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Outlook for the World Economy: Latin America

Outlook for the World Economy: Latin America. Ernesto Talvi CERES – Uruguay. October 25 th , 2004. Prepared for presentation at the XX Meeting of the Latin American Network of Central Banks and Finance Ministries IADB, Washington D.C. OUTLINE. Back to the Future...?

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Outlook for the World Economy: Latin America

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  1. Outlook for the World Economy:Latin America Ernesto Talvi CERES – Uruguay October 25th, 2004 Prepared for presentation at the XX Meeting of the Latin American Network of Central Banks and Finance Ministries IADB, Washington D.C.

  2. OUTLINE • Back to the Future...? • Brazil: Riding on Leverage • Argentina: Riding on the “V”

  3. OUTLINE • Back to the Future...? • Brazil: Riding on Leverage • Argentina: Riding on the “V”

  4. Russian Crisis Argentine Crisis 96000 76000 56000 36000 16000 -4000 Collapse in Capital Flows to LAC-7 (in millions of US dollars, last four quarters) Mexican Crisis Asian Crisis Jun-92 Jun-95 Jun-98 Jun-01 dec-90 dec-93 dec-96 dec-99 dec-02 Mar-90 Mar-93 Mar-96 Mar-99 Mar-02 Sep-91 Sep-94 Sep-97 Sep-00 * LAC-7 includes the seven major Latin American countries, namely, Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela

  5. Financial Flows and Economic Growth (GDP in yoy % changes, financial flows in % of GDP, last four quarters) 8% 3% Average GDP Growth Pre-Russian Crisis 1990.I-1998.II 7% 4.1% 2% Post-Russian Crisis 1998.II-2002.IV 0.5% 6% GDP 1% 5% 4% -1% Non FDI Capital Flows (% GDP) Cumulative GDP (yoy var.) 3% Financial Flows -2% 2% 1% -3% -1% -4% -2% -3% -5% Sep-97 Sep-99 Mar-97 Mar-00 Sep-98 Sep-00 Sep-01 Sep-02 Mar-98 Mar-99 Mar-01 Mar-02

  6. LAC-7: Economic Growth in the 90s (GDP, annual growth in %) Boom Boom? Collapse 7% Russian Crises Average: 3.8% 6% 5% Average: 4.7% 4% 3% 2% 1% Average: 0.7% 0% -1% -2% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

  7. LAC-7: GDP Growth Forecasts (GDP, annual variation in %) By Country LAC-7 7,0 11.9 Venezuela Post-Collapse Recoveries 6,0 Argentina 5,0 4,0 Chile 3,0 2004 2,0 Brazil 2005 1,0 Peru 0,0 Average 2004 -1,0 Colombia -2,0 2002 2003 2004 2005 Mexico 2 2,5 3 3,5 4 4,5 5 5,5 6 6,5 7 7,5 Source: LatinFocus Consensus Forecasts

  8. Growth Forecasts: USA, Europe & Japan (GDP, annual growth in %) 4,0 3,5 Weighted by GDP USA Weighted by Exports 3,0 2,5 2004 Japan 2,0 2005 1,5 1,0 EU 0,5 0,0 2001 2002 2003 2004 2005 0 1 2 3 4 5 Source: LatinFocus Consensus Forecasts

  9. Ind. Production variations* (from peak to trough) Dec 69 – Nov 70 -1.7% Nov 73 – Mar 75 -11.5% Jan 80 – Jul 80 -5.6% OPEC oil embargo Iraq – Iran war starts Saudi production increase Invasion of Iraq Jul 81 – Nov 82 -8.7% 17% Jul 90 – Mar 91 -3.3% -3.3% Mar 01 – Nov 01 12% 7% 2% -3% Industrial Production -8% -13% -18% -23% Invasion of Kwait OPEC production restraint -28% * NBER recession dates. Oil Prices and Industrial Production in the US(USD per barrel in 2004 prices, saar in %) 100 90 80 70 60 50 Oil Price 40 30 20 10 0 abr-70 abr-72 abr-74 abr-76 abr-78 abr-80 abr-82 abr-84 abr-86 abr-88 abr-90 abr-92 abr-94 abr-96 abr-98 abr-00 abr-02 abr-04

