latinmacrowatch special analysis
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LatinMacroWatch Special Analysis. LMW: the Big Picture on a Small Screen A new RES feature. Between Financial Distress and Lackluster Performance: A Regional Assessment. October 24 rd , 2002. - PowerPoint PPT PresentationTRANSCRIPT
LatinMacroWatch
Special Analysis
LatinMacroWatch
Special Analysis
LMW: the Big Picture on a Small Screen
A new RES feature
October 24October 24rdrd, 2002, 2002
Between Financial Distress and Lackluster Performance:
A Regional Assessment
Between Financial Distress and Lackluster Performance:
A Regional Assessment
Prepared for presentation at the XVII Meeting of the Latin Prepared for presentation at the XVII Meeting of the Latin American Network of Central Banks and Finance Ministries, American Network of Central Banks and Finance Ministries,
IADB, Washington IADB, Washington DC DC
OUTLINE
I. Capital Flows to LAC: Back to the Eighties?I. Capital Flows to LAC: Back to the Eighties?
II.II. Capital Flows, External Adjustment and Capital Flows, External Adjustment and Macroeconomic Performance: A Regional AssessmentMacroeconomic Performance: A Regional Assessment
IV.IV. Lula Effect? Look Again!Lula Effect? Look Again!
III.III. External Adjustment and Financial Distress: External Adjustment and Financial Distress: Understanding BrazilUnderstanding Brazil
LAC-7 Capital Flows(4 quarters, millions of US dollars and average in % of GDP)
Includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela
0
20000
40000
60000
80000
100000
1997
-I
1997
-III
1998
-I
1998
-III
1999
-I
1999
-III
2000
-I
2000
-III
2001
-I
2001
-III
2002
-I
-1%
0%
1%
2%
3%
4%
5%
6%
Millions of US dollars
% of GDP
LAC-7 Non-FDI Capital Flows(4 quarters, millions of US dollars and and average in % of GDP)
Includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela
-80000
-60000
-40000
-20000
0
20000
40000
6000019
97-I
1997
-III
1998
-I
1998
-III
1999
-I
1999
-III
2000
-I
2000
-III
2001
-I
2001
-III
2002
-I
-4%
-3%
-2%
-1%
0%
1%
2%
Millions of US dollars
% of GDP
LAC-7 Foreign Direct Investment(4 quarters, millions of US dollars and average in % of GDP)
Includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela
0
10000
20000
30000
40000
50000
60000
70000
8000019
97-I
1997
-III
1998
-I
1998
-III
1999
-I
1999
-III
2000
-I
2000
-III
2001
-I
2001
-III
2002
-I
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Millions of US dollars
% of GDP
LAC-7 Foreign Direct Investment(Annual FDI flows, 2002.II)
Others
16%
Brazil
40%
Mexico
44%
Financial Flows to LAC: Back to the Eigthies?(Billions of real US dollars of May 2002, deflated by US CPI)
-60
-40
-20
0
20
40
60
80
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Financial Flows to Emerging Asia:A Panoramic View(Billions of real US dollars of May 2002, deflated by US CPI)
-120
-100
-80
-60
-40
-20
0
20
40
60
80
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Private Capital Flows to Emerging Asia: A Panoramic View(Billions of real US dollars of May 2002, deflated by US CPI)
-70
-20
30
80
130
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Korea: Capital Flows (Total capital flows, 4 quarters)
-10000
-8000
-6000
-4000
-2000
0
2000
40001
99
6-I
19
96
-III
19
97
-I
19
97
-III
19
98
-I
19
98
-III
19
99
-I
19
99
-III
20
00
-I
20
00
-III
20
01
-I
20
01
-III
20
02
-I
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
Millions of US dollars
% of GDP
FDI to Emerging Europe: A Panoramic View
(Billions of real US dollars of May 2002, deflated by US CPI)
-5
0
5
10
15
20
25
30
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Financial Flows to Emerging Europe: A Panoramic View (Billions of real US dollars of May 2002, deflated by US CPI)
-30
-20
-10
0
10
20
30
40
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
OUTLINE
I. Capital Flows to LAC: Back to the Eighties?I. Capital Flows to LAC: Back to the Eighties?
II.II. Capital Flows, External Adjustment and Capital Flows, External Adjustment and Macroeconomic Performance: A Regional AssessmentMacroeconomic Performance: A Regional Assessment
IV.IV. Lula Effect? Look Again!Lula Effect? Look Again!
