roadHow best to prepare?
Outline of the presentation
25
Preparing for continued financial stress
Critical role for central banksBalance sheet expansion: how far?Quality of assets: which ones?
Bank resolutionStrengthen bank resolution mechanisms Recapitalize deposit insurance funds
26
Scope for countercyclical fiscal policy?Strengthen social safety netsFinancing constraints?Importance of credible and sustainable medium-term fiscal frameworks 20
21
22
23
24
25
26
27
28
29
30
31
32
2000 01 02 03 04 05 06 07 0820
21
22
23
24
25
26
27
28
29
30
31
32
Commodity importers
Other commodity exporters
Inflation targeting, commodity exporters
Proj.
Primary Expenditure 1/(Percent of GDP)
Source: IMF staff calculations.1/ PPP-GDP weighted average.
Preparing for continued financial stress
27
Issue: Recycle liquidity back to emerging marketsIMF can help, but resources are limited
US$ 150 bn + US$ 100 bn from JapanSeeking to double/triple resources
New facilities to ring fence economies with good track records
Preparing for continued financial stress
Thank you very much!