  10. 129 119 109 Average 1990-97: 95 99 89 79 69 Ene-90 Ene-91 Ene-92 Ene-93 Ene-94 Ene-95 Ene-96 Ene-97 Ene-98 Ene-99 Ene-00 Ene-01 Ene-02 Ene-03 Ene-04 120 115 110 105 Average 1990-97: 97 100 95 90 85 80 75 70 Ene-90 Ene-91 Ene-92 Ene-93 Ene-94 Ene-95 Ene-96 Ene-97 Ene-98 Ene-99 Ene-00 Ene-01 Ene-02 Ene-03 Ene-04 Commodity Prices (June 1997 = 100) Metals Petroleum 240 220 200 180 160 140 Average 1990-97: 102 120 Food 100 80 60 40 Ene-04 Ene-90 Ene-91 Ene-92 Ene-93 Ene-94 Ene-95 Ene-96 Ene-97 Ene-98 Ene-99 Ene-00 Ene-01 Ene-02 Ene-03

  11. External Financial Conditions (EMBI+ and US High Yield Bonds, bp over US Treasury bonds) Fears of Fed Tightening Beginning of easing in external financial conditions ENRON Effect 1050 Variation 30-Sep-02 vs 18-Oct-04 950 In bps In % Brazil -1930 -79.6% Chile -141 -64.7% LAC-7 -705 -64.5% 850 EMBI+ -580 -63.0% Colombia -670 -62.8% Peru -540 -61.8% 750 Venezuela -703 -60.8% Mexico -245 -56.5% US HY -121 -24.6% 650 550 US High Yield Bonds Emerging Markets 450 350 Pre- Asian Crisis EM Spreads 250 jul-02 jul-03 jul-04 nov-02 sep-02 sep-03 nov-03 sep-04 mar-04 mar-02 mar-03 ene-02 ene-03 ene-04 may-04 may-02 may-03 Note: Argentina is excluded from the survey since its bonds are in default

  12. 1,8 Variation 10-May vs 18-Oct Variation 8-Apr vs 10-May 1,7 In bps In % In bps In % Brazil -339 -42% Peru 225 69% 1,6 Venezuela -306 -40% Colombia 213 60% Peru -215 -39% Mexico 87 52% LAC-7 -189 -37% Brazil 263 49% Chile -34 -31% 1,5 LAC-7 160 46% EMBI+ -149 -30% EMBI+ 155 46% Colombia -171 -30% Chile 28 34% Mexico -66 -26% 1,4 Venezuela 143 23% FED Funds Target Rate (percentage points) 1,3 1,2 1,1 FED Funds Target Rate 1 0,9 LAC-7 : Bond Spreads and FED Tightening (bp over US Treasuries) FOMC January statement 500 450 LAC - 7 400 EMBI+ Spread (bp over US Treasury) 350 EMBI + Greenspan testifies in Congress Beginning of a string of positive US economic data 300 01-jul-04 15-jul-04 29-jul-04 03-jun-04 17-jun-04 07-oct-04 12-feb-04 26-feb-04 08-abr-04 22-abr-04 09-sep-04 23-sep-04 11-mar-04 25-mar-04 01-ene-04 15-ene-04 29-ene-04 06-may-04 20-may-04 12-ago-04 26-ago-04 Note: Argentina is excluded from the survey since its bonds are in default

  13. FED Tightening Expectations Target & 12- month FED Funds Rate 10 Years Treasury N/B 2,50 FOMC January statement 2,30 4,8 FED Funds 12-month Rate Greenspan testifies in Congress 2,10 4,6 1,90 FED Funds Target Rate 4,4 Beginning of a stream of positive US economic data 1,70 4,2 1,50 4 1,30 3,8 1,10 0,90 3,6 Jul-04 Jun-04 Abr-04 Feb-04 Mar-04 Oct-04 Ene-04 Ago-04 Sep-04 May-04 01/15/04 02/15/04 03/15/04 04/15/04 05/15/04 06/15/04 07/15/04 08/15/04 09/15/04

