LatinFinance - Special Edition - August 2013 - 95

End of the cycle
We are approaching the end of a cycle in three respects.
from the political point of view the question is now how you make
room for people who are asking for more participation. all of us
know that democracy, by definition, must be representative. But
political institutions need to be established to provide more participation because people feel more empowered and they want to be
heard.
it is also the end of an economic cycle. the most important issue
now is how to achieve growth, because only with growth are we going to increase per capita income and then we’re going to have better
social and economic indicators.
finally, it is the end of a social cycle with regards to fighting
poverty. therefore, from an economic point of view, the issue has
changed: to have growth the policies of the past no longer work,
because we now have a different degree of development. So it’s essential to have growth, but with the redistribution of income.
in today’s chile, we are proud of our per capita income, but we
fail to mention that more than 80% of chileans are unable to get that
level of earnings. chile is in the front pages because of the things we
have done well. But we must not forget our problem with income
distribution.
Unfortunately there is still a lot of ideology in the political debate.
the most difficult part is for politicians to answer the question: why,
if we’ve been so successful, don’t people recognize that we’ve been
successful?
the answer, for chile, is: this is now a different country. in the
long run, income distribution will improve through education, but
that will take a long time and we have people protesting in the streets
today. it’s this generation that’s making its voice heard.
Ultimately, some kind of institutions will emerge. But we still do
not know what they will be.
The China factor
there is another reason why we have to undertake domestic reforms. the success of the past 10 years partly comes from china’s
incredible growth rate. as the oecD points out, when china has a 1%

increase in economic growth, latin america’s growth automatically
increases by 0.4%. therefore, an average 10% growth rate in china
automatically means at least an additional four percentage points of
growth in the major South american economies.
We need to keep this success in perspective.
if china grows at 6%-7% annually – which is the expectation for
the coming years – and we accept the metric of a 0.4 percentage
point effect on latin growth for each percentage point of chinese
GDP growth, that means at least a 2.4% growth drop for latin american countries from the norm of the past decade.
instead of the growth rate of 5%-5.5% that we had in last three or
four years, in chile we’ll have average growth of 4%-4.5%.
MIDDLE-INCOME TRAP: Counter-cyclical
spending and a better tax framework will
help address the new problems Chile faces,
says former president Ricardo Lagos

©REUTERS

change is one or two points, to 0.54 or 0.53.
this is partly behind the sense of discontent, especially in chile:
we have growth, good numbers, strong macroeconomics. But there
is dissatisfaction about how that growth is being distributed and to
what extent social cohesion has increased.
this is also similar to what is happening in turkey. over the past
10 years, turkey has been seen as an economic miracle in that part
of the world. But suddenly, protests have erupted, because of something that at first seemed unrelated. in the case of Brazil, the trigger
came from an increase in bus fares.
So what are the future challenges of latin america?
first, what kind of institutions are we going to have from the political point of view to listen better to the growing demands of much
more empowered citizens. Second, how are we going to avoid the
middle-income trap and at the same time meet the demands of the
middle class? and third, those social policies that were successful in
reducing poverty will have to change.
on domestic policy, we have to undertake reforms according
to our new stage of development. to maintain our success in the
future, we need different economic and social policies: economic
policies to overcome the middle- income trap; and social policies to
satisfy the growing demands of the middle classes.

this is important in countries where commodities are so important. You have to work according to long-term trends and not today’s
prices. During the sunny days you save – and during the rainy days
you use those savings. that is very important to avoid the extreme
cyclicality of fiscal income.
Under my administration, we introduced the structural surplus
rule in the budget. if the long-term copper price was high, we could
spend more. But if the long-term copper price were lower, then we
could not spend more than what is acceptable according to that
long-term price. this way we could spend more in the 2000 to 2002
period, when copper prices were extremely low, roughly $0.60 per
ounce. now that price is more than $3.
in 2008, when the crisis hit chile, the government was able to
take 4% of GDP for subsidies and to increase fiscal expenditure. that
4% was from the savings we already had from the copper fund. LF
Ricardo Lagos was President of Chile from 2000 to 2006. He was interviewed by Taimur Ahmad.
August 2013 - 25 Years - l atinfina nce.com 95


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LatinFinance - Special Edition - August 2013

Table of Contents for the Digital Edition of LatinFinance - Special Edition - August 2013

