Capital flows to Latin America: recent developments

The external environment has deteriorated sharply as a result of the spiraling financial turmoil, and has led to a weakening in commodity prices and fears of a worldwide recession. Latin America and the Caribbean's fastest expansion in 40 years may be threatened as the global credit crunch makes financing scarce and squeezes demand for the region's commodities. This time around the region is better positioned to weather the crisis than in the past, given improvements in macroeconomic and financial policies as well as a reduced net dependency on external capital inflows. However, Latin American markets are feeling the effects of the crisis through a slowdown in capital inflows, large declines in stock price indexes, significant currency adjustments and an increase in debt spreads. Volatility has soared, with the closely watched Chicago Board Options Exchange Volatility Index moving to an all-time high of 70.33 on October 17, indicating that fear (rather than greed) has been ruling the markets.After reaching record lows in May 2007, emerging markets bond spreads are now above pre-Asian crisis levels. The JPMorgan EMBI+ Latin American composite widened by 146 basis points in the third quarter, with spreads reaching 448 basis points at the end of September. Spreads have widened sharply in recent weeks as foreign investors cut back regional exposure for the safety of U.S. Treasuries. The ongoing lack of liquidity and subsequent liquidation of assets is leading to a collapse in asset prices and a sharp widening in spreads. Daily spreads in October have risen to levels not seen since December 2002, making it much more difficult for governments that need financing to get it. Risk premiums for Latin corporates and sovereigns have risen substantially, but have remained well below U.S. junk (high-yield) bonds. Latin corporates are facing a steep rise in foreign exchange borrowing costs (although less than firms in other emerging markets), which raises concerns that refinancing risks will climb.So far, emerging markets vulnerabilities have been more focused on corporates, as sovereigns have improved public debt dynamics and countries' financing needs are under control. Market performance has been driven by the rapid deterioration of emerging markets bank and corporate market, as well as ongoing losses in emerging markets equities. From January to September 2008, the Morgan Stanley Capital International (MSCI) Latin American Index lost almost 28%, while the Emerging Markets Index lost 37% and the G-7 Index lost 24%. While in 2007 the Latin America component gained 47%, almost nine times as much as the MSCI-G7 index for developed markets, since mid-September 2008 stocks in Latin America have been doing worse than stocks in developed countries, as concerns about access to credit and the adverse impact of sharp falls in commodity prices and in local currencies contribute to increased risk aversion and to outflows of capital. Many governments in the region have used revenue from the commodity boom to pay down debt and build reserves. Now, facing a global financial crisis and the threat of recession in developed countries, the biggest question for Latin America is how long and deep this cyclical downturn will be, and how much it is going to reduce commodity prices. Prices for commodities such as soy, gold, copper and oil, which helped fund the region's boom, have fallen 28% since their July 2 high, according to the RJ/CRB Commodity Price Index. According to Morgan Stanley (in a September 29 report), should prices return to their 10-year average, Latin America's balanced budgets would quickly revert to a deficit of 4.1% of GDP. As risk aversion increases, investors are rapidly pulling out massive amounts of money, creating problems for local markets and banks. There is an ongoing shortage of dollars (as investors liquidate assets in Latin American markets), and as currencies depreciate, inflation concerns increase despite the global slowdown. In Brazil and Mexico, central banks deployed billions of dollars of reserves to stem steep currency declines, as companies in these countries, believing their local currencies would continue to strengthen against the U.S. dollar, took debts in dollars. Some companies also made bets using currency derivatives that have led to losses in the billions of dollars. Dramatic currency swings have caused heavy losses for many companies, from Mexico's cement giant Cemex SAB to the Brazilian conglomerate Grupo Votorantim. Mexico's third-largest retailer, Controladora Comercial Mexicana, declared bankruptcy recently after reporting huge losses related to exchange rate bets. As concerns about corporate exposure to dollar-denominated derivatives increases, yields on bonds issued by many of Brazil's and Mexico's leading companies have started to rise, sharply raising the cost of issuing new debt. Latin American external debt issuance came to a halt in the third quarter of 2008, totaling only US$ 690 million. The cost of obtaining loans for capital expenditures, M&A and debt refinancing is also rising substantially for Latin American corporates amid contagion from the U.S. financial crisis. According to bankers, a protracted trend of shortening tenors and widening spreads has intensified in the past few weeks, indicating that bank lending is quickly following the way of bonds and equity. Finally, money transfers from Latin American migrants are expected to decline for the first time this decade, as a result of economic downturns in the U.S. and Spain, inflation and a weaker dollar. The Mexican Central Bank announced that money transfers from Mexicans living in the U.S. dropped a record 12.2% in August. In 2008, migrants from the region will send some 1.7% less in remittances year-on-year when adjusted for inflation, according to the IADB, compounding the adverse effects of the deepening financial turmoil.

