Friday, December 31, 2010

Brazil and President Lula: Well Done

Brazilians have a lot to celebrate these days. They are in their way to become again the global power they already were before. It is not the first time Brazil is in such situation. In the sixties,(1968) it was among the eight world economies, and its potential on different areas placed it ,in a leading position for the XXI century along with other few Latin America countries.
As we approach the end of the first decade of this century, and we are about to begin the second one ,the usual end of the road kind of evaluation show Brazil as the shining star .In the year 2000 , Brazil was hope, ten years later Brazil is reality. It is within the selected group of economies (8th),which carry out the torch of global growth.
Very much of these achievement comes along with the implementation (1990) of moderate free market economics policies, integration to world economy and fiscal responsibility .As a result, Brazil has been gaining positions both politically ,as a global partner and economically ,in the competitiveness index as well. According to the World Economic Forum in the year 2009, Brazil catch up eight places in the competitiveness index, surpassing economies like Russia.
Brazil economic policies, represent the consolidation of a new approach to free markets economy policies, and an “investment friendly” State, which place Latin America, closer than ever to successful experiences of development known in the past, such that of the east Asian tigers. Of course there are differences, but Latin America pursuing the current path, is in the position to surprise global markets a few years to come .
On the other side, the Brazil trade composition is quite diversified, which is like a markets fluctuations insurance. It includes Latin America (25,9%), European Union(23,4%), Asia (18,9%) ,USA( 14 %) and others (18%).Besides, Brazil exports(60%) are mainly manufactured and semi manufactured goods.
President´s Lula Government made work, what Chilean Governments had made its brand since the nineties. In fact, both cases fit quite well with two new paradigms: Stability and Governance, as necessary (not sufficient, because good economic policies have no substitutes), condition for growth .Let take a look at both.
It is important to remember that before his first election in 2002, there were doubts about candidate Lula commitment with free markets policies, fiscal discipline and integration to the global economy. In those years, Chile was the only economy fully committed to growth based on free markets policies, and private sector investment. Other Latin America countries, were struggling with deep economic crisis on their own, somehow as part of the transition to a new stage, post Washington Consensus.
Thus, after being elected President Lula took the unexpected course, and decide to follow what former President Cardoso set in, although making the social progress an important target( zero hungry policies) . From then on, there were more than one reference in Latin America, in terms of economic policy, which allowed to create with other key countries, an huge geographic zone for trade and investment , creating the condition for Transoceanic routes, which will push further up these potential.
Governance is the second paradigm, which means that there is no way to make Government works with the country paralyzed by violence on the streets or business uncertainty. It is key to implement economic policies aimed at getting social balances, as much as economic growth .After all, wealth creation has its real meaning when more people have access to it . Governance support stability such that both add up not 4 but to 5(synergy).
President Lula is about to finish his successful Presidency, so Latin America will be grateful with his legacy.-

Friday, December 17, 2010

Some economics guidelines for 2011

As the end of 2010 approach, it is useful to take a look back at the most important economics event such that it might be possible to look forward. So ,let start .

a.-There is probably no too much disagreement to consider among the key events in this year, the crisis in the Euro zone and its implication. Alternatively, the Euro requires rule to be considered otherwise it does not work up to what it was created.
b.- The USA recovery seems to be slower than required ,but at least from my point of view it is what could have been expected. The financial sector crisis take a while to be back to normal.-
c.- Global economy does not work as close world economy. It rather works as different segment which does not add up to a fixed previously settle outcome. Thus while coordination was necessary in 2008 to get the whole system back on track, as time went by , it arose different requirement for different economic settings. While Europe needed a more conservative stand, others industrialized economies do not necessarily needed so .Besides emerging economies were on the opposite side of the economic cycle, taking good care of keeping the fundamental ,to avoid the ghost of inflation.
d.- “Currency war” and the war which did not happen .It was a possibility and it still a real one. However, because global economy is not equivalent to a close world economy, it is unlikely it will happen .Diversification works in this case to avoid such outcome. There are more than one market at half of its potential, capable to absorb product from everywhere. Emerging economies ,China, and Latin America, growth a steady pace.-

What to expect for 2011?.
a.- Te whole recovery should take place. However, inflationary pressures might arising from food prices increases, oil prices back to its trend , affecting the pace of global economic growth. Even so the IMF project an economic growth of 4,2% for the next year, with an average of 6,6% for the BRIC group.
b.-The trend will continue for raw material increasing prices. This will represent a new challenge for market inflationary expectation, as long as those prices are influenced by dollar variations, speculative forces ,and real conditions arising from strong demand .-
c.- Technology will continue to be the driving force for economic of scale, cost reduction and efficiency in productive process. However, Human capital is getting more important to keep the pace of such innovations. How about the trend?. Asian countries have a strong potential to take a stronger role. Keep on eye on South Korea, Homg Kong ,Taiwan just to mention a few.On the other side, Africa seems to be left behind.-

Friday, December 03, 2010

Cancun Climate Change Conference: Failure is not an option

A recent report issued by the WMO (World meteorology organization) , set a pessimistic tone to the ongoing discussion about climate change ,at the Cancun XVI Conference on Climate Change in Mexico. The report emphasize the fact that in this year, the emissions of dioxide of carbon has been the highest ever, even though the global economy was not working at its maximum . This fact confirm the trend , which indicates that while in 10000 years the level of emission was level off, in the last 250 year, it has increased by 38%. Therefore , human behaviour has a lot to say about it.-
Thus ,it looks like we are all headed toward an environment catastrophe , and only few seems to be aware of the risk involved in keeping the current pace no matter what might happens next. It is feasible to assume that climate change, will not be solved without some important cost some of them currently under way.
World community wonder whether such a cost is affordable .Perhaps it is , but if it is not , it is better to change the course toward more direct compromises to protect environment . Market solutions, will be slow to provide a long term solution because the main benefit of the trade mechanism no longer goes to those who reduce emissions, but to those who trade the green bonds . Sure, while the one who reduce emission get the actual market value of it, the one who engage in market transaction to make profit from it , get the present value, which is above the current one because it includes the expected gains form future reductions in emissions. Prices signals work in different direction , because there is no a single price to pay for those who contaminate. Environment like any common good has not a price, because nobody can claim property right on it.-
Protocols agreements work as long as governments wants them to do so. If not, Kyoto protocol is a good example of what some Government would like to do, but what they finally do when incentives are not clear enough.-
Therefore, It is not helpful to follow just the path of willingness to take action ,when the cost has already been somehow included in the current pace of growth. Massive flooding , pattern changes in weather temperatures ,rising sea levels, are the first hand cost of the climate change due to human intervention. These social cost must be reduced applying proper policies, which should include subsidies for new sources of energy, tax exemption for reduction on emissions, tax incentives to support clean technologies.-
The real problem is to get a reliable comparison between marginal benefits (Economic growth) with marginal cost (further contamination)of carbon dioxide emissions to make sure there is a net gain .This gain depends upon benefit going higher, faster than costs do. Sooner or later , we will need that technology develops new means to make possible to catch back emissions from atmosphere ,building plant specially designed to do so, such that to bringing down such cost further .
So, it is the time to move forward with a new approach on climate change, based on policy instruments capable of getting result to make the difference on environment protection .-