III.III. External Adjustment and Financial Distress: External Adjustment and Financial Distress: Understanding BrazilUnderstanding Brazil
LAC-7 Business Cycle: 1997-2002(s.a. GDP, annualized quarterly growth rate)
Includes: Argentina Brazil, Chile, Colombia, Mexico, Peru and Venezuela
Deceleration Recession Recovery Stalling Recession?
-6%
-4%
-2%
0%
2%
4%
6%
8%
1997
.I
1997
.III
1998
.I
1998
.III
1999
.I
1999
.III
2000
.I
2000
.III
2001
. I
2001
.III
2002
.I
LAC-7 Business Cycle and Capital Flows (GDP and Non FDI Capital Flows, last four quarters)
-3%-2%-1%0%1%2%3%4%5%6%7%
Ma
r-9
6
Se
p-9
6
Ma
r-9
7
Se
p-9
7
Ma
r-9
8
Se
p-9
8
Ma
r-9
9
Se
p-9
9
Ma
r-0
0
Se
p-0
0
Ma
r-0
1
Se
p-0
1
Ma
r-0
2
GD
P (
yoy
% c
han
ge)
-4%
-3%
-2%
-1%
0%
1%
2%
No
n F
DI C
apit
al F
low
s (%
GD
P)
GDP
Non FDI Capital Flows
External Adjustment (Current account, last 4 quarters)
-14000
-12000
-10000
-8000
-6000
-4000
-2000
0
19
97-I
19
97-I
II
19
98-I
19
98-I
II
19
99-I
19
99-I
II
20
00-I
20
00-I
II
20
01-I
20
01-I
II
20
02-I
-6%
-5%
-4%
-3%
-2%
-1%
0%
Millions of US dollars
% of GDP -80000
-60000
-40000
-20000
0
20000
40000
60000
80000
1996
-I
1996
-III
1997
-I
1997
-III
1998
-I
1998
-III
1999
-I
1999
-III
2000
-I
2000
-III
2001
-I
2001
-III
2002
-I
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Millions of US dollars
% of GDP
LAC 7 Emerging Asia
4.8
1998.II 2002.II Change(1) (2) (2)-(1)
Venezuela 2.0 4.1-2.1
Chile -0.9 5.7-6.6
Colombia -1.5-6.3Peru -1.7 5.2-6.9
Argentina 2.1 6.8-4.7
Mexico -2.6 0.4-3.0Brasil -4.1 -3.5 0.6
Average -4.9 -0.9 4.0
Current Account Adjustment by Country(4 quarters, % of GDP)
6.8
1997.II 2002.II Change(1) (2) (2)-(1)
Korea 1.3 5.9-4.6
Philippines 8.5 12.4-3.9
Indonesia 4.1-2.7Malaysia 8.3 13.5-5.2
Thailand 5.6 11.9-6.3
Average -4.5 5.6 10.1
LAC 7 Emerging Asia
Current Account Adjustment by Country(in percentage of annual imports of 1998.II for LAC7 and 1997:II for EA)
-10% 0% 10% 20% 30% 40% 50%
Mexico
Venezuela
Chile
Brazil
Colombia
Peru
Argentina
average
0% 5% 10% 15% 20% 25%
Malaysia
Korea
Indonesia
Philippines
Thailand
average
LAC 7 Emerging Asia
Real Exchange Rate by Country(vis-à-vis the US dollar)
25%
37%
49%
54%
130%
198%
-15%
-20% 30% 80% 130% 180%
México
Perú
Venezuela
Chile
Colombia
Brazil
Argentina
17.1%
21.6%
24.4%
34.1%
36.2%
10% 15% 20% 25% 30% 35% 40%
Malaysia
Thailand
Korea
Philippines
Indonesia
average average
LAC 7August 2002 vs June 1998
Emerging AsiaAugust 2002 vs June 1997
External Adjustment and Investment (S.a. investment and annual capital flows)
75
80
85
90
95
100
105
1997
.I
1997
.II
1997
.III
1997
.IV
1998
.I
1998
.II
1998
.III
1998
.IV
1999
.I
1999
.II
1999
.III
1999
.IV
2000
.I
2000
.II
2000
.III
2000
