LAC-EU ECONOMIC FORUM 2013 Globalization, International Trade and the Welfare State at Crossroads: Converging Views in European and Latam countries? Session 2 Real imbalances: trade, industrial development and environmental issues Esther Dweck Chief Economist, Ministry of Planning and Professor of Economics, Universidade Federal do Rio de Janeiro SANTIAGO, 21 – 22 DE ENERO DE 2013

Fiscal Problem might be a Crisis Problem International Monetary Fund, World Economic Outlook Database, October 2012

From Private to Public Debt The Economist, ???

New Monetary Standard: Dollar Standard Source: BEA

Global Imbalances

Important argument in UNCTAD TDR 2012 (ch. 4): There was an important change in strategy chosen by developed country enterprises : – During the 1990s: productivity growth and output expansion through investment in innovation – During the 2000: greater emphasis on becoming more competitive internationally through wage restraints and reduced employment opportunities, combined with attempts to boost profits through financial investments This strategy was facilitated by the deregulation of financial markets and greater flexibility of the labour market

Global Imbalances International Monetary Fund, World Economic Outlook Database, October 2012

Global Imbalances Source: Un Statistics

Global Imbalances

Some authors (e.g. Bibow, 2008 and Blecker, 2011) argument: Economic conditions and policies in the surplus makes some sense if interpreted as reflecting “deficient demand” in the global economy The real issue is why consumption and investment have been systematically depressed in the surplus countries, relative to their national incomes. The core reason why consumption is repressed in most of the surplus countries is the phenomenon of wages lagging behind productivity (von Arnim, 2010; Cripps et al., 2011)

Global Imbalances Source: IMF

Global Imbalances Source: IMF

Global Imbalances Source: Blecker, 2011

Global Imbalances “the object of the new system must be to require the chief initiative from the creditors countries” “nothing is more certain than that he movement of capital funds must be regulated; - which in itself will involve far-reaching departures from laissez faire arrangements”

New Monetary Standard: Dollar Standard Source: BEA

Exchange Rate Mismatch Source: Un Statistics

Convergence? International Monetary Fund, World Economic Outlook Database, October 2012

Convergence among advanced economies International Monetary Fund, World Economic Outlook Database, October 2012

Divergence among developing economies International Monetary Fund, World Economic Outlook Database, October 2012

China is the main new player Source: World Bank Share in Wolrd Industrial Production (US$ ppp)

China is the main new player Source: UN Statistics

Main Drivers of Growth Source: Un Statistics

Main Drivers of Growth Source: Un Statistics

Brazil – leakage of Domestic Demand Source: IBGE

25 Brazil – Worsening Trade Balance Imports and Exports Volume Index and Real Effective Exchange Rate

26 Brazil – Worsening Trade Balance

27 Brazil: capital control measures

28 Brazil –capital control measures

Brazil – leakage of Domestic Demand

Brazil – New Macroeconomic Setting? Source: IBGE

Brazil – Import Coefficient and Exchange rate Fonte: Marconi e Rocha (2012). Exchange Rate Low and Median-Low Technology Manufacturing High and Median-High Technology

Brazil – New Macroeconomic Setting? Source: IBGE Share of Imported Vehicules in new liscensing

Brazil – Industrial Policy Exchange Rate Policy Tax Measures – Payroll Tax, IPI and Infraestructure Public Procurement Measures Funding for International Trade Trade Defence Mechanisms Incentives to ICT sector – Broad Band Plan and Semiconductors (PADIS) Funding for the private sector investment (BNDES) – More credit, Lowering interest rates and Longer Term Vehicles Regime

35 Brazil – Lower External Vulnerability

Regional Integration Source: Un Statistics

37 Brazil – Worsening Trade Balance

38 Brazil – Worsening Trade Balance