latin america: situation and prospects fernando losada, ph.d. director americas economic research...

Latin America:Situation and Prospects

Fernando Losada, Ph.D.Director

Americas Economic Research

February 2004

2

MAIN REGIONAL TRENDS

The pace of economic activity is increasing in virtually all Latin American countries, following stagnation or recessions in most of them during 2001-02 and even 1H03 (Brazil). Given the latest news out of the Asian and US economies, we are more confident that 2004 will be a relatively good year in the region, with GDP growth of at least 3.5% following 1% growth in 2003 and 0% growth in 2002.

Inflation, interest rates and bond yields are down, and currencies have stabilized or even strengthened, in virtually all Latin American countries, following the adoption of mainly restrictive fiscal, monetary and wage policies. Dramatic turnarounds in the balance of payments have also been accomplished.

Despite political transitions in most countries, such that opposition candidates and parties are now in office, there has been no major increase in nationalism or populism except in Argentina and Venezuela.

3

MAIN REGIONAL TRENDS

The region’s main disadvantages remain mostly unchanged: excessive dependence on commodity or low-value-added production and exports; overindebtedness of most governments and undercapitalisation of most companies; and low domestic savings rates which are insufficient to underwrite investment and growth, thus keeping economies hostage to volatile foreign capital inflows.

There have been some major improvements, however: most countries have made the transition to market-based exchange rate regimes; most governments have reduced their operating deficits and put in place fiscal responsibility rules; most central banks have become independent and have achieved low inflation rates; most banking systems have been strengthened by the arrival of well-capitalised US and European banks.

One recent disadvantage is the demise of several traditional political parties and a propensity of citizens to split their votes, such that the region now has mostly weak governments.

4

SOVEREIGN CREDIT INDEX

Early warning models of FX and debt problems tend to overpredict crises, need to be updated for regime changes and are as good as the forecasts that go into them. Nevertheless, we have developed two models of our own with more limited objectives.

The SCI is an econometric model consisting of a single-equation regression estimated over a cross-section sample of more than 60 countries, using a small set of political, economic and financial indicators, to explain the sovereign credit ratings assigned by the leading agencies.

The explanatory variables (per capita GDP, net external debt/exports, the fiscal balance, access to capital markets, and extent of political risk) are able to explain more than 90% of the sovereign credit ratings.

To anticipate likely credit rating changes in the next 6-12 months, we use ABN AMRO forecasts as inputs in the estimated equation.

5

SOVEREIGN CREDIT INDEX

Source: ABN AMRO, as of February 4 2004

Forward-lookingS&P Moody's Fitch SCI rating S&P Moody's Fitch

Argentina SD Caa1 DDD CCC/Caa2 Upgrade Downgrade Upgrade

Brazil B+* B2 B+ BB-/Ba3 Upgrade Upgrade Upgrade

Colombia BB Ba2** BB** BB/Ba2 No change No change No change

Mexico BBB- Baa2* BBB- BBB/Baa2 Upgrade No change Upgrade

Venezuela B- Caa1 B- CCC+/Caa1 Downgrade No change Downgrade

Note: The asterisk (*) denotes that the rating has a positive outlook, two stars (**) denote a negative outlook.

Potential rating change as per SCIActual rating

6

SUMMARY OF RATING SIGNALS OBTAINED

Upgrade Downgrade No change Total

Latin America 15 5 10 30

EMEA 6 11 10 27

Emerging Asia 2 5 8 15

Total 23 21 28 72

Source: ABN AMRO, as of February 4 2004

7

SOVEREIGN LIQUIDITY RISK INDEX

Creditworthiness on an international scale is determined not only by long-term structural factors but also by short-term liquidity considerations. Our measure of sovereign liquidity risk has successfully signaled the vulnerability of various countries to cash-flow problems, though not all countries ranking poorly have ended up facing a liquidity crisis.