.IV
2001
.I
2001
.II
2001
.III
2001
.IV
2002
.I
2002
.II
-1%
0%
1%
2%
3%
4%
5%
6%
Investment
Total Capital Flows
60
70
80
90
100
110
120
Mar
-96
Jul-9
6
Nov
-96
Mar
-97
Jul-9
7
Nov
-97
Mar
-98
Jul-9
8
Nov
-98
Mar
-99
Jul-9
9
Nov
-99
Mar
-00
Jul-0
0
Nov
-00
Mar
-01
Jul-0
1
Nov
-01
Mar
-02
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Investment
Total Capital Flows
LAC 7 Emerging Asia
Components of Aggregate Demand
Includes Argentina, Brazil, Chile, Colombia, Mexico, Peru
70
80
90
100
110
120
130
1998
.II
1998
.III
1998
.IV
1999
.I
1999
.II
1999
.III
1999
.IV
2000
.I
2000
.II
2000
.III
2000
.IV
2001
. I
2001
.II
2001
.III
2001
.IV
2002
.I
2002
.II
Exports
Consumption
Investment
50
70
90
110
130
150
Jun-
97
Sep
-97
Dic
-97
Mar
-98
Jun-
98
Sep
-98
Dic
-98
Mar
-99
Jun-
99
Sep
-99
Dic
-99
Mar
-00
Jun-
00
Sep
-00
Dic
-00
Mar
-01
Jun-
01
Sep
-01
Dic
-01
Mar
-02
Jun-
02
Exports
Consumption
Investment
Includes Korea, Philippines, Malaysia, Thailand and Indonesia
LAC 71998.II = 100
Emerging Asia1997.II = 100
Investment Behavior
38
48
58
68
78
88
98
108
118
128
19
98.I
I
19
98.I
II
19
98.I
V
19
99.I
19
99.I
I
19
99.I
II
19
99.I
V
20
00.I
20
00.I
I
20
00.I
II
20
00.I
V
20
01.I
20
01.I
I
20
01.I
II
20
01.I
V
20
02.I
20
02.I
I
Brazil Chile Argentina Colombia Mexico Peru40
50
60
70
80
90
100
110
120
Jun-
97
Sep
-97
Dic
-97
Mar
-98
Jun-
98
Sep
-98
Dic
-98
Mar
-99
Jun-
99
Sep
-99
Dic
-99
Mar
-00
Jun-
00
Sep
-00
Dic
-00
Mar
-01
Jun-
01
Sep
-01
Dic
-01
Mar
-02
Jun-
02
Korea Malaysia Philippines Thailand Indonesia
LAC 71998.II = 100
Emerging Asia1997.II = 100
Trend Growth(annualized quarterly growth rate)
Includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela
25
35
45
55
65
75
85
95
1998.II 1999.II 2000.II 2001.II 2002.II 1998.II 1999.II 2000.II 2001.II 2002.II1997.II1996.II0
20
40
60
80
100
Includes Indonesia, Korea, Philippines, Thailand, Malaysia
LAC 7 Emerging Asia
In In ssummaryummary,, the reduction of capital inflows the reduction of capital inflows to LAC to LAC was a triple was a triple ““whammywhammy” since it was associated with:” since it was associated with:
A rise in the cost of creditA rise in the cost of credit
A substantial depreciation of the real A substantial depreciation of the real exchange rateexchange rate
A decline of investment and slower growthA decline of investment and slower growth
OUTLINE
I. Capital Flows to LAC: Back to the Eighties?I. Capital Flows to LAC: Back to the Eighties?
II.II. Capital Flows, External Adjustment and Capital Flows, External Adjustment and Macroeconomic Performance: A Regional AssessmentMacroeconomic Performance: A Regional Assessment
IV.IV. Lula Effect? Look Again!Lula Effect? Look Again!