  14. LAC-7: Assets Prices (Stocks & Bonds; Oct-02=100) 310 152 290 Oct-02 – Oct-04, % Bonds Stocks Bond Index 147 279.8 Argentina 270 257.1 Brazil 87.0 Peru 238.1 39.0 142 Colombia 218.9 42.3 250 209.5 Venezuela 28.6 137 200.6 LAC-7 36.7* 230 Chile 130.4 7.5 132 Mexico 17.8 70.3 210 Bonds 127 Stocks 190 Beginning of easing in external financial conditions 122 170 117 150 112 Fears of Fed Tightening 130 107 110 Stock Prices in US$ 102 97 90 Jul-02 Jul-03 Jul-04 Nov-02 Nov-03 Mar-02 Mar-03 Mar-04 Ene-02 Sep-02 Ene-03 Sep-03 Ene-04 Sep-04 May-02 May-03 May-04 *excluding Argentina

  15. LAC-7: Real Exchange Rate & International Reserves Real Exchange Rate International Reserves (Oct-02 =100) (millions of US$) Jun-98 - Oct-02 Oct-02 – Sep-04 105 % Oct-02 – Sep-04 190000 Brazil 116.6 -36.6 Argentina 90.0 100 Argentina 197.9 -19.7 Venezuela 40.6 -16.4 Colombia 63.8 Brazil 38.1 180000 95 LAC-7 59.2 -16.0 LAC-7 31.5 Chile 55.2 -15.8 90 Mexico 28.8 Peru 25.5 -7.7 170000 Colombia 13.5 Venezuela 36.1 85 -7.6 Peru 12.6 Mexico -13.5 9.6 Chile 6.2 80 160000 75 150000 70 65 140000 60 55 130000 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Ene-97 Ene-98 Ene-99 Ene-00 Ene-01 Ene-02 Ene-03 Ene-04 Ene-97 Ene-98 Ene-99 Ene-00 Ene-01 Ene-02 Ene-03 Ene-04

  16. Direct Intervention in the FX Market • Sterilized Intervention • Use of Derivatives • Capital Controls Exchange Rate Intervention Policies The Use of FX Options in Colombia Nominal Exchange Rate (Colombian pesos/dollar & Deviation from 20-day mov. avg) Put Option Auctions (Amount in million USD & option price in pesos/1000 USD) 2950 250 Option Price 7,500 Executed Amount 2900 7,000 CB announces Direct FX intervention 200 2850 6,500 2800 150 6,000 Colombian pesos per dollar Executed Amount (millon of dollars) 2750 Option Price ($/USD 1000) 5,500 2700 100 2650 5,000 50 2600 4,500 Expectations of Fed Tightening 2550 0 4,000 2500 30-Jul-04 09-Dic-03 30-Dic-03 30-Abr-04 30-Jun-04 31-Mar-04 13-Ene-04 30-Ago-04 31-May-04 Jul-04 Dic-03 Oct-03 Abr-04 Mar-04 Nov-03 Ene-04 Sep-04 Ago-04 May-04

  17. LAC-7: Investment (s.a. 1990.I=100) Russian Crisis 190 180 Annualized rate 2002.IV-2004.II: 8.0% Annualized rate 1990.I-1998.II: 7.2% 170 160 150 Annualized rate 1998.II-2002.IV: -3.8% 140 130 120 110 100 90 1990.I 1993.I 1996.I 1999.I 2002.I 1992.II 1995.II 1998.II 2001.II 2004.II 1990.IV 1993.IV 1996.IV 1999.IV 2002.IV 1991.III 1994.III 1997.III 2000.III 2003.III

  18. LAC-7: Economic Growth (s.a. GDP, 1990.I=100) Annualized growth rate 2002.IV-2004.II: 3.8% 155 Russian Crisis 145 135 Annualized growth rate 1990.I-1998.II: 4.1% Annualized growth rate 1998.II-2002.IV: 0.5% 125 115 105 95 1990.I 1991.I 1992.I 1993.I 1994.I 1995.I 1996.I 1997.I 1998.I 1999.I 2000.I 2002.I 2003.I 2004.I 2001. I