Indicators such as the debt-service ratio and the import-coverage ratio do not have predictive power, because too much depends on a country’s choice of exchange-rate regime and on its ability to attract capital inflows

Our favorite indicator of near-term sovereign default risk links the amount of a country’s liabilities to commercial and investment banks located in the BIS-reporting area falling due within the next 12 months, to all of the country’s liquid external assets held in that universe of banks.

8

SOVEREIGN LIQUIDITY RISK INDEX

Source: BIS, ABN AMRO

Maturitie s within 1 yr As s e ts Diffe rence 31-Mar-03 31-Dec-02 30-Sep-02R is k indic a to r a bo v e 15 0 %Hungary 7.7 3.7 4.0 208.0 135.3 171.9

R is k indic a to r a bo v e 10 0 %So uth Ko rea 38.1 30.4 7.7 125.2 122.5 114.9Turkey 19.8 15.9 4.0 124.9 92.5 98.5Indo nes ia 13.1 12.4 0.8 106.1 112.5 113.2

R is k indic a to r a bo v e 5 0 %Ro mania 2.0 2.2 -0.2 90.8 95.4 69.8Brazil 23.3 44.6 -21.3 52.3 57.3 55.6

R is k indic a to r be lo w 5 0 %Argentina 11.7 25.9 -14.2 45.2 53.1 59.5So uth Africa 9.8 21.7 -11.9 45.1 43.7 46.6Mexico 23.5 58.1 -34.5 40.6 44.9 44.7Co lo mbia 3.0 8.9 -5.8 34.4 45.3 48.0

Venezue la 3.7 29.1 -25.4 12.7 13.7 13.2

Maturitie s as % o f as s e ts

9

RELIANCE ON SHORT-TERM DEBT FROM BANKS (%)*

Source: BIS, ABN AMRO

* Liabilities of up to 1 year to BIS-reporting banks, as % of total liabilities.

D e c -9 6 D e c -9 7 D e c -9 8 D e c -9 9 D e c -0 0 D e c -0 1 D e c -0 2 M a r-0 3A fric a & M iddle Ea s t 5 1.1 5 5 .4 5 3 .3 5 2 .5 5 1.3 4 9 .6 4 6 .9 4 7 .6

Em e rg ing A s ia 6 1.3 5 4 .3 4 6 .7 4 5 .3 4 4 .7 4 6 .1 4 8 .8 5 1.9

Em e rg ing Euro pe 4 5 .0 4 5 .5 4 0 .5 3 8 .2 4 1.8 4 1.9 3 9 .3 4 0 .4

La t in A m e ric a 5 3 .7 5 4 .8 5 1.2 4 8 .2 4 8 .4 4 5 .9 4 3 .4 4 3 .6Argentina 56.3 57.3 54.3 52.5 56.2 51.0 46.9 45.6Brazil 63.0 64.3 56.3 54.1 49.6 47.1 43.6 43.1Mexico 44.7 43.6 44.5 38.2 35.1 37.1 35.5 36.3Venezue la 28.4 39.4 40.6 33.4 35.9 32.6 32.0 29.6

10

SOVEREIGN AND CORPORATE DEBT SPREADS (bp)

200

300

400

500

600

700

800

900

1/1/

03

2/1/

03

3/1/

03

4/1/

03

5/1/

03

6/1/

03

7/1/

03

8/1/

03

9/1/

03

10/1

/03

11/1

/03

12/1

/03

1/1/

04

2/1/

04

EMBI+ Chase High Yield BB

11

EMERGING MARKETS BOND ISSUANCE ($bn)

2004 20021Q* 4Q 3Q 2Q 1Q* 1Q*

Total 28.4 29.1 24.1 30.1 16.1 11.1 Currency USD 17.8 20.6 18.1 20.3 10.1 10.0

EUR 5.0 1.6 4.7 8.1 4.6 1.0 JPY 0.3 0.5 0.4 1.2 0.4 0.1 Other 5.2 6.4 0.9 0.5 1.0 0.0

Region Latin America 9.2 10.1 7.9 9.6 6.4 7.0 EMEA 9.8 5.1 7.8 11.8 6.1 2.4 Emerging Asia 8.8 10.5 2.3 2.8 2.4 1.6

Issuer Sovereign 14.3 8.5 8.9 16.9 11.4 7.5 Corporate 6.5 12.3 8.4 7.4 3.2 2.9 Bank 7.6 8.3 6.8 5.8 1.5 0.7

2003

* year to February 17.