III.III. External Adjustment and Financial Distress: External Adjustment and Financial Distress: Understanding BrazilUnderstanding Brazil
External Adjustment & Financial Distress: The Debt Connection
Brazil ChileArgentina Uruguay
Financial Mismatches of the Private Sector
= High vulnerability
= Medium vulnerability
= Low vulnerability
Financial mismatches of the Public Sector
Public Debt to GDP
Banking System Exposure to the Public Sector
Sudden Stop in Argentina and Chile(Capital flows, last 4 quarters, % of GDP)
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%I
98
II 9
8
III
98
IV 9
8
I 99
II 9
9
III
99
IV 9
9
I 00
II 0
0
III
00
IV 0
0
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Arg
enti
na
Ch
ile
Argentina
Chile
External Adjustment(Current Account, 4 quarters, %GDP)
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
Chi
le
-5.5%
-5.0%
-4.5%
-4.0%
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
Arg
entin
a
Argentina
Chile
Contraction and Recovery: GDP and Investment(s.a., 1998.II=100)
GDP Investment
80
85
90
95
100
105
110
199
8.II
199
8.IV
199
9.II
199
9.IV
200
0.II
200
0.IV
200
1.II
200
1.IV
200
2.II 35
45
55
65
75
85
95
1998
.II
1998
.IV
1999
.II
1999
.IV
2000
.II
2000
.IV
2001
.II
2001
.IV
2002
.II
Beginning of bankrun in Argentina
Chile
Argentina
Chile
Argentina
Sudden Stop and the Real Exchange Rate
Required % change in RERto eliminate the CAD
25
30
35
40
45
50
55
60
Chile Argentina
Source: Calvo, Izquierdo, Talvi (2002)
32.4
46.2
379
178
100
150
200
250
300
350
400
450
ChileArgentina
Relative Openness, 1998(External Debt to Exports Ratio)
Fiscal Sustainability in Argentina after the Sudden Stop in 1998
Debt toGDPratio(%)
Req. Prim.SurplusAdjust.
(a) Baseline 36.5 0.3
(b) Change in Relative Prices to close the CA deficit (RER depreciation of 46,2%)
49.7 0.7
(c): (b) + 200 BPS Increase in Real Interest Rate
49.7 1.7
(d): (c) + 1% Reduction in GDP growth 49.7 2.2
(e): (d) + Contingent Liabilities 58.6 2.7
Source: Calvo, Izquierdo, Talvi (2002)
Note: The observed primary surplus for 1998 was 0.9 percent of GDP. The baseline scenario assumes a long run rate of growth of 3,8% and a 7,1% interest rate
25.6
45.4
66.0
71.7
75.9
Debt Reductio
n(%)
ArgentinaArgentina’s Collapse in a Nutshell’s Collapse in a Nutshell
RER depreciation:RER depreciation: revaluation of public sector debt revaluation of public sector debt relative to GDP + deterioration of corporate balance relative to GDP + deterioration of corporate balance sheets (contingent liabilities). The proposed fiscal sheets (contingent liabilities). The proposed fiscal adjustments were clearly insufficient for a substantially adjustments were clearly insufficient for a substantially higher RER.higher RER.
Deterioration of public and private sector balance sheetsDeterioration of public and private sector balance sheets: : Worsened quality of bank assets and run on banks due Worsened quality of bank assets and run on banks due to the fear that losses might be partially financed by to the fear that losses might be partially financed by confiscating depositors.confiscating depositors.
The run against banks was accommodated by The run against banks was accommodated by credit credit expansion of the CBexpansion of the CB, leading to a collapse in , leading to a collapse in international reserves and an acceleration of the run on international reserves and an acceleration of the run on banks.banks.
