Chile:A Bias for Hope

Javier Santiso

Chief Economist / Deputy Director

OECD Development Centre

Latin American Economic Outlook Conference

Vittorio CorboPresident, Central Bank of Chile

Paris 29th January 2007

2

Chile: The rise of possibilismI

Institutional anchoringII

ConclusionsIII

3

Latin America has experiencedmacroecomic improvements …

0

50

100

150

200

250

Latin America Total Emerging Markets

Inflation

Source: OECD Development Centre, 2006.Based on: IMF Statistics.

19

80

19

90 20

00

20

05

(%)

4

Fiscal Balance by Country 2005

-4% -2% 0% 2% 4% 6%

Brasil

Colombia

Peru*

México

Venezuela*

Argentina*

Chile*

… but Chile’s macroeconomic management has been exemplary: The fiscal anchoring

0

100

200

300

400

500

.

Arg

en

tin

a

Peru

Bra

zil

Colo

mb

ia

Ch

ile

Ven

ezu

ela

Mexic

o

Deb

t as %

of

Exp

ort

s

Average Debt ratios as Share of Exports1996-2006

Source: OECD Development Centre, 2007.

Based on IMF, World Bank, National Data% of GDP

5

Chile’s insertion in the international scene is remarkable compared to other emerging

economies

0 10 20 30 40 50 60 70

Mexico

Chile

Venezuela

Uruguay

Argentina

Colombia

Peru

Brazil

Trade openness in 2005

Source: OECD Development Centre, 2007.

Trade and Investment Openness by Country

Chile

India Malaysia

Venezuela

Argentina

Brazil

China

Colombia

Ecuador

Guatemala

Indonesia

S. Korea

0

10

20

30

40

50

60

70

80

40.0 50.0 60.0 70.0 80.0

Trade Openness Index

Inv

es

tme

nt

Op

en

ne

ss

In

de

x

Source: OECD Development Centre, 2007.Based on: Intracen and Index of Economic Freedom (Wall Street Journal).

Based on: UNCTAD and Intracen.

6

0

10

20

30

40

50

60

70

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23Num. periods

ARGENTINA BOLIVIA COLOMBIA COSTA RICA CHILEEL SALVADOR MEXICO PERU URUGUAY

Return of Democracy

Evolution of Pension Funds in Latin America (in % of GDP)

Gradualism and Continuism: The example of Pensions Reforms

%

Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”. MIT Press. 2006.

Based on the Inter-American Development Bank

7

Chile: The rise of possibilismI

Institutional anchoringII

ConclusionsIII

8

Institutional anchoring: A key driver of possibilism

Stability Index

0 1 2 3 4

Venezuela

Ecuador

Peru

Argentina

Honduras

Bolivia

Mexico

Uruguay

El Salvador

Brazil

Colombia

Chile

Adaptability Index

0 1 2 3 4

Venezuela

Argentina

Ecuador

Bolivia

Peru

Honduras

El Salvador

Colombia

Mexico

Brazil

Uruguay

Chile

Source: Mariano Tomassi. “The Institutional Foundations of Public Policy”. Journal of the Latin American Economic Association.

Spring 2006.

Public Policies in Latin America

9

Institutional anchoring: A key driver of possibilism

Enforcement and Implementation

0 1 2 3 4

Argentina

Ecuador

Venezuela

Bolivia

Honduras

Peru

Brazil

Colombia

El Salvador

Mexico

Uruguay

Chile

Coordination and Coherence

0 1 2 3 4

Venezuela

Argentina

Ecuador

Peru

Colombia

Honduras

Uruguay

Bolivia

El Salvador

Mexico

Brazil

Chile

Source: Mariano Tomassi. “The Institutional Foundations of Public Policy”. Journal of the Latin American Economic Association.

Spring 2006.

Public Policies in Latin America

10

Institutional anchoring: A key driver of possibilism

Public Regard Index

0 1 2 3 4

Ecuador

Honduras

Argentina

Bolivia

Colombia

Venezuela

Brazil

El Salvador

Mexico

Peru

Uruguay

Chile

Efficiency Index

0 1 2 3 4

Venezuela

Argentina

Ecuador

Bolivia

Honduras

Peru

Brazil

Colombia

Uruguay

El Salvador

Mexico

Chile

Source: Mariano Tomassi. “The Institutional Foundations of Public Policy”. Journal of the Latin American Economic Association.

Spring 2006.

Public Policies in Latin America

11

Chile: The rise of possibilismI

Institutional anchoringII

ConclusionsIII

12

A bias for hope: The blessings of Democracy

AverageAverage

Source: Javier Santiso, “Latin America’s Political Economy of the Possible: Beyond Good Revolutionaries and Free Marketeers”.

MIT Press. Cambridge, Massachusetts, 2006

Based on the Inter-American Development Bank

Democratic regimes in Latin America since transition (1978-2005)

0

5

10

15

20

25

30

35

40

Colombia Venezuela Peru Mexico Argentina Brazil Chile

Years

13

A bias for hope: The blessings of Democracy

Source: Mariano Tomassi. “The Institutional Foundations of Public Policy. Journal of the Latin American Economic Association.

Spring 2006.

Effectiveness of lawmaking bodies (2004-2005)

0

0.5

1

1.5

2

2.5

3

3.5

4

Chile Brazil Colombia Mexico Peru Argentina Venezuela

1=V

ery

ineffective 7

=V

ery

effective

.

14

A bias for hope: The blessings of Democracy

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0

Congressional Capability Index (1-3 scale)

Poli

cy

Ind

ex (

1 - 4 s

cale

)

Congressional Capabilities and the Quality of Policies

Source: IADB Politics of Policies Report, 2006 and UNDP, 2005

Chile

Chile:A bias for hope

Javier Santiso

Chief Economist / Deputy Director

OECD Development Centre

Latin American Economic Outlook Conference

Vittorio CorboPresident, Central Bank of Chile

Paris 29th January 2007