  19. 3.5% Adjusted Current Account at March-02 TOT LAC-7: Current Account (% of GDP) 3% 2% 1% 0% -1% -2% -3% -4% -5% Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03

  20. Terms of Trade & the Current Account: The Case of Chile Terms of Trade (Mar-02 = 100) Current Account (% of GDP) 2% 142 1% 138 134 0% 130 -1% 5.7% 126 122 -2% 118 -3% 114 110 -4% 106 Adjusted Current Account at March-02 TOT -5% 102 98 -6% 94 -7% 90 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03

  21. LAC-7: Fiscal Balance & Inflation Fiscal Balance (% of GDP) Inflation (CPI, annual variation) 0,5% 0,0% -0,5% -1,0% -1,5% 1990-1997: -1.1% -2,0% -2,5% -3,0% 2003-2005: -1.7% Rusian Crisis -3,5% Rusian Crisis -4,0% 1998-2002: -3.0% -4,5% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

  22. LAC-7:Public Debt (% of GDP) 55% Russiian Crisis 50% LAC-7 LAC-7 excluding Argentina 45% 40% 35% 30% 25% 20% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

  23. LAC-7:Public Debt (% of GDP) 55% Russiian Crisis 50% LAC-7 LAC-7 excluding Argentina 45% 40% 35% 30% 25% 20% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Note: After Argentina’s Debt Restructure

  24. OUTLINE • Back to the Future...? • Brazil: Riding on Leverage • Argentina: Riding on the “V”

  25. External Financial Conditions (EMBI+, US High Yield Bonds and EMBI+ Brazil, bp over US Treasury bonds) Enron Effect + Political Uncertainty 1100 2700 Var. in % Current 30-Sep-02 1000 Brazil EMBI+ 2396 466 -80% 2200 900 EMBI+ 341 -63% 921 US High Yield Bonds US HY Bonds 372 -62% 994 800 1700 EMBI Brazil 700 US High Yial Bonds & EMBI + 1200 Emerging Markets 600 500 700 Beginning of easing in external financial conditions 400 Brazil 300 200 jul-02 jul-03 jul-04 sep-02 nov-02 sep-03 nov-03 sep-04 mar-02 mar-03 mar-04 ene-02 ene-03 ene-04 may-02 may-03 may-04

  26. External Financial Conditions and Domestic Interest Rates (C-Bond Spread in bp, Selic rate and domestic 360-day interest rate in %) End of Enron Effect + Political Uncertainty Enron Effect + Political Uncertainty 38 2300 33 1800 28 1300 Domestic interest rate 23 800 18 Selic rate C-Bond Spread 300 13 jul-02 jul-03 jul-04 sep-02 nov-02 sep-03 nov-03 sep-04 ene-02 mar-02 ene-03 mar-03 ene-04 mar-04 may-02 may-03 may-04

  27. External Financial Conditions and the Real Exchange Rate(C-Bond spread and RER vis-à-vis the US dollar, Sep 02=100) Enron Effect + Political Uncertainty 2200 102 2000 97 1800 92 Real Exchange Rate 1600 87 1400 Real Exchange Rate 82 C-Bond Spread 1200 77 1000 72 800 67 End of Enron Effect + Political Uncertainty 600 62 C-bond Spread 400 57 jul-02 jul-03 jul-04 sep-02 nov-02 sep-03 nov-03 sep-04 mar-02 mar-03 mar-04 ene-02 ene-03 ene-04 may-02 may-03 may-04

  28. Industrial Production & Real Interest Rate (s.a. index, quarterly moving average, Feb-99=100, exante real interest rate) 40% 124 35% 119 30% Industrial Production 25% 114 20% 109 15% 10% 104 5% Interes Rate 0% 99 dic-96 dic-97 dic-98 dic-99 dic-00 dic-01 dic-02 dic-03 abr-97 abr-98 abr-99 abr-00 abr-01 abr-02 abr-03 abr-04 ago-96 ago-97 ago-98 ago-99 ago-00 ago-01 ago-02 ago-03 ago-04