-30000
-20000
-10000
0
10000
20000
30000
40000
500001
997
-I
199
7-I
II
199
8-I
199
8-I
II
199
9-I
199
9-I
II
200
0-I
200
0-I
II
200
1-I
200
1-I
II
200
2-I
-6%
-4%
-2%
0%
2%
4%
6%
8%
% GDP
millions of US dollars
Capital Flows: A Panoramic View (Excluding IMF disbursements, last 4 quarters)
Non FDI Capital Flows: A Panoramic View (Excluding IMF disbursements, last 4 quarters)
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
1997
-I
1997
-II
1997
-III
1997
-IV
1998
-I
1998
-II
1998
-III
1998
-IV
1999
-I
1999
-II
1999
-III
1999
-IV
2000
-I
2000
-II
2000
-III
2000
-IV
2001
-I
2001
-II
2001
-III
2001
-IV
2002
-I
2002
-II -60000
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
% GDP
millions of US dollars
5000
10000
15000
20000
25000
30000
35000
40000
450002
000
-I
200
0-I
I
200
0-I
II
200
0-I
V
200
1-I
200
1-I
I
200
1-I
II
200
1-I
V
200
2-I
200
2-I
I
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
% GDP
millions of US dollars
Capital Flows: Recent Developments (Excluding IMF disbursements, last 4 quarters)
-15000
-10000
-5000
0
5000
10000
1500020
00-I
2000
-II
2000
-III
2000
-IV
2001
-I
2001
-II
2001
-III
2001
-IV
2002
-I
2002
-II -2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
% GDP
millions of US dollars
Non FDI Capital Flows: Recent Developments (Excluding IMF disbursements, last 4 quarters)
Trade Credit Lines (Outstanding, in millions of US$)
9 500
10 500
11 500
12 500
13 500
14 500
15 500
16 500E
ne-
01
Ma
r-0
1
Ma
y-0
1
Jul-
01
Se
p-0
1
No
v-01
En
e-0
2
Ma
r-0
2
Ma
y-0
2
Jul-
02
Se
p
FDI Flows: Recent Developments (4 quarters, millions of US dollars and % of GDP)
10000
15000
20000
25000
30000
3500020
00-I
2000
-II
2000
-III
2000
-IV
2001
-I
2001
-II
2001
-III
2001
-IV
2002
-I
2002
-II
2002
-III
2002
-IV
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
% GDPMillions of US dollars
Official Projections
-28000
-26000
-24000
-22000
-20000
-18000
-16000
-14000
-12000
-100002
000
-I
200
0-I
I
200
0-I
II
200
0-I
V
200
1-I
200
1-I
I
200
1-I
II
200
1-I
V
200
2-I
200
2-I
I -5.2%
-5.0%
-4.8%
-4.6%
-4.4%
-4.2%
-4.0%
-3.8%
-3.6%
-3.4%
% of GDPMillions of US dollars
Current Account Adjustment(4 quarters, millions of US dollars and % of GDP)
Trade Balance Adjustment(Last 12 months, in millions of US dollars)
45000
47000
49000
51000
53000
55000
57000
59000
61000
Ene
-00
Abr
-00
Jul-0
0
Oct
-00
Ene
-01
Abr
-01
Jul-0
1
Oct
-01
Ene
-02
Abr
-02
Jul-0
2
Exp
. /
Imp.
-4000
-2000
0
2000
4000
6000
8000
10000
Bal
ance
imports
exports
balance
-30000
-20000
-10000
0
10000
20000
30000
40000
5000019
97-I
1997
-III
1998
-I
1998
-III
1999
-I
1999
-III
2000
-I
2000
-III
2001
-I
2001
-III
2002
-I
mill
ions
of U
S d
olla
rs
-6%
-4%
-2%
0%
2%
4%
6%
8%
yoy
Economic Activity and Capital Flowsindustrial production (3 mth. m.a. yoy) & annual capital flows excl. IMF disbursements
industrial production
capital flows
GDP and Investment (s.a index, II.1998=100)
80
85
90
95
100
105
110
II-1
998
IV-1
998
II-1
999
IV-1
999
II-2
000
IV-2
000
II-2
001
IV-2
001
II-2
002
GDP
Investment
Exchange Rate and Country Risk
1.7
2.2
2.7
3.2
3.7
4.2
02-
En
e-0
1
09-
Ma
r-01
15-
Ma
y-
20-
Jul-0
1
21-
Se
p-0
1
26-
Nov
-01
23-
En
e-0
2
25-
Ma
r-02
23-
Ma
y-0
2
22-
Jul-0
2
16-
Se
p-0
2
500
1000
1500
2000
2500
3000
R$
per
dolla
r
basi
s po
ints
exchange rate
country risk
Country Risk and Interest Rates(C-Bond Spread in b.p. and 360-day Interest Rate Swap in %)
300
800
1300
1800
02-E
ne-0
1
02-M
ar-0
1
02-M
ay-0
1
02-J
ul-0
1
02-S
ep-0
1
02-N
ov-0
1
02-E
ne-0
2
02-M
ar-0
2
02-M
ay-0
2
02-J
ul-0
2
02-S
ep-0
2
10
15
20
25
30
35
C-B
on
d S
pre
ad
Inte
res
t R
ate
interest rate
C-Bond spread