12

EMERGING MARKETS SYNDICATED LOANS ($bn)

2004 20021Q* 4Q 3Q 2Q 1Q* 1Q*

Total 5.6 22.6 26.4 21.7 3.3 4.4Currency USD 3.8 16.2 23.7 15.9 3.1 4.4

EUR 1.7 5.6 2.5 4.6 0.1 0.1 JPY 0.0 0.1 0.0 0.6 0.0 0.0 Other 0.0 0.7 0.1 0.6 0.1 0.0

Region Latin America 0.0 5.5 2.8 8.6 0.3 1.1 EMEA 4.3 12.1 12.3 7.1 2.2 2.4 Emerging Asia 1.3 5.1 11.3 6.0 0.8 0.9

Issuer Sovereign 0.6 1.5 1.1 2.7 0.4 0.0 Corporate 4.5 15.5 20.6 14.1 2.8 3.5 Bank 0.5 5.6 4.5 4.8 0.2 0.9

2003

* year to February 17.

13

SOVEREIGN DEBT COUPON AND REDEMPTION PAYMENTS ($bn)

Feb/Mar 04 2Q04 3Q04 4Q04 Jan-05

Latin America 3.3 6.4 5.1 3.8 1.4

EMEA 5.2 3.0 2.8 3.6 1.2

Emerging Asia 0.3 0.6 1.0 0.7 0.2

Total 8.8 10.0 8.9 8.1 2.8

14

ARGENTINA: CURRENT SITUATION

Economic situation

The economy has recuperated more and faster than expected, driven mainly by higher exports, lower imports and some recovery of consumption. Inflationary pressures have been surprisingly benign and transitory. The policy mix consists of restrictive fiscal and wage policies and a very loose monetary policy. Bank deposits have been growing but bank lending has not. Utility prices remain frozen.

Political situation

President Kirchner has adopted a nationalistic posture in his dealing with multinational companies, foreign creditors and the multilateral institutions in an attempt to enhance his popularity and thus build a political base with which to govern. So far, the strategy is working.

15

ARGENTINA: BOND SPREADS & LOCAL INTEREST RATES

Source: JP Morgan, Bloomberg, ABN AMRO

0

20

40

60

80

100

120

25-J

an

15-F

eb

8-M

ar

29-M

ar

19-A

pr

10-M

ay

31-M

ay

21-J

un

12-J

ul

2-A

ug

23-A

ug

13-S

ep

4-O

ct

25-O

ct

15-N

ov

6-D

ec

27-D

ec

17-J

an

7-F

eb

28-F

eb

21-M

ar

11-A

pr

2-M

ay

23-M

ay

13-J

un

4-J

ul

25-J

ul

15-A

ug

5-S

ep

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

3-mo domestic rate (% pa) Argentina EMBI+ sovereign spread (bp over UST, rhs)

16

ARGENTINA: PUBLIC DEBT (% of GDP)

Source: Ministerio de Economía, ABN AMRO

0

20

40

60

80

100

120

140

160

1998 1999 2000 2001 2002 2003F

Domestic External

17

ARGENTINA: PRIMARY FISCAL BALANCES (% of GDP)

Source: Ministerio de Economía, ABN AMRO

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1998 1999 2000 2001 2002 2003E 2004F

18

ARGENTINA: NEAR-TERM OUTLOOK

Economic outlook

Unless the business climate improves meaningfully, a shortfall of new investment will probably put a ceiling on the economic recovery during 2005. Negotiations with foreign creditors, as well as with banks, pension funds and multinational companies operating in Argentina, are likely to be protracted and to leave deep scars. The government will maintain an interventionist, paternalistic attitude.