  29. Economic Growth (s.a. GDP, 1998.II=100) Annualized growth rate 2003.II-2004.II: 5.6% 115 110 Annualized growth rate 1991.I-1998.II: 3.6% 105 100 95 Annualized growth rate 1998.II-2003.II: 1.3% 90 85 80 Russian Crisis 75 I-1991 I-1992 I-1993 I-1994 I-1995 I-1996 I-1997 I-1998 I-1999 I-2000 I-2001 I-2002 I-2003 I-2004

  30. Public Debt Public Debt Level and Exchange Rate Public Debt Structure 66% 4,5 64% 4,0 62% Fixed Rate 12% Others 13% 60% 3,5 Repos 8% 58% Indexed to the Interest Rate 40% Public Debt / GDP External or FX indexed Public Debt 27% 56% 3,0 54% 2,5 52% 54.1% 50% 2,0 Exchange Rate 48% 46% 1,5 jul-02 jun-00 oct-03 nov-00 dic-02 feb-02 abr-01 ene-00 sep-01 mar-04 ago-04 may-03

  31. The Fisc and the Financial System Primary Surplus Banks’ Exposure to the Public Sector (Public bond holdings, June 2004) 5,5% 300% 278% 5.0% 5,0% 250% 4.5% 4,5% Fiscal Cushion 200% 4,0% 150% % GDP 3.5% 3,5% 100% 50% 3,0% 26% 0% 2,5% In % of Total Assets In % of Net Worth Required Observed* Target *Last twelve months to August 2004 Assumptions • Average real interest rate on public debt: 8.9% (includes monetary base) • Growth rate: 2.5% • Initial debt ratio in August 2004: 54.1%

  32. Monetary Policy Selic Rate Inflation Expectations ( IPCA ) 28 7.2% 7,3% 26 6,8% 24 6,3% 22 5,8% 20 COPOM Target: 5.5% 5,3% 18 jul-04 16.75% jun-04 oct-04 feb-04 abr-04 ene-04 mar-04 sep-04 may-04 ago-04 16 Lower bound Market Expectations Upper bound COPOM Target 5.5% 7.2% 5.8% 2004: 2005: 3.0% 2.0% 8.0% 7.0% 5.1*% 14 jul-02 jun-03 jun-04 oct-02 dic-02 dic-03 abr-02 sep-03 sep-04 ene-02 mar-03 mar-04 *Central Bank has decided to calibrate monetary policy in order to pursue 2005 IPCA inflation of 5.1% (instead of the target of 4.5%) due to inflationary inertia resulting from higher inflation in 2004. The upper and lower bounds have been mantained.

  33. Monetary Policy Tightening in LAC-7 Peru 10,0 9,0 Mexico 7,5 8,0 7,0 18,5 6,0 6,5 5,0 16,5 4,0 5,5 3,0 14,5 2,0 4,5 Ene-01 Ene-02 Ene-03 Ene-04 Sep-01 Sep-02 Sep-03 Sep-04 May-01 May-02 May-03 May-04 12,5 Fed Funds Rate Mexico Interbank Rate 3,5 Mexico Chile 10,5 7% 6% 2,5 8,5 5% 4% 1,5 6,5 3% US Fed Funds rate 4,5 0,5 2% 1% jul-02 jul-04 dic-02 oct-03 abr-01 feb-04 feb-02 nov-00 sep-01 may-03 Nov-01 Nov-02 Nov-03 Feb-02 Feb-03 Feb-04 Ago-01 Ago-02 Ago-03 Ago-04 May-02 May-03 May-04

  34. OUTLINE • Back to the Future...? • Brazil: Riding on Leverage • Argentina: Riding on the “V”

  35. Sample of Post Sudden Stop Collapses GDP Variation -10,1% Argentina LAC-80s -11,8% Chile -6,0% Mexico -20,6% Uruguay Argentina 94 -5,7% LAC-90s Argentina 98 -19,2% Colombia -6,5% Ecuador -7,3% Mexico -6,5% Uruguay -23,2% Indonesia -16,1% South East Asia Korea -9,1% Malaysia -11,2% Thailand -13,3% Mean -12% Max (Uruguay 98) -23% Min (Argentina 94) -6% 14 Sample Size

