1 OECD Paris - October 12th 2006 Javier Santiso Chief Economist & Deputy Director OECD Development Centre LATIN AMERICAS POLITICAL ECONOMY OF THE POSSIBLE: Beyond Good Revolutionaries and Free Marketeers

2 LATIN AMERICA: IN THE GARDEN OF DELIGHTS?

3 Utopia in Latin America: from a spacial search to a temporal search. A search which has impregnated the history of Latin American political economy: from structuralism to monetarism, from Marxism to Liberalism. In the 20th Century the whole Continent was dancing a waltz of paradigms. THE FLOOD OF PARADIGMS IN LATIN AMERICA

4 The transformations of the Latin American continent are now obvious. In the region as a whole, the conceptual and practical framework of political economies have been transformed. Democracy and the Market have taken over from Revolution and the State on the altar of references. To sum up, a complete vocabulary and grammar have disappeared from the political and economic repertoire allowing a new ideology to emerge. DEMOCRACY AND THE MARKET: THE NEW ALPHABET

5 THE POLITICAL ECONOMY OF THE POSSIBLE: THE SILENT TRANSFORMATION Javier Santiso, Latin America's Political Economy of the Possible Beyond Good Revolutionaries and Free-Marketeers, Cambridge, Mass., MIT Press, 2006.

6 THE GREAT TRANSFORMATION: THE MONETARY MAST Latin AmericaTotal Emerging Markets Inflation (%) Source: Based on IMF

7 *Central Government By Country (2005) -4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% *% +0.3% -4%-2%0%2%4%6% Brasil Colombia Peru* México Venezuela* Argentina* Chile* LAC-7: FISCAL BALANCE (SPNF, in % of GDP) THE GREAT TRANSFORMATION: THE FISCAL ANCHOR

8 THE GREAT TRANSFORMATION: THE EXTERNAL ANCHOR 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% (e) Trade openness in Latin America Source: Based on BBVA 0%10%20%30%40%50%60%70% Mexico Chile Venezuela Uruguay Argentina Colombia Peru Brazil Trade openness in 2005 Source: OECD Development Centre

9 Evolution of the Pension System in Latin America (in % of GDP) 0% 5% 10% 15% 20% 25% 30% Num. periods ARGENTINABOLIVIACOLOMBIA COSTA RICACHILEEL SALVADOR MEXICOPERUURUGUAY Return of Democracy GRADUALISM AND CONTINUISM: PENSIONS REFORMS

10 GRADUALISM AND CONTINUISM: PENSIONS REFORMS

11 CHILE: A MAJOR PERFORMER IN LATIN AMERICA IN TERMS OF POLICY STABILITY Source: IADB Politics of Policies Report, 2006 Average

12 VENEZUELA ECUADOR PERÚ PARAGUAY ARGENTINA URUGUAY MÉXICO BRAZIL COLOMBIA CHILE EL SALVADOR NICARAGUA HONDURAS COSTA RICA GUATEMALA PANAMÁ REPÚBLICA DOMINICANA BOLIVIA Next presidential elections Latin America 2006: The political cycle is back

13 Emerging Democracies in Latin America Average Source: Javier Santiso, Latin Americas Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers. MIT Press. Cambridge, Massachusetts, 2006 Based on the Inter-American Development Bank

14 Latin America: The pending challenges Fuente: The World Bank Gini – Market Income Gini – Disposable Income Note: Gini coefficiente calculated before and after taxes, social security and transfers.

15 Social Pacts and Fiscal Pacts Fuente: The World Bank Gini – Market Income Gini – Disposable Income Note: Gini coefficient calculated before and after taxes, social security and transfers.