Political outlook

President Kirchner will use his increased political support to get some necessary reforms passed (e.g., revenue sharing rules), but he is unlikely to stage a Lula-style turnaround in his cool attitude toward big business, the IMF and the US. He is a nationalist and interventionist at heart.

19

ARGENTINA: MAIN ECONOMIC INDICATORS

2002 2003E 2004F

Real GDP (% yoy)Unemployment (%)Consumer prices (Dec, %)

Government budget (% of GDP)Foreign trade balance (US$bn)Current account (% of GDP)

Foreign direct investment (US$bn)External debt (US$bn)International reserves (US$bn)Exchange rate (Dec, /US$)

-10.918.041.0

-1.816.5

7.8

0.0175.0

10.23.36

8.414.3

3.7

-1.215.4

7.0

1.0190.0

14.12.93

5.513.5

9.0

-1.012.5

4.0

1.2205.0

15.53.15

20

ARGENTINA: LONGER-TERM ISSUES

Can the rule of law be restored, such that new investors will have some confidence that their contracts will be honored?

Is it possible to rebuild the financial system, or will bank credit and capital markets financing be unavailable for many years to come?

Will there be the kind of fiscal discipline and effort necessary to service the government’s financial obligations after a debt restructuring?

21

BRAZIL: CURRENT SITUATION

Economic situationThe economy was in a mild recession in 1H03 because of the impact of previous political uncertainty, and highly restrictive fiscal and monetary policies, on domestic consumption and investment. However, as was to be expected, inflationary pressures have abated, the currency has regained some strength and stabilized, and the foreign trade and current accounts of the balance of payments have improved markedly. Economic activity has been accelerating since 4Q03 - we expect GDP to grow by more than 4% in 2004.

Political situation

Despite an increase in unemployment and an erosion of real wages because of high inflation late last year and early this year, the government’s approval ratings remain high and President Lula has established a strong, multi-party congressional coalition that controls the House and Senate, allowing the government to pass needed legislation. It remains to be seen, however, how costly for Lula is the recent corruption scandal.

22

BRAZIL: BOND SPREADS & LOCAL INTEREST RATES


300

800

1,300

1,800

2,300

2,800

Dec-

99

Feb-0

0

Mar-

00

Apr-

00

May-

00

Jun-0

0

Aug-0

0

Sep-0

0

Oct

-00

Nov-

00

Dec-

00

Feb-0

1

Mar-

01

Apr-

01

May-

01

Jun-0

1

Aug-0

1

Sep-0

1

Oct

-01

Nov-

01

Dec-

01

Feb-0

2

Mar-

02

Apr-

02

May-

02

Jun-0

2

Aug-0

2

Sep-0

2

Oct

-02

Nov-

02

Dec-

02

Feb-0

3

Mar-

03

Apr-

03

May-

03

Jun-0

3

Jul-03

Sep-0

3

10

15

20

25

30

35

Brazil EMBI+ (bp over UST) 1-yr domestic rate (% pa, rhs)

23

BRAZIL: NET PUBLIC DEBT (% of GDP)

Source: Banco Central do Brasil, ABN AMRO

30

35

40

45

50

55

60

65

Dec-98 Dec-99 Dec-00 Dec-01 Mar-02 J un-02 Sep-02 Dec-02 Mar-03 J un-03

24

BRAZIL: PRIMARY FISCAL BALANCES (% of GDP)


0.0

1.0

2.0

3.0

4.0

5.0

Dec-98 Dec-99 Dec-00 Dec-01 Mar-02 J un-02 Sep-02 Dec-02 Mar-03 J un-03

25

BRAZIL: CURRENT ACCOUNT AND FDI (US$bn)


