2. Latin America opportunities and challenges Latin American and Argentina Development: opportunities and challenges 2008 Presentation For the University of North Florida Professors R. Feeney and M. Rossi Austral University, Argentina

3. Some facts about Latin America  44 countries  550 million people live in this region (50% more than the US, 8% of world population)  It produces 7% of the world GDP (one third of the US)  Its territory is 21 million square kms (double than de US)  Major world provider of soja, copper, sugar, beef, etc. and many other raw materials  25 uninterrupted years of democratic regimes in most of the countries

4. Evolution of the world GDP per Capita (PPP) 1950-2003 World LA US, Can, NZ, Au Western Europe Africa

5. World Capita GDP by Region In 1990 US International dollars (Maddison, 2006) Region/ Year 1950197319982003 Growth 1950 to 2003 Annual Growth Latin America 250445135 8375786131%1.59% Africa 8901 4101444154974%1.05% Western Europe 457811 41718 13719,912334%2.81% US, Canada, Au, NZ 926816 17925 76728 039202%2.11% Asia 717171935474434518%3.49% World 2113409157296516208%2.14%

6. GDP Per Capita Annual % Growth Rate (Maddison, 2006 and 2007) 1913–501950–731973–981999-2003 Latin America 1.432.520.990 United States 1.612.451.991.6 Japan0.898.052.340.5 Western Europe 0.764.081.783.7 Africa1.022.070.011.4 World0.912.931.332.6

7. GDP Per Capita Growth Rate (Maddison, 2006, p. 153, 2007) 1950-731973-801980-901990-99 1980-991999-2003 Argentina2.060.48-2.333.38 0.33-0.22 Brazil3.734.26- 0.541.07 0.470.06 Chile1.261.721.104.47 2.681.86 Mexico3.173.80-0.311.16 0.380.06 Total Latin America 2.522.57-0.681.36 0.280

8. Latin American Nations Ranked by Gross Domestic Product ( GDP- (PPP)) in 2006 Millions of International Dollars, CIA World RankNation GDP (PPP) in millions US dollar 10 Brazil1,838,000 12Mexico1,353,000 22 Argentina 621,100 29 Colombia 378,808 44 Chile 212,733 52 Venezuela 193,331 48 Peru 185,110 70 Ecuador 64,779 90 Uruguay 37,885 96 Paraguay 31,014 102 Bolivia 27,892

9. GDP per capita (PPP) 2005, CIA Rank in worldCountry GDP per capita 50Argentina14,109 56Chile12,983 60Mexico10,600 65Uruguay10,028 68Brazil$9,108 81Colombia7,565 96Venezuela6,186 97Peru5,983 99Ecuador5,816 107Paraguay4,555 125Bolivia2,817

10. Inflation Annual average compound (Maddison, 2006, p. 153, 1999-2007 author’s estimate) 1950-731973-941994-981999-2007 Argentina26.8258.41.37.7 Brazil28.4268.519.47.1 Chile48.171.86.73.77 Mexico5.637.626.47.38 Average main Latin America countries 27.2159.113.56.48

11. Poverty Line (lowest to highest) Source: CIA World Factbook[5CIA World Factbook[5 Year of estimate CountryPopulation below poverty line (%) 2005Chile18.2 2006Argentina26.9 2006Uruguay27.37 2005Brazil31 2005Paraguay32 2005Venezuela37.9 2006Ecuador38.5 2006Mexico38.6 2005Colombia49.2 2004Peru53.1 2004Bolivia64

12. Unemployment Rate (lowest to highest) Source: CIA World FactbookCIA World Factbook Rank in worldCountryUnemployment rate (%) 80Peru7.20 89Bolivia7.80 90Chile7.80 100Argentina8.70 103Venezuela8.90 108Paraguay9.40 110Brazil9.60 120Ecuador10.60 122Uruguay10.80 124Colombia11.10

13. A key Variable: the Socio-Economic Conditions in Latin America

14. The Gini Index  The Gini coefficient is often used to measure income inequality.income  Here, 0 corresponds to perfect income equality (i.e. everyone has the same income)  and 1 corresponds to perfect income inequality (i.e. one person has all the income, while everyone else has zero income).

15. USA Latin America Income Inequality in Latin America

16. CountryUN Richest 10% to poorest 10% Haiti71.7 Colombia63.8 Brazil57.8 Chile40.6 Argentina34.5 United States15.9 Australia12.5 Canada9.4 France9.1 Income Inequality Indexes Comparison

17. The Human Development Index (HDI)  It is a comparative measure of life expectancy, literacy, education, and standard of living for countries worldwide. It is a standard means of measuring well-being, especially child welfare.life expectancy literacyeducationstandard of living measuring well-beingwelfare  An HDI below 0.5 is considered to represent low development   An HDI of 0.8 or more is considered to represent high development.