Latin Finance - Special Edition - August 2013
The Evolution of the Markets 1988-2013
The Future of Latin Finance
"Twenty-five Years Ago, LatinFinance Was Launched With One simple, if Well-worn, Belief: That Crisis Inevitably Gives Way to Opportunity"
Evolution of the Markets & Deals of the Quarter Century
Turnaround Time, for Some
Rising Champions
Locals Wanted
Gaining Pace
A Question of Depth
The Public-Private Balance
Cheaper Borrowing
Keeping It Simple
Local Banks Are Increasingly Stepping Up the Latin League Tables
LatinFinance Charts a Quarter Century of Change for the Biggest Banks in Latin America
LatinFinance Picks Out the Major Turning Points in the Region’s Political, Economic and Financial History Over the Past 25 Years
Governance & Reform
President, Mexico
Former President, Brazil
“the Government Has Not Given Up on What Is Fundamental. but When It Comes to Improving The Lives of Brazilians, There Are Signs It Has Started To Weaken"
Former President, Colombia
Opposition Leader, Venezuela
Former Us Treasury Secretary
Stability & Regulation
Governor, Bank of Mexico
“Latin America Did Very Well During the 2008 Crisis. but It’s Also True That a Lot of Ammunition Was Used”
Chairman, Grupo Financiero Banorte
Former Vice-Chairman, Citigroup
Partner, Cleary Gottlieb Steen & Hamilton
Former Governor, Central Bank of Brazil
Former Governor, Central Bank of Venezuela
Former Governor, Central Bank of Argentina
Professor of Economics, Columbia University
Corporates & Capital
CEO and co-CIO, Pimco
CEO, Gávea Investimentos
Founder, Celfin Capital
With Joyce Chang, Richard Frank, Hari Hariharan, Hans Humes, Will Landers, Mark Mobius and Martin Schubert
CEO, Itaú-Unibanco
CEO, Grupo Sura
Chairman, Santander
CFO, América MóVil
Former CEO, Vale
Chairman, Roubini Global Economics
Growth & Development
Former President, Chile
President, CAF
President, IDB
Former President, IDB
Former President, Caribbean Development Bank
President, Centennial Group Latin America
A Look Into the Future With Alternate Visions of Latin America a Quarter Century From Now
LatinFinance - Special Edition - August 2013 - Latin Finance - Special Edition - August 2013
LatinFinance - Special Edition - August 2013 - Cover2
LatinFinance - Special Edition - August 2013 - The Evolution of the Markets 1988-2013
LatinFinance - Special Edition - August 2013 - The Future of Latin Finance
LatinFinance - Special Edition - August 2013 - 3
LatinFinance - Special Edition - August 2013 - "Twenty-five Years Ago, LatinFinance Was Launched With One simple, if Well-worn, Belief: That Crisis Inevitably Gives Way to Opportunity"
LatinFinance - Special Edition - August 2013 - 5
LatinFinance - Special Edition - August 2013 - Evolution of the Markets & Deals of the Quarter Century
LatinFinance - Special Edition - August 2013 - 7
LatinFinance - Special Edition - August 2013 - Turnaround Time, for Some
LatinFinance - Special Edition - August 2013 - 9
LatinFinance - Special Edition - August 2013 - 10
LatinFinance - Special Edition - August 2013 - 11
LatinFinance - Special Edition - August 2013 - Rising Champions
LatinFinance - Special Edition - August 2013 - 13
LatinFinance - Special Edition - August 2013 - 14
LatinFinance - Special Edition - August 2013 - 15
LatinFinance - Special Edition - August 2013 - Locals Wanted
LatinFinance - Special Edition - August 2013 - 17
LatinFinance - Special Edition - August 2013 - Gaining Pace
LatinFinance - Special Edition - August 2013 - 19
LatinFinance - Special Edition - August 2013 - 20
LatinFinance - Special Edition - August 2013 - 21
LatinFinance - Special Edition - August 2013 - A Question of Depth
LatinFinance - Special Edition - August 2013 - 23
LatinFinance - Special Edition - August 2013 - 24
LatinFinance - Special Edition - August 2013 - 25
LatinFinance - Special Edition - August 2013 - The Public-Private Balance
LatinFinance - Special Edition - August 2013 - 27
LatinFinance - Special Edition - August 2013 - Cheaper Borrowing
LatinFinance - Special Edition - August 2013 - 29
LatinFinance - Special Edition - August 2013 - Keeping It Simple
LatinFinance - Special Edition - August 2013 - 31
LatinFinance - Special Edition - August 2013 - LatinFinance Charts a Quarter Century of Change for the Biggest Banks in Latin America
LatinFinance - Special Edition - August 2013 - G2
LatinFinance - Special Edition - August 2013 - G4
LatinFinance - Special Edition - August 2013 - G5
LatinFinance - Special Edition - August 2013 - 34
LatinFinance - Special Edition - August 2013 - 35
LatinFinance - Special Edition - August 2013 - 36
LatinFinance - Special Edition - August 2013 - 37
LatinFinance - Special Edition - August 2013 - 38
LatinFinance - Special Edition - August 2013 - 39
LatinFinance - Special Edition - August 2013 - 40
LatinFinance - Special Edition - August 2013 - 41
LatinFinance - Special Edition - August 2013 - 42
LatinFinance - Special Edition - August 2013 - 43
LatinFinance - Special Edition - August 2013 - 44
LatinFinance - Special Edition - August 2013 - 45
LatinFinance - Special Edition - August 2013 - 46
LatinFinance - Special Edition - August 2013 - 47
LatinFinance - Special Edition - August 2013 - Governance & Reform
LatinFinance - Special Edition - August 2013 - 49
LatinFinance - Special Edition - August 2013 - President, Mexico
LatinFinance - Special Edition - August 2013 - 51
LatinFinance - Special Edition - August 2013 - “the Government Has Not Given Up on What Is Fundamental. but When It Comes to Improving The Lives of Brazilians, There Are Signs It Has Started To Weaken"
LatinFinance - Special Edition - August 2013 - 53
LatinFinance - Special Edition - August 2013 - 54
LatinFinance - Special Edition - August 2013 - 55
LatinFinance - Special Edition - August 2013 - Former President, Colombia
LatinFinance - Special Edition - August 2013 - 57
LatinFinance - Special Edition - August 2013 - Opposition Leader, Venezuela
LatinFinance - Special Edition - August 2013 - 59
LatinFinance - Special Edition - August 2013 - Former Us Treasury Secretary
LatinFinance - Special Edition - August 2013 - 61
LatinFinance - Special Edition - August 2013 - Stability & Regulation
LatinFinance - Special Edition - August 2013 - Governor, Bank of Mexico
LatinFinance - Special Edition - August 2013 - 64
LatinFinance - Special Edition - August 2013 - B1
LatinFinance - Special Edition - August 2013 - B2
LatinFinance - Special Edition - August 2013 - 65
LatinFinance - Special Edition - August 2013 - Chairman, Grupo Financiero Banorte
LatinFinance - Special Edition - August 2013 - 67
LatinFinance - Special Edition - August 2013 - Former Vice-Chairman, Citigroup
LatinFinance - Special Edition - August 2013 - Partner, Cleary Gottlieb Steen & Hamilton
LatinFinance - Special Edition - August 2013 - Former Governor, Central Bank of Brazil
LatinFinance - Special Edition - August 2013 - Former Governor, Central Bank of Venezuela
LatinFinance - Special Edition - August 2013 - Former Governor, Central Bank of Argentina
LatinFinance - Special Edition - August 2013 - 73
LatinFinance - Special Edition - August 2013 - Professor of Economics, Columbia University
LatinFinance - Special Edition - August 2013 - Corporates & Capital
LatinFinance - Special Edition - August 2013 - CEO and co-CIO, Pimco
LatinFinance - Special Edition - August 2013 - 77
LatinFinance - Special Edition - August 2013 - 78
LatinFinance - Special Edition - August 2013 - 79
LatinFinance - Special Edition - August 2013 - CEO, Gávea Investimentos
LatinFinance - Special Edition - August 2013 - Founder, Celfin Capital
LatinFinance - Special Edition - August 2013 - With Joyce Chang, Richard Frank, Hari Hariharan, Hans Humes, Will Landers, Mark Mobius and Martin Schubert
LatinFinance - Special Edition - August 2013 - 83
LatinFinance - Special Edition - August 2013 - 84
LatinFinance - Special Edition - August 2013 - 85
LatinFinance - Special Edition - August 2013 - CEO, Itaú-Unibanco
LatinFinance - Special Edition - August 2013 - 87
LatinFinance - Special Edition - August 2013 - CEO, Grupo Sura
LatinFinance - Special Edition - August 2013 - Chairman, Santander
LatinFinance - Special Edition - August 2013 - CFO, América MóVil
LatinFinance - Special Edition - August 2013 - Former CEO, Vale
LatinFinance - Special Edition - August 2013 - Chairman, Roubini Global Economics
LatinFinance - Special Edition - August 2013 - Growth & Development
LatinFinance - Special Edition - August 2013 - Former President, Chile
LatinFinance - Special Edition - August 2013 - 95
LatinFinance - Special Edition - August 2013 - President, CAF
LatinFinance - Special Edition - August 2013 - 97
LatinFinance - Special Edition - August 2013 - President, IDB
LatinFinance - Special Edition - August 2013 - Former President, IDB
LatinFinance - Special Edition - August 2013 - Former President, Caribbean Development Bank
LatinFinance - Special Edition - August 2013 - 101
LatinFinance - Special Edition - August 2013 - President, Centennial Group Latin America
LatinFinance - Special Edition - August 2013 - 103
LatinFinance - Special Edition - August 2013 - A Look Into the Future With Alternate Visions of Latin America a Quarter Century From Now
LatinFinance - Special Edition - August 2013 - Cover3
LatinFinance - Special Edition - August 2013 - Cover4
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