Tax policy in Latin America: Assessment and guidelines for a second generation of reforms

Includes bibliography

Panorama Económico y Social de la Comunidad de Estados Latinoamericanos y Caribeños 2014

Prólogo de Alicia Bárcena

Economic and Social Panorama of the Community of Latin American and Caribbean States 2014

This issue of the Economic and Social Panorama of the Community of Latin American and Caribbean States is a contribution by the Economic Commission for Latin America and the Caribbean (ECLAC) to the third Summit of Heads of State and Government of the Community of Latin American and Caribbean States (CELAC), to be held in San José in January 2015. This document is based on excerpts from some of the annual flagships published by the Commission in 2014: Statistical Yearbook for Latin America and the Caribbean 2013 (LC/G.2582-P); Demographic Observatory 2013 (LC/G.2615-P); Economic Survey of Latin America and the Caribbean 2014 (LC/G.2619-P); Preliminary Overview of the Economies of Latin America and the Caribbean 2014 (LC/G.2632-P); Foreign Direct Investment in Latin America and the Caribbean 2013 (LC/G.2615-P); Latin America and the Caribbean in the World Economy 2014 (LG/G.2625-P) “Social Panorama Social of Latin America 2014. Briefing Paper”; as well as the Gender Equality Observatory of Latin America and the Caribbean. Annual Report 2013-2014 (LC/G.2626).

Panorama Social da América Latina 2014. Síntese

Nesta edição de 2014 do Panorama Social da América Latina se apresentam as medições realizadas pela CEPAL da pobreza por renda e se analisa a pobreza a partir de uma ótica multidimensional. A aplicação destes dois enfoques aos dados sobre os países da região permite reforçar a ideia de que, para além dos avanços alcançados na última década, a pobreza persiste como um fenômeno estrutural que caracteriza a sociedade latino-americana. Com o objeto de contribuir a uma formulação mais abrangente das políticas públicas para superar a pobreza e a desigualdade socioeconômica, ademais de examinar as tendências recentes do gasto social, o documento se aprofunda na análise de brechas em três âmbitos: juventude e desenvolvimento, desigualdade de gênero no mercado de trabalho e segregação residencial urbana.

Estimación del gasto público en protección ambiental en Chile

La creciente preocupación de los países por proteger el medio ambiente ha motivado la generación de más y mejor información que sustente las decisiones de política pública. En esta línea, el Gobierno de Chile, respondiendo a sus compromisos internacionales e institucionales, a través del Ministerio del Medio Ambiente de Chile y en colaboración con la Comisión Económica para América Latina y el Caribe (CEPAL), ha estimado por primera vez el gasto público en protección ambiental (GPPA) con estándares estadísticos internacionales.

Revista de la CEPAL no.65

Distribución del ingreso, pobreza y gasto social en América Latina / José Antonio Ocampo. -- Gasto militar y el desarrollo en América Latina / Eugenio Lahera y Marcelo Ortúzar. -- Crecimiento, justicia distributiva y poiítica social / Andrés Solimano. -- Equidad, inversión extranjera y competitividad internacional / Adolfo Figueroa. -- Tensiones en ei ajuste estructural en América Latina: asignación vs. distribución / Daniel M. Schydlowsky. -- Competitividad y regulaciones laborales / Luis Beccaria y Pedro Galín. -- Familias latinoamericanas: convergencias y divergencias de modelos y políticas / Irma Arriagada. -- Los acuerdos de libre comercio y el trabajo de las mujeres: el caso de Chile / Alicia Frohmann y Pilar Romaguera. -- Evolución macroeconómica del Paraguay 1989-1997: burbuja de consumo y crisis financier / Stéphane Straub. -- Estrategias de las empresas mexicanas en sus procesos de internacionalización / Alejandra Salas-Porras. -- La regulación de la prestación privada de servicios de agua potable y alcantarillado / Terence R. Lee y Andrei S. Jouravlev. -- Promoción de la calidad para mejorar la competitividad / Hessel Schuurman.

CEPAL Review no.65

Income distribution, poverty and social expenditure in Latin America / José Antonio Ocampo. -- Military expenditure and development in Latin America / Eugenio Lahera and Marcelo Ortúzar. -- Growth, distributive justice and social policy / Andrés Solimano. -- Equity, foreign investment and international competitiveness / Adolfo Figueroa. -- Tensions in Latin American structural adjustment: allocation versus distribution / Daniel M. Schydlowsky. -- Competitiveness and labour regulations / Luis Beccaria and Pedro Galin. -- Latin American families: convergences and divergences in models and policies / Irma Arriagada. -- Free trade agreements and female labour: the Chilean situation / Alicia Frohmann and Pilar Romaguera. -- Macroeconomic trends in Paraguay from 1989 to 1997: consumption bubble and financial crisis / Stephane Straub. -- The strategies pursued by Mexican firms in their efforts to become global players / Alejandra Salas-Porras. -- Regulating the private provision of drinking water and sanitation services / Terence R, Lee and Andrei S. Jouravlev. -- Quality management promotion to improve competitiveness / Hessel Schuurman.

