1. Growing economic relations between Latin America and Asia: What is in it for Taiwan? Alicia García-Herrero BBVA Research│Chief Economist for Emerging Markets Taiwan, 29 November 2012

2. Latam outlook / November 2012 Page 2  This will be the century of Asia followed by Latin America  What do we know about Taiwanese and Latin American Relations?  What to expect from the Latin American economies in the next couple of years? Outline

3. Latam outlook / November 2012 Page 3 The new global economic order will be Asian and especially Chinese Emerging Asian economies to contribute close to 58% to global growth in next 10 years China is the largest contributor with 34% of global growth followed by India with 12% Contribution to World economic growth by region between 2011-2021 (%) Source: BBVA Research and IMF WEO

4. Latam outlook / November 2012 Page 4 The Andean countries: if considered as a bloc, it would be another EAGLE in LatAm Incremental GDP adjusted by PPP (billion USD) and contribution to World economic growth 2011-2021 (%)* *The graph excludes China (USD 13,718 billion, 34%) and India (USD 4,820 billion, 11.9%) Source: BBVA Research and IMF WEO Colombia, Peru and Chile are Nest countries, which have an expected annual growth rate around 5% in the next 10 years The 3 economies are all keen on reforms, willing to promote economic policies and eager to increase their international presence (now in the center of Asia Pacific) LatAm: current economic size and incremental GDP 2011-2021 in billion USD adjusted by PPP Source: BBVA Research and IMF WEO

5. Latam outlook / November 2012 Page 5 Trade between Asia and Latin America has grown 18 times in last 2 decades Relationship between Asia and LatAm has become stronger Trade flows between Asia and LatAm 7 (billion USD) Source: BBVA Research and COMTRADE

6. Latam outlook / November 2012 Page 6 China, Korea and Japan: in 2011 represent 84% (144 billion USD) of the exports to LatAm Brazil, Chile and Mexico: accounted for 81% of total exports to Asia which added up to 118 billion USD. Mexico’s role is particularly low given its size (two thirds of Brazil) and has a high degree of trade openness (X + M) although concentrated in the U.S. Trade is concentrated among a few players Trade flows from Asia to LatAm Source: BBVA Research and COMTRADE Trade flows from LatAm to Asia Source: BBVA Research and COMTRADE

7. Latam outlook / November 2012 Page 7 Asian exports: high value goods such as motor vehicles, communications equipment and electronic devices. To a lesser extent intermediate goods such as textiles and fabrics. LatAm exports: raw materials such as iron ore, soybeans, copper, paper and animal food Most of the trade is focused on complementary goods Trade flows from LatAm to Asia: Merchandise trade (2011) Source: BBVA Research and COMTRADE Trade flows from Asia to LatAm: Merchandise trade (2011) Source: BBVA Research and COMTRADE

8. Latam outlook / November 2012 Page 8 Asia is becoming a more relevant partner for Mexico and Andinos China’s ranking as trade partner in LatAm Source: BBVA Research and COMTRADE Export to China Import from China Export to Japan Import from Japan Export to Korea Import from Korea 200020112000201120002011200020112000201120002011 Argentina624214249102822159 Brazil12111255471811155 Chile414222378578 Colombia364929247829351810 Mexico193625823211664 Peru219233210116136 Venezuela3561821739121538462022

9. Latam outlook / November 2012 Page 9  This will be the century of Asia followed by Latin America  What do we know about Taiwanese and Latin American Relations?  What to expect from the Latin American economies in the next couple of years? Outline

10. Latam outlook / November 2012 Page 10 Taiwan and LATAM bilateral trades Source CEIC and BBVA Research Exports and imports growth Source: CEIC and BBVA Research Trade between Taiwan and Latam Bilateral trades in value terms between Taiwan and Latam have increased steadily since 2002, except for a temporary slowdown during the global financial crisis

11. Latam outlook / November 2012 Page 11 Share of Taiwan’s exports and imports to LATAM (as % of total trade) Source: CEIC and BBVA Research Share of LATAM’s exports and imports to Taiwan (as % of total trade) Source: UN Comtrade and BBVA Research The share of Taiwan’s trades with Latam as a percentage of total trade is not large, but has continued to increase in the past decade Trade between Taiwan and Latam

12. Latam outlook / November 2012 Page 12 Exports partners in LATAM Source: CEIC and BBVA Research Imports partners in LATAM Source: CEIC and BBVA Research LATAM 7 countries account for the major shares of total trade with Taiwan Brazil, Mexico and Chile are the major trade partners among Latam countries Taiwan’s major trade partners in LATAM