-40

-30

-20

-10

0

10

20

30

40

Jan-9

8

Mar-

98

Mai-98

Jul-98

Set-

98

Nov-

98

Jan-9

9

Mar-

99

Mai-99

Jul-99

Set-

99

Nov-

99

Jan-0

0

Mar-

00

Mai-00

Jul-00

Set-

00

Nov-

00

Jan-0

1

Mar-

01

Mai-01

Jul-01

Set-

01

Nov-

01

Jan-0

2

Mar-

02

May-

02

Jul-02

Sep-0

2

Nov-

02

Jan-0

3

Mar-

03

May-

03

Jul-03

Current account balance FDI inflows

26

BRAZIL: OUTLOOK

Economic outlook

Economic activity should rebound in the months ahead, now that fiscal and monetary policy have been relaxed. In anticipation, the financial markets have staged a strong rally. We expect inflation to stay under good control, the currency to remain stable, and the balance of payments to continue strong.

Political outlook

Congress should approve the pension reform for civil servants and key items in the tax reform (eg, the renewal of the financial transactions tax and the DRU, preventing the earmarking of certain government revenues) before year’s end. Passage of a new bankruptcy law and a new law on the financial system granting autonomy to the central bank are likely to be approved before mid-2004.

27

BRAZIL: MAIN ECONOMIC INDICATORS

2002 2003E 2004F

Real GDP (% yoy)Unemployment (%)Consumer prices (Dec, %)Overnight interest rate (Dec, %)



1.511.712.525.0

-10.313.1-1.7

16.6205.0

37.83.54

0.112.0

9.316.5

-5.224.8

0.4

10.0208.0

49.32.89

3.810.0

5.515.0

-2.422.3

0.2

12.0209.0

59.93.20

28

BRAZIL: LONGER-TERM ISSUES

Will domestic interest rates and the sovereign risk premium come down below previous floors, such that Brazil can experience a burst of investment- and export-led growth, and government debt dynamics can improve substantially?

Can the authorities overcome nationalistic impulses and accept a deal with the US on free trade, even if it is a less ambitious, and thus more limited, agreement (a “lite” FTA)?

Can the government target its spending better, improving on the delivery of social services and income support to the poorest of the poor?

29

COLOMBIA: CURRENT SITUATION

Economic situation

The pace of economic growth has been faster than expected, and inflationary pressures have been moderate. Although original IMF fiscal targets will not be met, Washington will be accommodating of the country’s needs. The recession cum exchange controls in Venezuela are constraining export earnings growth.

Political situation

President Uribe’s popularity remains high, based on the people’s support for his democratic security policy. The administration has recovered well from the blow of the referendum defeat. While Uribe appears to have full support from the White House, the backing for his policies on the part of the US Congress (and of many European countries) is not so strong.

30

COLOMBIA: BOND SPREADS & LOCAL INT. RATES


6

7

8

9

10

11

12

300

400

500

600

700

800

900

1000

1100

3-mo domestic deposit rate (% pa) Colombia EMBI+ spread (bp over UST, rhs)

31

COLOMBIA: PUBLIC DEBT (% of GDP)

Source: MHCP, ABN AMRO

0

10

20

30

40

50

60

1996 1997 1998 1999 2000 2001 2002

Domestic External

32

COLOMBIA: PRIMARY FISCAL BALANCES (% of GDP)

Source: MHCP, ABN AMRO

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

1996 1997 1998 1999 2000 2001 2002

33

COLOMBIA: NEAR-TERM OUTLOOK

Economic outlook

The pace of economic activity growth should remain in the neighborhood of 3% pa, helped by a strong US economic recovery. Concerns about knock-on effect of Venezuela and Ecuador will remain. The failure of the referendum opens the door to renewed concerns regarding the country’s fiscal outlook.

Political outlook

The government’s bet on Uribe’s tailwind to be enough for ensuring a positive vote in the referendum failed, and the costs will be on the fiscal front and in terms of Uribe’s loss of its aura of invincibility. The referendum defeat gave rise only to a moderate selloff, however, indicating that the market remains confident about Uribe’s ability to retain his political power.