Tourism life cycle, tourism competitiveness and upgrading strategies in the Caribbean

In the 1980s Butler adapted the life cycle product model to the tourism industry and created the “Tourism Area Life Cycle (TALC) model”. The model recognizes six stages in the tourism product life cycle: exploration, investment, development, consolidation, stagnation and followed, after stagnation, by decline or revitalization of the product. These six stages can in turn be regrouped into four main stages. The Butler model has been applied to more than 30 country cases with a wide degree of success. De Albuquerque and Mc Elroy (1992) applied the TALC model to 23 small Caribbean island States in the 1990s. Following De Albuquerque and Mc Elroy, the TALC is applied to the 32 member countries of the Caribbean Tourism Organization (CTO) (except for Cancun and Cozumel) to locate their positions along their tourism life-cycle in 2007. This is done using the following indicators: the evolution of the level, market share and growth rate of stay-over arrivals; the growth rate and market share of visitor expenditures per arrival and the tourism styles of the destinations, differentiating between ongoing mass tourism and niche marketing strategies and among upscale, mid-scale and low-scale destinations. Countries have pursued three broad classes of strategies over the last 15 years in order to move upward in their tourism life cycle and enhance their tourism competitiveness. There is first a strategy that continues to rely on mass-tourism to build on the comparative advantages of “sun, sand and sea”, scale economies, all-inclusive packages and large amounts of investment to move along in Stage 2 or Stage 3 (Cuba, Dominican Republic, Puerto Rico). There is a second strategy pursued mainly by very small islands that relies on developing specific niche markets to maintain tourism competitiveness through upgrading (Anguilla, Antigua and Barbuda, British Virgin Islands and Turks and Caicos), allowing them to move from Stage 2 to Stage 3 or Stage 3 to a rejuvenation stage. There is a third strategy that uses a mix of mass-tourism, niche marketing and quality upgrading either to emerge onto the intermediate stage (Trinidad and Tobago); avoid decline (Aruba, The Bahamas) or rejuvenate (Barbados, Jamaica and the United States Virgin Islands). There have been many success stories in Caribbean tourism competitiveness and further research should aim at empirically testing the determinants of tourism competitiveness for the region as a whole.

Does public financial support stimulate innovation and productivity? An impact evaluation

This paper contributes to the empirical literature that evaluates the effects of public financial support to innovation on innovation expenditures, innovation itself and productivity in developing countries. Propensity score matching techniques and data from Innovation Surveys are used to analyse the impacts of public financial support to innovation on Uruguayan firms. The results indicate that there is no crowding-out effect of private innovation investment by public funds and that public financial support in Uruguay seems to increase private innovation expenditures. Financial support also appears to induce increased research and development expenditures and innovative sales, with these effects being greatest for service firms. Public funds do not, however, significantly stimulate private expenditures by firms that would have carried out innovation activities even in the absence of financial support.

Tributación, seguridad y cohesión social en Brasil

Versión ampliada del trabajo presentado en el Seminario Internacional “Cohesión social en América Latina y el Caribe: una revisión perentoria de alguna de sus dimensiones, realizado por la CEPAL en la Ciudad de Panamá los días 6 y 7 de septiembre de 2006

Impactos das reformas tributárias e dos gastos públicos sobre o cresciento e os investimentos: O caso do Brasil

Um tradicional desafio das finanças públicas no Brasil ainda persiste: a taxa de investimento governamental prossegue em um patamar muito baixo, em termos históricos e comparada com a de outros países, em que pese o País tenha passado a ostentar das maiores cargas tributárias globais e também do volume total de gastos públicos entre as economias emergentes. Neste contexto, o objetivo desta análise é avaliar de que maneira reformas nas finanças públicas impactaram os indicadores e a política macroeconômica, com destaque para o crescimento potencial e investimentos fixos. No Brasil, as reformas institucionais historicamente se constituíram como reações às crises, logo, perderam ímpeto depois da virada dos século quando se atravessou o período mais longo de prosperidade econômica na América Latina puxado pelo boom das comoditties. Nem mesmo a crise financeira global levou aretomada de um ciclo de reformas no Brasil que optou por concentrar as atenções no crédito e o avalancar via endividamento público. O cenário atual passou a ser marcado pelo produto estagnado e por inflação crescente. A experiência brasileira não é animadora para os propósitos de vincular reformas institucionais, investimentos públicos e crescimento econômico.

Panorama Económico y Social de la Comunidad de Estados Latinoamericanos y Caribeños, 2015

Este Panorama Económico y Social de la Comunidad de Estados Latinoamericanos y Caribeños es una contribución de la Comisión Económica para América Latina y el Caribe (CEPAL) a la Cuarta Cumbre de Jefes de Estado y de Gobierno de la Comunidad de Estados de América Latina y el Caribe (CELAC), (Quito, enero de 2016).