18. CountryHDI Argentina0.863 Chile0.859 Uruguay0.851 Costa Rica0.841 Mexico0.821 Panama0.809 Brazil0.792 Colombia0.790 Venezuela0.784 Peru0.767 Ecuador0.765 Paraguay0.757 Dominican Republic0.751 El Salvador0.729 Nicaragua0.698 Bolivia0.692 Honduras0.683 Guatemala0.673 Haiti0.482 The Human Development Index (HDI) Ranking for Latin America

19. Central Questions about Latin America  Why Latin America has not improved more rapidly after all?  Why being rich in natural resources yet it is relative poor?  The relationship of the US with Latin America  Is Latin America ready for change, especially for regional free trade (FTAA)?  Is the business environment the same across Latin America?

20. Business Realities in Latin America the hard way…  Significant differences by country and by region  More than economics, institutional capacity is critical ..and accountability and transparency ..and also, the Rule of Law  National cultures vs Corporate cultures  Is NAFTA-Mexico a good example?…well

21. North American Free Trade Agreement –2006 Results  2006 Total Value $868 billion  Increase in the last 5 years by 32%  Trade with Canada equals $533 billion, increase by 15%  Trade with Mexico equals $335 billion increase by 60%  Trade with Canada and Mexico accounts for almost 45% of the total U.S. trade  U.S. corporations seeking to export to EU through Mexico  2005 Security and prosperity agenda (logistics, logistics, and logistics)  Data: U.S. Dept. of Commerce and U.S. Trade Authority Office

22. Brazil and Mercosur, or how Americas trade is difficult  Brazil control on trade in South America  strong internal fiscal control (conservative members of cabinet)  strong control of currency volatility  strong attraction of foreign direct investment  strong opposition to U.S. subsidies  strong opposition to free trade USA style  Production of ethanol

23. What variables have a critical role for the U.S. to induce FTAA? AAddition of Eastern European countries to EU NNational security in the continent–a premium variable for the U.S. PPolitical stability in the continent SSustainable economic growth BBut, is the U.S. Congress ready?

24. What are the regional political variables that collide with U.S. interests? VVenezuela –the expansion of the Chavez model CCuba -the transition to democracy TThe political left expansion: Brazil, Argentina, Bolivia, Ecuador, Peru, Chile, Nicaragua. LLack of real economic improvement (per capita) due to trade

25.  Yet, the U.S. Dept. of Commerce is seeking to reactivate negotiations by:  sparking and sustaining innovation  creating solutions in education and workforce development  designing successful global supply chain strategies  fostering small business development and growth

26. Argentina Basic Briefing  Population 2008: 41,000,000  Capital (population): Buenos Aires (12,000,000)  Life expectancy at birth: 76.32, Male: 72.6 Female: 80.24  Total surface 2,766,891 km²

27. Where we come from? Rosario: The Center of the Agribusiness Production Area in Argentina Rosario

28. Argentina’s GDP 1993-2007 in constant prices of 1993 pesos Hundred of millions of pesos 19932002200719981995200020042005Year

29. 1993199519982000200220042006 Devaluation of the Real I/99 Arg Vice-Pres resigns X/2000 External Credit CutVII/01 III/2001 Finance Secretaries (2) Resign XII/01 Financial Bolt 2004-2007 Recovery 1989-1990 Hyperinflation Argentina’s GDP 1993-2007 in constant prices of 1993 pesos

30. By now (2007) Argentina’s per capita GDP is higher than the pre-crisis level

31. The Horror Story: Inflation in Argentina (INDEC) Year Total Acumulative Inflation Index 1970- 2005 Inflation Index 5 Years Accumulative 197011 197520 19802 830142 19854 139 2141462 19907 320 092 6661768 199517 872 101 933 5292441 2000179 465 027 1761004 200527 361 668 003 207152 2005 prices: 27 thousand billions times 1970

32. Inflation in Argentina (INDEC) Year Annual Inflation 19960.2 19970.5 19980.9 1999-1.2 2000-0.9 2001-1.1 20022 5.9 200313.4 20044.4 20059.6 200610.9 20078.5 Devaluation Recession Pegged currency Recovery with increasing inflation pressure

33. Balance of Non-Financial Public Sector, in Argentina 1995 - 2006 From Deficit to Suplus

34. Balance of Non-Financial Public Sector, in Argentina 1995 - 2006

36. 10.000 mill US dollars Argentina’s Central Bank Reserves 2003-2007 50 000 million U$ dollars 20032005200720042006