5%
7%
9%
11%
13%
15%
17%
19%
21%
23%
En
e-0
0
Ab
r-00
Jul-
00
Oct
-00
En
e-0
1
Ab
r-01
Jul-
01
Oct
-01
En
e-0
2
Ab
r-02
Jul-
02
10%
12%
14%16%
18%
20%
22%
24%26%
28%
30%
nominal interest rate
real (ex – ante) interest rate
Interest Rates(Nominal and Real 360-day Interest Rate Swap)
no
min
al
rea
l
Brazil’s Triple “Whammy”Brazil’s Triple “Whammy”
The retrenchment of capital inflows since IIQ-2001 The retrenchment of capital inflows since IIQ-2001 has been associated with:has been associated with:
Slowdown in economic activitySlowdown in economic activity
Higher interest rates on both domestic and Higher interest rates on both domestic and foreign financial assetsforeign financial assets
Substantial depreciation of the real exchange rateSubstantial depreciation of the real exchange rate
Public Debt(% of GDP)
45
47
49
51
53
55
57
59
61
63E
ne-
00
Ma
r-0
0
Ma
y-0
0
Jul-
00
Se
p-0
0
No
v-00
En
e-0
1
Ma
r-0
1
Ma
y-0
1
Jul-
01
Se
p-0
1
No
v-01
En
e-0
2
Ma
r-0
2
Ma
y-0
2
Jul-
02
58.3% of GDP
US$ 259 billion at end July XR
Public Debt StructureAugust 2002
Fixed
Rate 6%
Others
9%
External or FX indexed Public Debt
43%
Indexed to the Interest Rate
42%
Public Debt and the Exchange Rate (Public Debt in % of GDP and XR,
Reales per Dollar)
46%
48%
50%
52%
54%
56%
58%
60%
62%
64%E
ne-0
0
Mar
-00
May
-00
Jul-0
0
Sep
-00
Nov
-00
Ene
-01
Mar
-01
May
-01
Jul-0
1
Sep
-01
Nov
-01
Ene
-02
Mar
-02
May
-02
Jul-0
2
1.5
2.0
2.5
3.0
3.5
4.0
XR: 3.02 Reales per Dollar
Public Debt: 58.3% of GDP
Public Debt Dynamics
April 2002
Fiscal Impact of:
54.5% 10.9% 3.5% 3.9%
Public Debt (% of GDP)
Interest Rate
Growth Rate
Primary Balance that stabilizes Debt
10% real depreciation
57.2% 10.9% 3.5% +0.2%
10% real depreciation
57.2% 10.9% 3.5% +0.2%
Public Debt Dynamics
April 2002
Fiscal Impact of:
54.5% 10.9% 3.5% 3.9%
Public Debt (% of GDP)
Interest Rate
Growth Rate
Primary Balance that stabilizes Debt
1% increase in the domestic interest rate
54.5% 11.4% 3.5% +0.3%
10% real depreciation
57.2% 10.9% 3.5% +0.2%
1% increase in the domestic interest rate
54.5% 11.4% 3.5% +0.3%
April 2002
Fiscal Impact of:
54.5% 10.9% 3.5% 3.9%
Public Debt (% of GDP)
Interest Rate
Growth Rate
Primary Balance that stabilizes Debt
1% reduction in the growth rate
54.5% 10.9% 2.5% +0.6%
Public Debt Dynamics
Expected Loss (EL) : Calculation
VM VF • (1-EL)
where:
VM is the market value of a risky bond
VF is the discounted present value of the risky bond assuming both coupon and principal are fully paid
where i is the risk free interest rate.
Definition:
Example: Bond which pays constant coupon payments c until its maturity at time T:
VM
c
(1+i)s
s=1 (1+i)T
1EL 1 1
VM
VF
0%
10%
20%
30%
40%
50%
60%
70%
80%
2004 2008 2020 2030
Apr. 2002
Sep.2002
Yield Curve of EL’s on Brazilian Bonds
Global Bond
Exp
ecte
d L
oss
Net Public Debt Composition(in % of total, August 2002)
Domestic76%
External24%
Public Debt Securities by Holder (30th August, % of total)
Banks37%
Investment Funds32%
Other5%
Reserve Requirements
19 %
Non-financial private sector
7%
Banks’ Exposure to the Public Sector Public Bond Holdings
0%
50%
100%
150%
200%
250%
300%
350%
In % of Banks’ Assets In % of Banks’ Net Worth
Average Maturity of Outstanding Domestic Debt (issued at auction, in months)
17
19
21
23
25
27
Ene
-01
Mar
-01
May
-01
Jul-0
1
Sep
-01
Nov
-01
Ene
-02
Mar
-02
May
-02
Jul-0
2
117000
120000
123000
126000
129000
132000
135000
02
-En
e-0
2
02
-Fe
b-0
2
02
-Ma
r-0
2
02
-Ab
r-0
2
02
-Ma
y-0
2
02
-Ju
n-0
2
02
-Ju
l-0
2
02
-Ag
o-0
2
-25000
-20000
-15000
-10000
-5000
0
5000
10000
Ene
-02
Feb
-02
Mar
-02
Abr
-02
May
-02
Jun-
02
Jul-0
2
Unt
il 28
Aug
.