34

COLOMBIA: MAIN ECONOMIC INDICATORS

2002 2003E 2004F




1.618.0

6.5

-3.80.7

-1.9

2.642.711.0

2867

3.514.7

6.5

-3.01.0

-2.3

2.444.510.8

2780

3.014.0

6.0

-2.81.5

-1.5

2.547.011.0

2930

35

COLOMBIA: LONGER-TERM ISSUES

Is President Uribe’s popularity enough to ensure that progress will continue to take place in the areas of fiscal discipline and structural reform in spite of the referendum fiasco?

Is Colombia’s bid to reach a bilateral free trade agreement with the US successful?

Does President Uribe persuade the US Congress that his security policy is the best not only for Colombia but also the one that improves hemispheric security?

36

MEXICO: CURRENT SITUATION

Economic situation

The economy stagnated in the 2 years until 1Q03, but has been showing signs of life since then, although the job market remains depressed, partly because of a loss in international competitiveness. Inflation, interest rates and sovereign spreads are testing all-time lows. The government’s fiscal and monetary policies are conservative and have credibility. The structural reform agenda, however, has made little or no progress.

Political situation

President Fox has not managed to build a political base within his party and with other parties to advance his legislative agenda (tax, energy and other reforms). He has emerged further weakened from recent mid-term elections.

37

MEXICO: BOND SPREADS & LOCAL INTEREST RATES


4

5

6

7

8

9

10

4-J

an

25-J

an

15-F

eb

8-M

ar

29-M

ar

19-A

pr

10-M

ay

31-M

ay

21-J

un

12-J

ul

2-A

ug

23-A

ug

13-S

ep

4-O

ct

25-O

ct

15-N

ov

6-D

ec

27-D

ec

17-J

an

7-F

eb

28-F

eb

21-M

ar

11-A

pr

2-M

ay

23-M

ay

13-J

un

4-J

ul

25-J

ul

15-A

ug

5-S

ep

200

250

300

350

400

450

3-mo domestic rate (% pa) Mexico EMBI+ spread (bp over UST, rhs)

38

MEXICO: PUBLIC DEBT (% of GDP)

Source: SHCP, ABN AMRO

0

5

10

15

20

25

30

35

1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03

External Domestic

39

MEXICO: PRIMARY FISCAL BALANCES (% of GDP)

Source: SHCP, ABN AMRO

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

1999 2000 2001 2002 2003E

40

MEXICO: NEAR-TERM OUTLOOK

Economic outlook

The pace of economic activity should pick up in the months ahead in reflection of the strong US economic recovery, but there are reasons for concern about the continuing impact of China on Mexico’s previously privileged position vis-à-vis the US market. Absent a sharp decline in world oil prices, the currency should remain fairly stable, given low inflation and conservative monetary and fiscal policies.

Political outlook

Political negotiations about a tax reform may make progress, but the outlook for other reform initiatives remains murky, especially when it comes to the energy sector. The PRI is making a comeback and the leftist PRD has an appealing candidate for the 2006 presidential elections (Mexico City Mayor López Obrador).

41

MEXICO: MAIN ECONOMIC INDICATORS

2002 2003E 2004F




0.92.75.7

-2.9-8.0-2.8

12.6190.0

46.110.4

1.23.04.0

-2.2-6.0-2.7

13.5197.0

56.111.2

3.22.83.5

-1.8-8.0-2.8

14.0200.0

59.011.8

42

MEXICO: LONGER-TERM ISSUES

Is President Fox able to reach a domestic political accord such that progress can take place on his structural reform agenda?

Does the US start to pay more attention to Mexico’s aspirations within NAFTA, broadening the relationship beyond commerce?

Can Mexico move up the value-added chain and thus offset the loss of assembly jobs to China and other Asian countries? This would require a great leap forward in terms of educational and on-the-job training reforms.