37. Millions USD 107 Billion USD= 55% /ARG GDP Argentina’s Total Foreign Debt

38. International Commerce

39. Argentina´s Unemployement Rate

40. Infrastructure and Investment: Public and Private Investment 1993-2006 in millions of 1993 pesos

42. Industrial activity Industry was growing year by year, after the 2001 crisis

43. Currency The last years were characterized by a relative high peso-dollar real exchange rate

44. Exports are mostly based on commodities with low value added Exports

45. Domestic demand feels strong and sustained Internal environment

46. After many years of sustained demand, the industry is close to full capacity Energy demand is climbing to a maximum, without enough investment to expand the offer Threats

47. Domestic energy prices were kept artificially low (electricity, natural gas, gasoline, etc.) creating an adverse scenario for private investment in those areas Inflation: growing fast, being not recognized by official indexes Threats

48. Emerging markets grew aggressively in 2007 Emerging Markets

50. Since Argentine domestic markets are mostly driven by food commodities’ prices, there is a good perspective for sustain Merval index vs. DJI

51. Summary of Argentina’s Macro Situation + Strong short term growth Good Fiscal performance Positive foreign trade exchange Foreign debt reduction Higher employment - ↓ Still a risky country ↓ Potential Inflationary risk ↓ Strongly dependent on commodity prices ↓ Poverty: 30% of the population has serious problems ↓ Weak capital and financial system ↓ Low competitiveness in many industries ↓ Weak Infrastructure ↓ Low foreign Investment

52. Since Argentine domestic markets are mostly driven by food commodities’ prices, there is a good perspective for sustained consumption, at least for the next 5 years If a global recession occurs, Argentina should not have problems due to:  Historical high level of reserves  The Banking sector is totally recovered from the 2001 crisis  The sovereign debt was restructured Business Environment

53. Inflation pressures: both internal and external Labor costs: unions do not follow official indexes Energy costs: will tend to reach international prices In such an environment, companies should be more competitive improving productivity and value added Next short-term challenges for companies in Argentina

55. Brazil Basic Briefing  Population 2005: 175,468,575  Capital (population): Brasilia (1,600,000)  Life expectancy at birth: male 58.96 years, female 67.73 years (2001 est.)  Physicians per 1000 people: 1.47  Rural/urban population ratio: 21/79  GDP per capita:  U $9,100

56. Brazil Economic development based in central economy  Foreign investment  1998-1999 first country in the world  2004-2005 third place after Mexico and China  Crisis of Confidence  Crash of Stocks  3% increase in base rate since October 14  Leading MERCOSUR

57. Chile Basic Briefing  Population 2005: 16,598,074  Capital (population): Santiago de Chile City (6,000,000 metropolitan)  Life expectancy at birth: 76.96 male 73.69 years, female 80.40 years (2001 est.)  Total surface: 756,950 km²

58. Chile’s Economic Miracle (chart in terms of GDP per capita) Chile’s per capita GDP Average LA GDP per cap

59. Chile multiplied its GDP by 3 in 25 years Evolution of Chile’s GDP in 25 Year (in US constant dollars

60. Competitivity Ranking and Technological Innovation Latinamerican countries 2005 CountryCompetitivity Technological Innovation Chile2335 Uruguay5463 Mexico5557 El Salvador5670 Colombia5774 Costa Rica6456 Brasil6550 Peru6875 Argentina7259 Competitivity and Innovation in Latinamerican countries Source: World Economic Forum 2005

61. Mexico Basic Briefing  Population 2005: 105,879,171  Capital (population): Mexico City (18,000,000)  Life expectancy at birth: male 69.73 years, female 74.93 years (2001 est.)  Physicians per 1000 people: 1.73/1,000  Rural/urban population ratio: 26/74  GDP per capita: $10,600 (2005)

62. Mexico Economic Development based in open economy since1988  GATT  Open Economy, export oriented and Foreign investment  NAFTA  Interdependence, Rules of Origin and National Content  Free Trade Agreements (14) European Union, Central America, Chile, Israel, Japan, S. Korea, and Australia.

63. What is the future Latin American economic scenario? a. Speed of second generation reforms b. From internal producing and consuming market to an international, regional and global economy c. US is a regional leader in the marketplace and that is not going to change d. Rule of law, accountability and transparency e. Paradox of social inequality (human capital investments)

64. Working force development requires to add International Education and Skills (+)  Working Knowledge in:  Language skills – functional level  Culture at the exchange level  Political, economic, and social systems.  National cultures  Corporate cultures abroad