The run from Investment Funds to Saving DepositsIn millions of R$
Saving Deposits (Caderneta de Poupança)
31st May: Marking to market of IF’s bonds
Net Flows to Investment Funds
Since 31st May: R$ 15.1 billionSince 31st May: -R$ 51.9 billion
31st May: Marking to market of IF’s bonds
OUTLINE
I. Capital Flows to LAC: Back to the Eighties?I. Capital Flows to LAC: Back to the Eighties?
II.II. Capital Flows, External Adjustment and Capital Flows, External Adjustment and Macroeconomic Performance: A Regional AssessmentMacroeconomic Performance: A Regional Assessment
IV.IV. Lula Effect? Look Again!Lula Effect? Look Again!
III.III. External Adjustment and Financial Distress: External Adjustment and Financial Distress: Understanding BrazilUnderstanding Brazil
60
560
1060
1560
2060
2560
3060Ju
l-01
Au
g-0
1
Sep
-01
Oct
-01
No
v-01
Dec
-01
Jan
-02
Feb
-02
Mar
-02
Ap
r-02
May
-02
Jun
-02
Jul-
02
Au
g-0
2
Sep
-02
Oct
-02
Bp
sBrazilian Country Risk(EMBI+, bps over US Treasuries)
Lula risesIn the polls
U.S. Corporates Bonds Spreads(Bps over US Treasuries)
0
20
40
60
80
100
120
140
Jan
-01
Mar
-01
May
-01
Jul-
01
Sep
-01
No
v-01
Jan
-02
Mar
-02
May
-02
Jul-
02
Sep
-02
Bp
s
60
80
100
120
140
160
180
200
220
Jan
-01
Mar
-01
May
-01
Jul-
01
Sep
-01
No
v-01
Jan
-02
Mar
-02
May
-02
Jul-
02
Sep
-02
Bp
s
160
190
220
250
280
310
340
370
Jan
-01
Mar
-01
May
-01
Jul-
01
Sep
-01
No
v-01
Jan
-02
Mar
-02
May
-02
Jul-
02
Sep
-02
Bp
s
600
650
700
750
800
850
900
950
1000
1050
1100
Jan
-01
Mar
-01
May
-01
Jul-
01
Sep
-01
No
v-01
Jan
-02
Mar
-02
May
-02
Jul-
02
Sep
-02
Bp
s
AAA
BBB
A
High Yield
9-11 9-11
9-11 9-11
Lula risesIn the polls
Lula risesIn the polls
Lula risesIn the polls
Lula risesIn the polls
600
650
700
750
800
850
900
950
1000
1050
1100
Jul-
01
Au
g-0
1
Sep
-01
Oct
-01
No
v-01
Dec
-01
Jan
-02
Feb
-02
Mar
-02
Ap
r-02
May
-02
Jun
-02
Jul-
02
Au
g-0
2
Sep
-02
Oct
-02
Bp
s
500
1000
1500
2000
2500
3000
60
70
80
90
100
110
120
130
140
150
160
Jul-
01
Au
g-0
1
Sep
-01
Oct
-01
No
v-01
Dec
-01
Jan
-02
Feb
-02
Mar
-02
Ap
r-02
May
-02
Jun
-02
Jul-
02
Au
g-0
2
Sep
-02
Oct
-02
Bp
s
500
1000
1500
2000
2500
3000
Lula Effect? Look Again(EMBI+ and US corporate bonds, bps over US Treasuries)
A
High Yield
Brazil
Brazil
9-11
9-11
Lula risesIn the polls
Lula risesIn the polls
LatinMacroWatch
Special Analysis
LatinMacroWatch
Special Analysis
LMW: the Big Picture on a Small Screen
A new RES feature