  36. Dynamics of Post Collapse Recoveries (seasonally adjusted quarterly GDP index) Collapse Recovery 112 Pre-Crisis Peak Full Recovery to Pre-Crisis Level 110 108 106 104 102 Trough 100 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7

  37. Dynamics of Post Collapse Recoveries (seasonally adjusted quarterly GDP index) Collapse Recovery 114 LAC-90s 112 110 South East Asia Average 108 106 104 LAC-80s 102 100 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7

  38. Argentina’s Recovery in Perspective (seasonally adjusted quarterly GDP index) Collapse Pre-Collapse Recovery 126 114 123 112 IIIQ 98 120 110 Average 117 IQ 01 108 Argentina 98 114 Average 111 106 108 104 105 102 Argentina 102 99 100 -15 -13 -11 -9 -7 -5 -3 -1 1 3 5 7

  39. The Restructuring Proposal Proposal % of Defaulted Debt • Letes (16%)  Boden 2014 • Dec. 530/03 USD Bonds (74%)  Quasi-Par • Others (10%)  Discount Bonds AFJP 20% • Accounting Valuation • 90-day period without transfer between AFJPs Banks and Domestic Bond Holders • Negotiations in process 20% External Bond Holders • The offer will be officially launched in mid-November 60%

  40. Menu of Bonds Offered in the Proposal (with participation exceeding 70%) AR$ + CER USD Discount Bond Par Bond Quasi-Par Bond* Nominal Haircut 0% 30% 75% Coupon (average) 3.6 6.0 8.5 Maturity (years) 35 42 30 Grace Period (years) 25 32 20 15.0 8.3 19.9 Size (bn) yes GDP-linked yes yes * only available for AFJP

  41. 16 14 12 10 8 6 4 2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 Profiles of Interest Payments and Amortizations Par Bond Discount Bond 12 Amortizations 10 8 6 4 2 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 5,5% Interest Payments 9,0% 5,0% 8,0% 4,5% 7,0% 4,0% Total Interest 3,5% 6,0% 3,0% Average interest Cash Interest 5,0% 2,5% 4,0% 2,0% Capitalized Interest 1,5% 3,0% 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 years years

  42. Discount Rate (%) 8,4 9,8 10,2 12,9 13,3 Implied NPV Haircut of Argentina’s Proposal* (Discount Bond) Effective Haircut** Nominal Haicut Spread Bond Price Post Restructuring (bp) (%) (% of Face Value) (%) EMBI+ (Adj for Argentina) 102 74 75 352 Brazil EMBI+ 86 79 75 488 Uruguay EMBIG 82 80 75 532 Ecuador EMBI+ 61 85 75 800 Boden 2012 58 86 75 839 * Underlying assumptions: More than 70% acceptance and full recognition of PDI. ** The GDP-linked unit contributes to improve NPV. Estimates range from 1.5% to 4.0% depending on assumptions on the discount rate and the volatility of the GDP.

  43. Yield Curve of Expected Losses on Defaulted Bonds (October 2004) 80.1% 81% 80% 79% 78% 77% 76% Expected Loss 74.0% 75% 74% 73% 72% 71% 70% 2010 2027 Global Bonds

  44. Argentina’s Post Restructuring Debt Sustainability Public Debt Stock Public Debt Sustainability (required primary surplus) Pre Haircut Post Haircut 140% RER 130% 130% 120% 2.0 1.5 110% 3.0% 3.7% 2% 100% 100% Growth Rate 90% 3% 2.3% 2.8% 80% 87% 70% 72% 60% Average Interest Rate: 6.3% 50% Current RER Current RER RER=1,5 RER=1,5

  45. Argentina’s Proposal in the Eyes of Marzano

  46. Outlook for the World Economy:Latin America Ernesto Talvi CERES – Uruguay October 25th, 2004 Prepared for presentation at the XX Meeting of the Latin American Network of Central Banks and Finance Ministries IADB, Washington D.C.

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