Ricardo v lago capital flows old and new debates
- 1. “PERU’s TWELVE BEST KEPT SECRETS ”ReinventingBretton Woods/ G-24 /BCRPCUZCO 19-20 July , 2010Ricardo V. Lago
- 2. THE AVALANCHE OF DOLLARS POURING ONTO PERU
- 7. PERU’S SUPERIOR PERFORMANCE :MY CONCLUSION IS THAT MACROECONOMIC PERFORMANCE DEPENDED CRITICALLY ON :1 .Whether the authorities were able to maintain exchange and interest rate stability. I look at daily data during period of maximum turbulence2. Whether the authorities were able to maintain positive credit flows to the private sector
- 10. ANALYTICAL FRAMEWORK Mundell-Fleming IS-LM-BPRudi Dornbusch ( 1976 ) Exchange rate overshooting model t = 0 : before the Crisis M (o) = p { C - a r + b y } C= Highly speculative money demand t= 1 : the crisis hits C = Flight to safety M(1) = p { -a r+ by } C= Excess supply of domestic money = excess demand for dollars
- 13. PERIOD OF MAXIMUM TURBULENCE Period Sept 7th, 08 ( Fannie and Freddy ) to March 06 , 2009 ( Trough of US Stock Market)
- 14. Exchange rates for 4 countries normalized at 100 on Sept 7th , 08 FREQUENCY DISTRIBUTION VARIABLE 1 : LEVEL OF THE EXCHANGE RATE
- 15. Peru versus Brazil
- 20. DON’T TELL ANYBODY WE HAVE MORE DOLLARS COMING IN THAN WE CAN HANDLE ………
- 21. `
- 23. Peru in 1990 Close to becoming a failed State Cambodia on the eve of the takeover by the Khmer Rouge
- 25. PERU’S SOL IS STRONGERTHANCHINA’S YUAN SECRET # 1
- 29. SECREST # 2 PERU’S BALANCE SHEET IS AS GOOD AS IT GETS SECRET # 1 SECRET # 2
- 31. PERU’S BANKINGSYSTEM IS SMALL BUTVERYSTRONGSECRET # 1 SECRET # 3
- 32. SMALL IS BEATIFUL BANCO DE CREDITO WAS ABLE TO FLOAT BONDS INTERNATIONALLY IN DECEMBER 2008 GOOD SUPERVISIONFEWDERIVATIVESAS A SHARE OF GDP1/5 of SPAINBANKINGSYSTEM1/10 of UKBANKINGSYSTEM
- 33. PERU’S BANKINGSYSTEM IS UNDER-MORTGAGEDSECRET # 4
- 34. MORTGAGEEXPOSURE110,000 MORTGAGESFor US$ 3.2 billon or 8 % of BANKINGSYTEM BALANCE SHEET
- 35. SCOPE FOR COUNTER-CYCLICAL POLICIES SECRET # 5
- 36. FISCAL STIMULUS
- 39. ANALYTICAL FRAMEWORK Mundell-Fleming IS-LM-BPRudi Dornbusch ( 1976 ) Exchange rate overshooting model t = 0 : before the Crisis M (o) = p { C - a r + b y } C= Highly speculative money demand t= 1 : the crisis hits C = Flight to safety M(1) = p { -a r+ by } C= Excess supply of domestic money = excess demand for dollars
- 40. PORTFOLIO DIVERSIFICATION OF EXPORTSSECRET # 6
- 41. CLOSE to ½ of TOTAL EXPORTS : COPPER AND GOLD HISTORICALCORRELATION IN THE LAST 30 YEARS IS VERYLOW 10%IN PERIODS OF HIGH UNCERTAINTYCORRELATION IS NEGATIVE
- 44. PIPELINE OF FDI SECRET # 8
- 46. FDIUS$ 25 BillionUNDEREXECUTIONU$ 30 Billion in PIPELINE
- 48. 20 YEARS OF CONTINUED ECONOMIC REFORMSSECRET # 9
- 51. POPULATIONSUPPORT THE MARKET AND MISTRUST GOVERNMENTSECRET # 10
- 52. The Situation in 1990 Massive default including with the IFIsBout of Hyperinflation 12 months ending August 1990 ( 8,000 %)Highest daily rate 114%Depression : 25 % cumulative drop in GDP 1988-1990 Widespread terrorist insurgency :The Shinning Path
- 56. SPECTACULARSUCCESS IN THE FIGHTAGAISTPOVERTYSECRET # 11
- 57. LOWRISK OF RETURN TO POPULISM SECRET # 12
- 58. FOR FURTHERINFORMATIONON PERU ‘S SECRETSVISIT “HATUNRUMIYOC” STREET
- 59. FIND THE CORNERSTONE OF THE TWELVEANGLES
- 60. STUDY THE HISTORY OF THE PALACE OF INKA ROCA AND HENCE
- 61. READ THE NOVEL “ LOS RIOS PROFUNDOS “” OF JOSEMARIA ARGUEDAS TO UNDERSTAND THE SYMBOLISM OF THE CORNERSTONE