13. Latam outlook / November 2012 Page 13 LATAM merchandise imports from Taiwan (2005-2011) Source: UN Comtrade and BBVA Research LATAM merchandise exports to Taiwan (2005-2011) Source: UN Comtrade and BBVA Research The structure of bilateral trades is complementary Taiwan exports manufactured goods to Latam, including electrical machinery Latam exports natural resources to Taiwan, including petroleum, non ferrous metals etc. Bilateral trade by components

14. Latam outlook / November 2012 Page 14 Taiwan’s major investment partners in LATAM (2008-2011 avg) Source: MOEA and BBVA Research Investment relationship between Taiwan and LATAM Source: MOEA and BBVA Research In 2011, Taiwan’s total investment in Latam countries amounted to USD 1,049 mn, while LATAM countries invest USD 1,249 mn in Taiwan. According to the Ministry of Economic Affairs of Taiwan, British Caribbean territories are the main destination among the region for both origin of approved investment to Taiwan and recipient of approved OFDI from Taiwan. Foreign direct investment

15. Latam outlook / November 2012 Page 15 Taiwan has sought to promote bilateral trade and investment relations with Latam countries (see table below for Taiwan’s FTAs with Central American countries) The FTAs are the first step of Taiwan’s plan to build a global free trade zone Meanwhile, the FTAs could provide access for Taiwan’s goods to US and Latam’s goods to Asia Taiwan’s FTAs in Latam Country Status Panama Effective since Jan 2004 GuatemalaEffective since Jul 2006 NicaraguaEffective since Jan 2008 El SalvadorEffective since Mar 2008 HondurasEffective since Jul 2008 ParaguayNegotiating Dominican Rep.Negotiating Taiwan’s FTAs with Central American countries Source: BBVA Research

16. Latam outlook / November 2012 Page 16  This will be the century of Asia followed by Latin America  What do we know about Taiwanese and Latin American Relations?  What to expect from the Latin American economies in the next couple of years? Outline

17. Latam outlook / November 2012 Page 17 Latam growth is already rebounding in Q3 Incoming data in Q2 and Q3 better than expected in most countries Growth will continue to be supported by domestic demand and high commodity prices Policy will continue to support economic activity Latam: GDP growth (%yoy) and contribution from domestic and external demand (pp) Source: BBVA Research

18. Latam outlook / November 2012 Page 18 Latam will grow 3% in 2012 and 3,7% in 2013, converging to its potential growth Domestic demand will grow faster than GDP, supported by consumer and corporate confidence Convergence to potential growth for the region, close to 4% Latam*: GDP growth (%) Source: BBVA Research * Weighted average of Argentina, Brazil, Chile, Colombia,, Panamá, Paraguay, Peru, Mexico, Uruguay and Venezuela

19. Latam outlook / November 2012 Page 19 We are revising up our growth forecasts in most countries Better outturns than expected in most countries Brazil: stimulus policies start to re-launch growth in Q3 Strong growth in 2013 in most countries in the region Latam countries: GDP growth (%) Source: BBVA Research

20. Latam outlook / November 2012 Page 20 Inflation increases due to food prices and resilient domestic demand. Food inflation significantly above general inflation. Strong effect in some countries like Peru, Inflation in non-tradable goods above 4% in most countries. Sign of domestic demand pressures. Inflation: difference to each central bank’s target (pp) Source: BBVA Research and Haver Inflation to converge to central bank targets in the next year, except Uruguay. Will reach target in 2012 in Colombia and Chile

21. Latam outlook / November 2012 Page 21 Central banks will remain mostly in a wait-and-see mode Weak balance between uncertainty about the external environment… … and resilient domestic demand growth… …will result in stable official interest rates in most countries during next year. Main exception is Colombia, where domestic demand growth fuelled by public sector will prompt some tightening in late 2013 Official interest rate in IT countries (%) Source: BBVA Research and Haver

22. Latam outlook / November 2012 Page 22 Exchange rates will resume a general tendency to appreciate vis-à-vis the USD General trend to slight appreciation of Latam currencies as the solution to the European crisis gets closer … … and also favored by the monetary expansion in advanced economies, especially the US Main exception will be the Chilean peso, weight down by falling copper prices going forward Change in exchange rate to the USD (%) Source: BBVA Research and Haver Many countries will maintain their activism to contain appreciation pressures.

23. Latam outlook / November 2012 Page 23 The region can withstand an external shock, whose probability is now lower than 3 months ago Higher international reserves Fiscal and external deficits at manageable levels Room for countercyclical policies (monetary and fiscal), although lower than in 2008 Strength of their banking systems Latam is ready to weather a new global crisis The fallout on growth would be sizable, but would not lead to a recession in any country. Latam is ready to weather a new global crisis The fallout on growth would be sizable, but would not lead to a recession in any country.

24. Growing economic relations between Latin America and Asia: What is in it for Taiwan? Alicia García-Herrero BBVA Research│Chief Economist for Emerging Markets Taiwan, 29 November 2012