43

VENEZUELA: CURRENT SITUATION

Economic situation

The oil industry recovered quickly, though not fully, from the labor strike and dismissals earlier this year, but the non-oil economy remains in a recession aggravated by the imposition of exchange controls. Monetary and fiscal policies have been loose but banks are not granting credit. The government demonstrated its willingness to keep servicing the public debt, and has regained partial access to the capital markets.

Political situation

President Hugo Chávez has lost popularity but refuses to resign, managing to delay a referendum that could end up in his removal. Gross domestic private investment remains depressed and capital repatriation has been delayed because of political uncertainty.

44

VENEZUELA: BOND SPREADS & LOCAL INTEREST RATES


20

25

30

35

40

45

50

55

60

65

70

4-J

an

1-F

eb

1-M

ar

29-M

ar

26-A

pr

24-M

ay

21-J

un

19-J

ul

16-A

ug

13-S

ep

11-O

ct

8-N

ov

6-D

ec

3-J

an

31-J

an

28-F

eb

28-M

ar

25-A

pr

23-M

ay

20-J

un

18-J

ul

15-A

ug

12-S

ep

10-O

ct

700

800

900

1000

1100

1200

1300

1400

1500

3-month promissory note borrowing rate (% pa)

Venezuela EMBI+ spread (bp over UST, rhs)

45

VENEZUELA: PUBLIC DEBT (% of GDP)

Source: Ministerio de Finanzas, Standard & Poor’s, ABN AMRO

0

10

20

30

40

50

60

1995 1996 1997 1998 1999 2000 2001 2002

Domestic External

46

VENEZUELA: OIL AND INTERNATIONAL RESERVES

Source: Banco Central de Venezuela, Bloomberg, ABN AMRO

10

11

12

13

14

15

16

17

18

19

20

2-A

ug

16-A

ug

30-A

ug

13-S

ep

27-S

ep

11-O

ct

25-O

ct

8-N

ov

22-N

ov

6-D

ec

20-D

ec

3-J

an

17-J

an

31-J

an

14-F

eb

28-F

eb

14-M

ar

28-M

ar

11-A

pr

25-A

pr

9-M

ay

23-M

ay

6-J

un

20-J

un

4-J

ul

18-J

ul

1-A

ug

15-A

ug

29-A

ug

12-S

ep

19

21

23

25

27

29

31

33

International reserves incl. FIEM ($bn) Ven crude basket price ($/bbl, rhs)

47

VENEZUELA: PRIMARY FISCAL BALANCES (% of GDP)

Source: Ministerio de Finanzas, Standard & Poor’s, ABN AMRO

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

1999 2000 2001 2002 2003F 2004F

48

VENEZUELA: NEAR-TERM OUTLOOK

Economic outlook

The non-oil economy is likely to touch bottom soon and some pick-up in consumption will take place, but investment spending will probably be minimal. The exchange control regime is likely to be liberalized gradually in the months ahead. The economy remains vulnerable to a softening of world oil prices. We assume that business conditions will improve in 2H04, once political uncertainty is resolved.

Political outlook

A referendum to remove President Chávez is likely to take place by mid-2004. Depending on the timing Vice President Rangel may end up taking over temporarily until new elections are held, say, before the end of 2004.

49

VENEZUELA: MAIN ECONOMIC INDICATORS

2002 2003E 2004F




-8.017.531.2

-3.612.0

7.6

2.535.311.0

1,389

-10.017.027.1

-5.015.013.0

0.037.321.3

1,600

6.016.035.0

-3.514.0

9.0

1.038.025.0

2,200

50

VENEZUELA: LONGER-TERM ISSUES

Can new political leadership emerge and bring the country together again? This would require for the political opposition to Chávez to stand united, at least initially.

Will the oil industry recuperate its production fully and attract renewed foreign investment?

How much capital will be repatriated and be put to work in Venezuela if a new government takes office?

51

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latin america: situation and prospects fernando losada, ph.d. director americas economic research...

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