Wednesday, November 5, 2014

Chile is not an oil producing country, but has a story of success and failure to tell

In the last decades there are several factors which led to a decrease in gas and oil production in Chile. Certainly, the depletion of conventional resources in the Estrecho de Magallanes, which historically has been the place where oil and gas activity have taken place in the country, initially onshore and subsequently offshore, is one.

The petroleum activity in the southern region dates back to 1945 with the discovery of the first deposit. In 1950, the National Petroleum Company (ENAP) was created with the aim of engaging in exploration and production of oil. In Chile, both the underground gas and petroleum belong to the State, and ENAP has the right to engage in exploration and production activities of both oil and gas.
The peak in oil production occurred in 1982 with 55,000 barrels per day (b/d) of crude oil, what drop to 18,000 b/d in 2012. For natural gas, this peak was in 1973 with 22 million cubic meters (considering the reinjection), and fell to 3.75 million cubic meters per day by 2010.
In the early 1970s, when onshore production starts to decline, ENAP launch and offshore oil exploration and production project in the Estrecho de Magallanes. This program helps to revert the downturn in oil production, and in 1982 the country reached its peak in oil production. However, since then, ENAP resources to invest in exploration and production activities were dwindling. It did not invest in new technology or exploration wells, with 120 wells drilled in 1982, between 2000 and 2005 ENAP drilled only five wells. And thus, domestic oil and natural gas production was mainly determined by the existent wells rate of decline. At that time, was the belief that the area of Magallanes is an area already depleted. With this idea ENAP start looking for alternative oil sources to secure the country´s supply.
ENAP was gradually losing relevance in the domestic oil supply, with declining levels of production, rising domestic demand, and an oversize cost structure not adjusted to the levels of production. Thus, adding the inefficiencies of a poorly managed company, it confronted increasing levels of debt and decreasing resources to invest in exploration and production. The way foresaw to revert the declining domestic production was to internationalize the company, launching an investment program in oil exploration and production abroad. This program was leaded by SIPETROL, a new subsidiary of ENAP, as the vehicle to engaged in oil exploration and production in Argentina, Ecuador and Egypt. Also, gradually the State of Chile opens the sector to private investment.
The private companies that want to participate in oil and gas exploration and production, are allowed to do it in a consortium with ENAP, alone or with other companies, where a concession known as Special Contracts for Exploration and Exploitation of Hydrocarbons (CEOP) was needed from the government. The CEOPs establish a set of conditions for investments in exploration, production and infrastructure, for operation, in the number of wells to be drilled and the participation of the private company, the participation of ENAP and the State in the recovered oil and gas, and a time period to carry the required program. The first CEOPs were given in 1977, attracting new investment in oil and gas exploration and production. However, they were not enough to turn around the downward trend in exploration and production. Next, by the end of the 2000 decade and early 2010 new CEOPs have been granted, and in 2010 the region starts to notice a slight improvement in the proven oil and gas reserves and production. Nevertheless, well below the reserves and production of the beginning of the decade. Further, for a long period has existed a plan to open new offshore and onshore areas for CEOPs, with an offshore area that goes from the coast of Valparaiso to Chiloe, more than 1300 miles long if you take a straight line.

To succeed Chile in turning around the decline in oil and gas production, it must be bolder in improving the business environment, the contract framework, and in opening new areas for oil and gas exploration and production to attract more investment and new technologies. The risks of the oil industry are diverse and extensive. And usually, in the developing world, more than the geological risk, the greatest risks are over the ground, on issues related with the regulatory framework, rule of law, enforcing contracts, proper prices which take into account the costs and risks of the activity.

Another important aspect, which mainly affects the incentives to attract private investment to the Magallanes Region, is the generalized subsidies that exist for natural gas consumption. The natural gas household prices in the region are US$ 1.3 per million of BTU, plus the value added from the distribution cost, and this is below the production costs of new wells.

The region is home to approximately 160,000 people, and most of them live in the regional capital, the city of Punta Arenas. In 2013 residential natural gas consumption in the region reached 184 million cubic meters. However, the national capital, the city of Santiago, with a population of 7 million, in 2013 reached residential natural gas consumption of 248 million cubic meters. Thus, the Magallanes Region, with a population that is 2.3% of the population of Santiago, has a level of natural gas consumption equal to 74.2% of what is consumed in the national capital. It can be claimed that Santiago has a much warmer weather than Punta Arenas. Yes, that is true! But, what if we compare the per capita level of natural gas consumption in Magallanes, with that, for example, of Minnesota, USA? No one can claim that Minneapolis has warmer winters Punta Arenas. In Minnesota the per capita consumption of natural gas for residential customers is about 666 cubic meters, while in Magallanes this figure reaches 1150 cubic meters. By both comparisons, the level of natural consumption in Magallanes is very high!

The heavily subsidized natural gas price, which makes no difference in the poverty status of the beneficiaries, has encouraged an increasing use of natural gas, and has led the current administration to ask the Chilean Congress, in the 2015 Finance Act, to allocate US $ 92.5 million to subsidize the natural gas price in the region for the year 2015. This translates into a subsidy of $ 578 per person per year. As reference, in 2012 the Government of Chile spent on grants and bonds to reduce poverty US $ 517 million, of which US $ 156.6 million were used to ensure what has been called the ethical family income that is aimed at the poorest families. A total of 220,795 families were benefitted by this grant, receiving US $ 709 per household or US $ 177 per person (assuming a family of four). This huge distortion encourages consumption but create a negative incentive to attract new private investments in the sector. Instead of this generalized subsidy, the authorities should lock for a more focused subsidy that tackles the poor. This is a highly politicize issue in the region, where exist the belief that this gas is for their own and domestic consumption.

Given the uncertainties and prospects for oil and natural gas exploration and production in the region, METHANEX, a methanol producer and the main natural gas consumer in the region, have confirmed that it withdraw gas exploration in Magallanes and that it has dismantled two of the four production trains it has in the region. METHANEX was an important factor to enable large investment in exploration and production of natural gas for the region, but given the uncertainties surrounding property rights to dispose freely of the produced natural gas, at a reasonable price, and because of the better prospects for this activity in other regions of the world, the role of METHANEX as an investment enabler has been seriously diminished. Having adequate prices in the foreseeable future that cover the costs and risks of the sector is crucial and essential to attract new investments, but this is something that is not happening in Magallanes.

Tuesday, November 4, 2014

Latin America Energy Challenges: Main Drivers and Features*

Population and economic growth 

The current global population stands at 7 billion people and, according to the United Nations, it is projected to reach 9 billion by 2030. Also, in the last two decades, the world has witnessed an important reduction in the level of poverty, with the percentage of the population living with less than 1.25 dollar PPP per day going down from 43.1 per cent in 1990 to 20.6 per cent in 2010. Today, 623 million people (less than 10 percent of the world population) live in the Latin American and Caribbean Region (LAC), and this number is expected to increase by another 100 million by 2030.

Also, between 2000 and 2010 LAC witnessed a sharp reduction in the poverty level from 45 to 30 per cent, and the middle class in the region grew from 20 to 28 per cent. However, 34 million people still lack access to electricity and 85 million people have no access to modern cooking facilities.

Energy consumption 

Improvements in living conditions and the rise in population have put significant pressure on energy demand. Since the industrial revolution, energy consumption has increased by more than 20 times, with a rise in the use of fossil fuels and, more recently, of other energy sources (e.g., renewable energies).

By the end of 2012, 87 per cent of the world’s primary energy source was fossil fuels, of which 33 per cent was oil, 30 coal and 24 per cent natural gas; renewable energy sources accounted for 9 per cent, of which 7 per cent was generated by large hydropower plants and 2 per cent by small hydropower plants, wind, solar, geothermal and biofuels, while the remaining was nuclear power. In the last two centuries, the increase in energy consumption took place mostly in those countries that today are the developed ones, mainly OECD countries.

At the end of the 20th century, they accounted for 55 per cent of the world energy consumption, 19 per cent of the world population, and 60 per cent of the global GDP. But in the last two decades, this pattern has been shifting, and rapidly. According to the Energy Information Administration (EIA), energy consumption is expected to grow 20 per cent by 2020, 39 per cent by 2030, and 56 per cent by 2040. Also, non-OECD countries, where energy consumption has grown more than 65 per cent since 2000 and is expected to continue growing at a fast pace, will account for most of the global energy consumption.

In the LAC region, per capita electricity consumption is less than 1/2 the average consumption of EU member countries, 1/3 of OECD countries, and 1/5 of the U.S., which highlights the room that exists in the region for additional increases in energy consumption as economic growth continues.

Primary energy consumption in the region is expected to grow by 50 per cent in 2030 and electricity demand by more than 80 per cent. To cope with this growing demand, for example, an average of 20 GW of new generation capacity per year will be needed until 2030. The LAC region has enough resources to meet its own energy needs as well as to cater for other regions’. However, this will require sizeable investments to unlock the region’s full potential.

Regional energy resources 

The LAC region holds 21 per cent of the world proven oil reserves with Venezuela accounting for 18.2 per cent of world oil reserves and being the country with the largest oil reserves in the world. Brazil has the second-largest proven oil reserves in Latin America (0.80 per cent of world reserves), followed by Mexico (0.63 per cent of world reserves). In 2012, Brazil and Mexico ranked fifteenth and eighteenth among the countries with the largest oil reserves. Both countries have the greatest prospects for a substantial increase in oil production. Ecuador, Argentina, Colombia and Peru have smaller resources, totaling 0.85 per cent of the world oil reserves.

As for other fossil fuels, the LAC region represents much smaller percentages of world proved reserves (4 per cent of global natural gas reserves and 1.6 per cent of global coal reserves). Venezuela also holds the largest natural gas reserves in the region (68 per cent of regional reserves), followed by Mexico (6 per cent), Brazil (4.9 per cent), Trinidad and Tobago (4.6 per cent), Peru (4.4 per cent), Argentina (4.1 per cent), and Bolivia (3.5 per cent). The discoveries of large pre-salt oil deposits in the offshore Campos and Santos basins could transform Brazil into one of the largest oil producers in the world. The relevance of these discoveries was emphasized by both former President Luiz Inácio Lula da Silva - who described them as “a second independence for Brazil” - and current President Dilma Rousseff - who referred to them as “our passport to the future”.

According to the International Energy Agency (IEA), the country has recoverable resources of 106 billion barrels, of which only 14 per cent are proven reserves. IEA foresees Brazil joining the ranks of the ten largest global oil producers by 2015 and becoming the sixth largest oil producer in 2035, when oil production is projected to increase to 6 million barrels per day from 2.15 million barrels per day in 2012. More than half of Brazil’s production is expected to be exported.

In Mexico, the recent constitutional amendment to open the energy sector to private participation, after 75 years of monopoly control of the country’s oil and gas reserves by state-owned Petróleos Mexicanos (Pemex), offers renewed prospects for the industry. As Mexican President Peña Nieto stated, “this profound reform can lift the standards of living for all Mexicans”. By the end of 2012, Pemex registered 13.8 billion barrels of proven oil reserves, a figure that goes up to 43.8 billion barrels if probable and possible reserves are factored in.

The approval of the constitutional amendment and the subsequent publication of the secondary laws, pending for approval, will enable foreign investors to partner with Pemex. It is expected that Pemex will aim to retain shallow-water production and look for partners to enhance oil recovery and deepwater projects. Apart from conventional oil and gas reserves, the region has important shale oil and gas resources. The EIA estimates that 21.7 per cent of global shale oil reserves are in the LAC region (i.e., 73 billion out of 335 billion barrels).Argentina holds 8 per cent of these reserves, while Venezuela and Mexico account for 3.9 per cent each.

Also, EIA estimates the global shale gas reserves at more than 220 Tcm, 25 per cent of which is in the LAC region. Argentina has 22,7 Tcm (10.3 per cent), followed by Mexico with 15.4 Tcm (7 per cent) and Brazil with 6.9 Tcm (3 per cent). LAC is the region with the largest share of renewable energy sources as percentage of its primary energy matrix (30 per cent compared to 13 per cent of world average), with a large potential for renewable sources such as hydro power, wind, solar, geothermal, biofuels and biomass.

The percentage of renewable is even larger in power generation, reaching almost 55 per cent, where 49 per cent are large hydro, and above the world average percentage of renewable in power generation that reaches 11 per cent. Only 1/3 of the LAC region’s hydropower generation potential has been developed (in 2012, hydropower generated 72 per cent of the electricity supply in Brazil, 75 per cent in Colombia, and almost 100 per cent in Paraguay). Brazil is the second world producer of ethanol and biodiesel for road transportation (23 per cent of world production), behind the United States (54 per cent). In Brazil, biofuels represents almost 20 per cent of all fuels used in the transport sector. Renewable energy sources are projected to play an increasing role in the region’s energy matrix.

Nuclear power represents a small percentage of LAC power generation capacity (only 1.4 per cent), with nuclear power plants in Argentina, Brazil and Mexico. New developments in other countries in the region came to a halt after the Fukushima disaster.

Main challenges 

Among the main challenges the region faces to cope with a growing energy demand are:

  • global warming;
  • higher social and environmental standards demanded by civil society;
  • depletion of natural resources and technological advances;
  • geopolitical issues and lack of regional integration;
  • lack of a common business model and access to financial markets;
  • energy subsidies. 

Global warming and greenhouse gases (GHG) are one of the biggest concerns for the development of the energy sector. The sector is the source of two thirds of global GHG emissions, and for fossil fuels this defines a more restrictive environment. According to the IEA World Energy Outlook 2013, CO2 emissions are expected to rise by 20 per cent to 37.2 Gt in 2035, while oil use will continue trending upward. Between 2000 and 2012, CO2 emissions associated with fossil fuels consumption increased 36 per cent, mainly caused by increased coal consumption in China. In fact, China has become the largest emitter of GHG, accounting for 26.7 per cent of global CO2 emissions in 2012, and responsible for 66 per cent of total increase in CO2emissions between 2000 and 2012. Although non-OECD countries are projected to account for an increasing share of CO2emissions, they are expected to represent only half of OECD per capita levels in 2035.

LAC’s energy sector is responsible for only 6 per cent of GHG annual emissions, a figure that goes up to 13 per cent if deforestation and agriculture are taken into account. The widespread use of clean energy produced by hydroelectric plants explains the relatively low level of emissions. Nonetheless, according to the World Bank (Low Carbon, High Growth: Latin American Responses to Climate Change) this may change over the next 25 years as the transport and manufacturing sectors grow.

If current regional trends for energy consumption continue, CO2 emissions can increase by an estimated 33 per cent per capita (above the global average of 24 per cent) by 2030. Aware of this risk, the countries have been implementing measures to curb CO2 emissions (e.g., stricter environmental standards, higher percentages of renewable sources in the energy matrix, creation of favorable conditions for the development of renewable sources), and this trend is expected to continue.

A second challenge for the energy sector is higher social and environmental standards demanded by the civil society. Today, social networks play a key role in empowering and connecting people. This has had an impact on the development and implementation of energy projects. A more active dialogue with the local communities is required in the preliminary stages of project development to better understand the impact of projects on the community and determine appropriate mitigation measures. Plans to build hydropower plants in Brazil and Chile, for example, have faced delays due to concerns raised by indigenous people and local communities.

A third challenge for the energy sector is the depletion of natural resources and new technological developments, which will continue to reshape the energy industry. In the last decades, depletion of natural resources, such as conventional oil fields, and the search for greater energy security and alternative and cleaner energy sources, have led to the development of new exploration and extraction technologies, as well as the development of renewable sources such as solar, wind, geothermal, and biofuels, among others.

LAC was not impervious to this trend. Brazil has become the world leader in deepwater oil production, with promising prospects with the discoveries of large pre-salt oil deposits in the offshore of the Campos and Santos basin. But the biggest most recent technological developments have led to the shale oil and gas revolution in the U.S. How fast these technological developments can reshape the energy industry will depend on the speed at which they unlock energy resources in the LAC and other regions of the world. Today, 40 per cent of the U.S. gas production comes from shale gas. Innovation and technological advances are game changers, and LAC faces the challenge of taking advantage of new innovations or running the risk of lagging behind.

A fourth challenge for LAC is the low level of energy integration that exists within the region. This is a serious drawback that prevents the region from taking advantage of the huge complementarities in the sector. The region has vast fossil and renewable energy resources to meet its energy needs as well as cater for the ever-increasing global energy demands.

Energy resources are unevenly distributed among the countries, and the region lacks the institutional and physical infrastructure needed to facilitate energy trade across borders. One of the key hurdles to overcome is the historical distrust that has prevented the countries from building the institutional framework that is a prerequisite to mobilize investments in exploration, production and transportation. Moving ahead with wider regional energy integration will bring huge dividends in terms of wealth creation, regional competitiveness, as well as fiscal balances.

A fifth challenge for the region is attracting foreign investments for large-scale projects with long-term implementation and repayment periods. The region has a wide array of business models, with the private sector being the main player in some countries (e.g., Chile), while in others the industry is controlled by large state-owned enterprises.

The investments needed to develop the sector in the region are vast (i.e., at least US dollars 50 billion for the 20 GW of additional generation capacity per year needed until 2030; US dollars 50 billion annually for the next five years required to develop the pre-salt oil resources in Brazil; US dollars 40 billion needed per year for the revival of Mexico’s oil industry). There is no single government in the region capable of financing these investments, and it is necessary to mobilize resources from the private sector to fill the sizable gap. Creating an enabling business environment is crucial to attract the level of investment necessary to develop the sector to its fullest potential.

A sixth challenge for the region is the widespread use of energy subsidies. Fossil-fuel subsidies are widespread worldwide, and LAC is no exemption. Subsidies cost the government US dollars 27 billion in Venezuela, US dollars 16 billion in Mexico, US dollars 10 billion in Argentina, and US dollars 6 billion in Ecuador. Venezuela also provides subsidized oil to Central America and the Caribbean countries, allowing them to repay 40 to 60 per cent of their imports over 25 years at low interest rates. As a result, the external debt of some of these countries accounts for as much as 50 per cent of their GDP. Energy subsidies distort energy prices, have adverse effects on investment incentives, and put huge pressure on fiscal sustainability. However, removing energy subsidies is a very sensitive issue for regional governments. While a sudden removal could severely impact the economy and create political and social unrest, a phased approach to gradually adjust energy prices while offering targeted support to vulnerable groups could help cushion the impact of the move.

There needs to be a push on innovation and productivity improvements in all parts of the economy to counter some of the increase in the fuel price on general prices. Governments could also embark on policies to encourage more efficient behavior on the part of consumers. Withdrawing subsidies for consumer heavy sectors while retaining them in other industrial sectors could help soften the initial blow of rising costs.

The role for multilateral development agencies

It is clear that despite all its potential, the region is confronted with major challenges and attractive opportunities to further develop its energy sector and turn it into a source of wealth, new jobs, and better living standards for the society as a whole. Multilateral development agencies, like the World Bank Group or the Inter-American Development Bank, are well positioned and have extensive knowledge and expertise to help the region handle the development and implementation of regional projects and overcome the aforementioned challenges and by improving institutional frameworks, creating an enabling business environment, building and enhancing institutional capacity, increasing access to financial markets, phasing out energy subsidies, improving fiscal sustainability, and catalyzing the foreign investment needed to develop the industry.

Monday, November 3, 2014

Run, run that I catch you: The Chilean economic lethargy

In 2008, in a speech to businessmen in Latin America, the Caribbean and the European Union, the President of Peru Alan Garcia said bluntly that "We admire and appreciate Chile, for their experience, their democratic consensus, for its growth, the only thing we say is that we want to win them, we want to be better ... " These words of President Garcia rocked the national pride and led Peru to become one of the most dynamic and fastest growing economies in the region. Peruvian authorities have taken advantage of the time, and in recent years have implemented major reforms that have boosted the economy of Peru to be an important focus for international investors. Opening with it great business opportunities for the country.

The reforms and the best business climate that has occurred in Peru have also occurred in other countries in the region, particularly in Colombia, who beat Argentina and become the third largest economy in Latin America, Mexico and Panama. And so, as the advantage that once had Chile, has faded, and the country now has to compete with others to be the best place to do business in Latin America. This was the main message delivered to us by the latest Doing Business 2015 report, where Chile reached the number 41 position, dropping from 34 ** position that it had in the previous report, Doing Business 2014. Until Doing Business 2014 Chile leaded the ranking in Latin America and the Caribbean, being followed by Peru (42), Colombia (43) and Mexico (53). But today Chile has been relegated to fourth place ranking among the countries of Latin America and the Caribbean. Colombia has taken the lead standing at position 34, followed by Peru (35) and Mexico (39). This is a good news for the region, and realizes that there are several countries that have endeavored to improve the business environment. But, beyond that which is good news for the region also accounts of a less every day brilliant performance that it's showing the Chilean economy since the return to democracy in 1990. With the exception of President Sebastian Piñera (2010- 2014), in all governments that succeeded the government of President Patricio Aylwin (1990-1994), the average economic growth rate has been lower every time.
Growth rate of the economy for political cycle (%)

Chile in the 1980s and 1990s, and the rest of Latin America in the past decade and this, had a period where structural reforms eliminate inefficiencies and distortions that had a simpler solution in terms of their architectural design, which allow for a much easier growth than today. These reforms, which were groundbreaking and very important, had a major impact on economic growth. However, since having corrected the problems of macroeconomic design and sectors macro design, the road is more complex to continue with high growth rates. The second generation reforms are less obvious and more complex since they aim to find a suitable fine tuning in the regulatory framework, institutional design, and to correct those market distortions that arise as countries develop. Being complex and point to the fine tuning of the model, is that the authorities should be extremely cautious in their proposals, and usually refoundational aspirations to change everything instead of understanding where defects are to be corrected, end in resounding failure. For Chile messianic visions to reestablish all are not new, and its consequences have been disastrous. Just looking at the recent past, we have the example of the Transantiago, a Michell Bachelet 2006 reform to restructure the public transportation system that ended as one of the biggest public policy disasters. The big challenge for Chile globally is how the country is more competitive, how its products have higher value added and are delivered in a more efficient way than other countries. The quest is to be more innovative, to improve the efficiency and competitiveness of the country, and is in these second generation reforms that the country has lagged behind. But with good reforms, it is also important to ensure the political and business environment, where entrepreneurs and investors do not feel in a way that their business, legitimate and essential for the development of the country, is subject to a permanent questioning and discrediting by different political and social players. It was thanks to the current model of development that Chile was able to access as a full member of the OECD.
José María Aznar on his recent visit to Chile has noted: “Investing in Chile is still safe, but before there was no doubt that now there are.” Aznar's opinion is not isolated, the Financial Times newspaper in an article on Latin America: The party is ending for Latina America, says "... Chile, often taken as a model sober economic management. But in just a year, the growth of its copper-dominated economy has slowed from almost 5 percent from a year ago to as little as 1.5 percent in the third quarter. Santiago´s political atmosphere has turned poisonous and Michelle Bachelet has seen her ratings slide after last year´s landslide electoral win. Which is complemented by another in the same medium by mid-October: Chile faces tougher sell to investors as growth stalls, noting "Chile perfectly captures the catchphrase from last week’s World Bank/International Monetary Fund meetings: the “new mediocre”. Seven months into the new administration of socialist president Michelle Bachelet, growth has stalled in Chile and inflation is pressing upward."
Although Chile is the country with the highest per capita income in the region, and leading in many indicators of social and economic development, is a small country, and its development opportunities are determined by how efficient is with respect to the global economy and what make the country attractive for foreign investment.
The tax reform that, among other things, increases corporate taxes from 20% to 25%, is expected to increase tax revenues by three percentage points of GDP in 2018, to finance an educational reform that gives no guarantee that the quality of education will improve. An article published this week in the Wall Street Journal: The Chile miracles "goes" in reverse, realizes the enormous risks involved in the educational reform promoted by the Government. While the major reforms of the present administration has not jettisoned the development model that allowed Chile to be a reference, they set doubts about their real benefits and the risks that they meant for economic growth.
Government revenues are approximately 20.8% of GDP, and the goal is to reach a figure close to 23.8% of GDP. If the impact of tax reform is to punish the growth rate by 2 percentage points (in 2013 the economy grew by about 4.5% and this year 2014 the figure would not exceed 2%), then the additional tax revenues that you would get in the short term, when the reform is implemented, does not compensate for the loss of economic growth and greater resources that by this way the Treasury would get. Thus, if the cost of the reform is of lower growth, the reform will make all poorer, the Treasury would get more as a percentage of GDP but a smaller amount of revenues; not only would the resources received by the Treasury may well be smaller but resources remain in the hands of other citizens and the economy will too. If the cost of the tax reform has been sacrificing growth, then the country has made a very bad deal.
OECD Corporate Tax Rate (%), May 2014
Since the return to democracy in 1990, with the exception of the period of President Sebastian Piñera (March 2010 - March 2014), the country's economic performance, as measured by its growth rate has a decreasing trend. Chile needs good reforms in the energy sector, education, health, pensions, and many others, and certainly the reforms that current administration has been pushing produce many doubts as noted José María Aznar.
With the recent Doing Business report Alan Garcia has much to celebrate, and this has been a great merit of the people and the governments of Peru, but also a large share of the responsibility of governments in Chile has been in a lethargy and for not delivering the good second generation reforms that the country needs to give a strong impetus to economic growth.
** 39th place if to the Doing Business 2014 data is applied the new methodology.

Sunday, November 2, 2014

Corre corre que te pillo: El letargo económico chileno

El año 2008, en un discurso ante empresarios de América Latina, el Caribe y la Unión Europea, el presidente de Perú Alán Garcia, expresó sin tapujos que: "Admiramos y apreciamos a Chile, por su experiencia, por su concertación democrática, por su crecimiento, lo único que decimos es que queremos ganarle, queremos ser mejores..." Estas palabras del presidente Garcia sacudieron el orgullo patrio y han llevado a Perú a ser una de las economías más dinámicas y con mayor crecimiento en la región. Las autoridades peruanas han sabido aprovechar el tiempo, y en los últimos años han implementado reformas muy importantes que han impulsado la economía del Perú a ser un importante foco de atención para los inversionistas internacionales. Abriendo con ello grandes oportunidades de negocio para el país.

Las reformas y el mejor clima de negocios que se ha dado en Perú también se han dado en otros países de la región, particularmente en Colombia, que superó a Argentina y es la tercera economía más grande de América Latina, en México y Panamá. Y es así, como la ventaja que otrora tuvo Chile, se ha ido desvaneciendo, y hoy el país debe competir con otros por ser el mejor lugar para hacer negocios en América Latina. Este ha sido el principal mensaje que nos entregó el último informe de Doing Business 2015, donde Chile alcanzó la posición número 41, cayendo desde la posición 34** que tuvo en el informe anterior, Doing Business 2014. Hasta el Doing Business de 2014, Chile lideraba el ranking dentro de los países de América Latina y el Caribe, siendo seguido por Perú (42), Colombia (43) y México (53). Pero hoy Chile ha quedado relegado al cuarto lugar del ranking entre los países de América Latina y el Caribe. Colombia ha tomado la delantera ubicándose en la posición 34, seguida por Perú (35) y México (39). Esta es una buena noticia para la región, y da cuenta de que varios son los países que se han esmerado mejorar el ambiente de negocios. Pero, más allá de lo buena que es la noticia para la región, también da cuenta del desempeño cada día menos brillante que ha mostrando la economía Chilena desde el regreso a la democracia en 1990. Con excepción del gobierno del Presidente Sebastián Piñera (2010-2014), en todos los gobiernos que sucedieron al gobierno del Presidente Patricio Aylwin (1990-1994), la tasa promedio de crecimiento económico cada vez ha sido menor.
Tasa de crecimiento de la economía por ciclo político (%)

En los años 1980 y 1990 Chile, como el resto de América Latina en la década pasada y ésta, tuvo un periodo donde las reformas estructurales lograron eliminar ineficiencias y distorsiones que tenían una solución más simple en términos de su diseño arquitectónico, y que permitieron un crecimiento mucho más fácil que al que se puede aspirar hoy en día. Estas reformas, que eran innovadoras y muy importantes, tuvieron un gran impacto en el crecimiento económico. Sin embargo, después de haber corregido los problemas de diseño macroeconómicos y de diseño macro de los sectores, el camino se hace más complejo para continuar con altas tasas de crecimiento. Las reformas de segunda generación son menos obvias y más complejas, ya que su objetivo es encontrar una puesta a punto adecuada del marco regulatorio, del diseño institucional, y de corregir las distorsiones del mercado que se presentan cuando los países se desarrollan. Al ser más complejo apuntar a la sintonía fina del modelo, es que las autoridades deben ser extremadamente cautelosas en sus propuestas, y por lo general las aspiraciones refundacionales cambiar todo en lugar de entender donde están los defectos que deben ser corregidos, terminan en fracaso rotundo. Para Chile las visiones mesiánicas de querer refundar todo no son nuevas, y sus consecuencias han sido nefastas. Sólo mirando en el pasado reciente, tenemos el ejemplo del desastre del Transantiago. El gran desafío para Chile a nivel mundial es cómo hacer al país más competitivo, cómo sus productos tienen mayor valor agregado y son entregados de una manera más eficiente que lo que lo hacen otros países. La misión es ser más innovadores, mejorar la eficiencia y la competitividad del país, y ha sido en estas reformas de segunda generación que el país se ha quedado atrás. Pero con buenas reformas, también es importante garantizar el entorno político y de negocios, donde los empresarios y los inversionistas no deben sentir su negocio, legítimo y esencial para el desarrollo del país, está sujeto a un cuestionamiento y descrédito permanente por diferentes actores políticos y sociales. Ha sido gracias al actual modelo de desarrollo que Chile pudo acceder a ser miembro pleno de la OCDE.

José María Aznar en su reciente visita a Chile ha señalado que: "Invertir en Chile sigue siendo seguro, pero antes no había dudas que ahora hay". La opinión de Aznar no está aislada, el Diario Financial Times en un artículo sobre América Latina: La fiesta se está acabando para América Latina (The party is ending for Latina America), señala "...Chile, frecuentemente considerado como un modelo de gestión económica sobria. