Articles 2017 (Otaviano Canuto)
I – Global Economy
China and the new phase of trade expansion, OMFIF, Huffington Post, INTERFIMA, Seeking Alpha, December 2017
Two globalization processes will evolve in parallel, and might even reinforce each other. Much will depend on the extent to which anti-globalization sentiment rises or falls in key markets. Progress on trade deals like the new TPP and the wide reach of the Belt and Road should engender some confidence that international economic cooperation has not reached a nadir under President Trump – but can strike out in new and positive directions.
Overlapping Globalizations, Huffington Post, INTERFIMA, Seeking Alpha, November 2017
Current technological developments in manufacturing are likely to lead to a partial reversal of the wave of fragmentation and global value chains that was at the core of the rise of North-South trade from 1990 onward. At the same time, China – the main hub of the global-growth-cum-structural-change of that period – may attempt to extend the previous wave through its “One Belt, One Road” initiative.
The Metamorphosis of Financial Globalization Capital Finance International, Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, autumn 2017
After a strong rising tide starting in the 1990s, financial globalisation seems to have reached a plateau since the global financial crisis. However, that apparent stability has taken place along a deep reshaping of cross-border financial flows, featuring de-banking and an increasing weight of non-banking financial cross-border transactions. Sources of potential instability and long-term funding challenges have morphed accordingly.
Bloated central bank balance sheets Capital Finance International, Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, spring 2017 (w/ Matheus Cavallari)
Central banks of large advanced and many emerging market economies have recently gone through a period of extraordinary expansion of balance sheets and are all now possibly facing a transition to less abnormal times. However, the fact that one group is comprised by global reserve issuers and the other by bystanders receiving impacts of the former’s policies carries substantively different implications. Furthermore, using Brazil and the U.S. as examples, we also illustrate how the relationships between central bank and public sector balance sheets have acquired higher levels of complexity, risks and opacity. (.pdf version here from OCPPC)
Global Imbalances on the Rise Capital Finance International, winter 2017
Signs of a possible resurgence of rising global current-account imbalances have returned attention to the issue. We argue here that, while not a threat to global financial stability, the resurgence of these imbalances reveals a sub-par performance of the global economy in terms of foregone product and employment, i.e. a post-crisis global economic recovery below its potential. In addition, we approach how the re-orientation of the US economic policy already announced by president Trump suggests risks of new bouts of tension around global current account imbalances.
NAFTA at the Crossroads Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, May (w/ Michael McKeon and Samuel George)
The U.S. Senate voted to confirm Robert Lighthizer as United States Trade Representative last week, rounding out President Donald Trump’s cabinet and giving momentum to his trade agenda. At his swearing-in ceremony on May 15, Ambassador Lighthizer predicted that President Trump would permanently reverse “the dangerous trajectory of American trade,” and in turn make “U.S. farmers, ranchers and workers richer and the country safer.” This policy shift will begin in earnest in the coming weeks, when Lighthizer meets with congressional trade leaders to discuss the administration’s plan to renegotiate the North American Free Trade Agreement (NAFTA).
II – Infrastructure Finance
Bridging Finance and Infrastructure, Cornell on Emerging Markets, December 1, 2017 (w/ Aleksandra Liaplina)
A bridge between private sector finance and infrastructure can be built if properly structured projects are developed, with risks and returns distributed in accordance with different incentives of stakeholders.
Filling the infrastructure financing gap, OMFIF, Huffington Post, INTERFIMA, Seeking Alpha, December 2017
Infrastructure investment has fallen short of what is needed to support potential growth. At the same time, financial resources in world markets have contended with low long-term interest rates, while opportunities for greater returns from potential infrastructure assets are missed.
Matchmaking Finance and Infrastructure Capital Finance International, Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center summer 2017 (w/ Aleksandra Liaplina)
The world economy – and emerging market and developing economies in particular – display a gap between their infrastructure needs and the available finance. On the one hand, infrastructure investment has fallen far short from of what would be required to support potential growth. On the other, abundant financial resources in world markets have been facing very low and decreasing interest rates, whereas opportunities of higher return from potential infrastructure assets are missed. We approach here how a better match between private sector finance and infrastructure can be obtained if properly structured projects are developed, with risks and returns distributed in accordance with different incentives of stakeholders. (.pdf version here from OCPPC)
III – Brazil
Brazil’s Economic Deliverance Project Syndicate, September 28
Brazil’s proliferating corruption scandals have imposed substantial costs on some of the country’s largest companies. But, in the long term, today’s efforts to strengthen the rule of law and ensure fair market competition will prove to have been well worth it.
Dissolving corruption in Brazil OMFIF, Huffington Post, INTERFIMA, Seeking Alpha, October
The prevalence of crony relationships between public and private agents is neither new to Brazil nor singular to the country. The dissolution of this framework, even if painful in the short term, has great potential to create economic, political, and social gains in Brazil, and may provide an example for other countries around the world.
Does Brazil’s Sector Structure Explain Its Productivity Anemia? Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, June (w/ Fernanda De Negri)
Brazil’s labor and total-factor productivity (TFP) have featured anemic increases in the last decades. As we illustrate here, contrary to common view, sector structures of the Brazilian GDP and employment cannot be singled out as major determinants of productivity performance. Horizontal, cross-sector factors hampering productivity increases seem to carry more weight.
Long-term finance and BNDES tapering in Brazil Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, June (w/ Matheus Cavallari)
One major policy issue in Brazil is how to boost productivity, while following a path of fiscal consolidation that will take at least a decade to bring the public-debt-to-GDP ratio back to 2000 levels. The productivity-boosting agenda includes not only the implementation of a full range of structural reforms, but also recovering and upgrading the national infrastructure and other long-term investments. Given that fiscal consolidation has already been leading to less transfer of funds—in fact, the reversal—from the Treasury to the National Economic and Social Development Bank (BNDES) and a consequent downsizing of the latter’s operations, pursuing the double objective of raising productivity and adjusting fiscal accounts will require an expansion of alternative sources of long-term asset finance.
Brazil’s Pension Reform Proposal is Necessary and Socially Balanced Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, April
Last week the World Bank released a Staff Note analyzing the pension reform proposal sent last December by Brazil’s Federal Government to Congress. It concludes that: “… the proposed pension reform in Brazil is necessary, urgent if Brazil is to meet its spending rule, and socially balanced in that the proposal mostly eliminates subsidies received under the current rules by formal sector workers and civil servants who belong to the top 60 percent of households by income distribution.” With the help of some charts extracted from the note, we summarize here some of the reasons for such a statement.
The Brazilian debt hangover Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, January
With the help of five charts, we approach the Brazilian credit cycle, the downward phase of which helps understand why the post-crisis recovery has been so hard to obtain. In our view, the profile of such a credit cycle in effect points to it as a special chapter of our previously approached determinants of the Brazilian economic crisis.
The Brazilian productivity anemia Cornell on Emerging Markets, April 2017
Brazil has been suffering from “anemic productivity growth”. This is a major challenge because in the long run, sustained productivity increases are necessary to underpin inclusive economic growth. Without them, increases in real labor earnings tend to conflict with global competitiveness; collecting taxes in order to fund government expenditures on infrastructure and social policies becomes a heavy burden; returns to private investment becomes harder to achieve; and ultimately citizens will have less access to high-quality goods and services at affordable prices. The focus on urgent fiscal reforms adopted by the new government– public spending cap, social security reform – must be accompanied by action on the productivity front.
IV – Emerging Markets
Beyond the Ballot: Turkey’s Economy at the Crossroads Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, March 2017 (w/ Sam George)
In the current environment, Erdogan is no longer striving to prove Turkey is ready for the EU and many believe that this course has rendered Turkish accession extremely unlikely, at least in the near term. From a purely economic standpoint, a political falling out would be a shame. The European Union is the most important trading partner for Turkey, and 40 percent of Turkey’s exports are destined for European countries. Turkey has increasingly become a part of European production chains for manufacturing as well. If political ties are not deepened, these economic links may not reach their full potential. In the meantime Turkey’s economy continues to grow, and the country maintains its momentum. But as Turks prepare to take to the polls to address a political crossroads, they must not lose track of the economic crossroads bearing down on them from beyond the bend.
Colombia: getting growth, getting peace Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, March 2017 (w/ Diana Quintero)
The Santos administration has delivered on two of its main promises: sign a peace agreement with the FARC guerrilla and get approved a significant structural tax reform. We approach here why both are expected to become strong pillars to help keep the growth-cum-poverty-reduction momentum of the last decades.
Cuba Online Huffington Post, INTERFIMA, Seeking Alpha, OCP Policy Center, August 2017 (with Sam George)
Dual transitions are under way in Cuba. The island is slowly opening its economy, and a new crop of younger political leaders, potentially more open to democratic norms, waits in the wings. A third transition, the rise of digital access, is also in an early stage. But it is this third transition that arguably has the most momentum and could significantly accelerate the first two.
Otaviano Canuto 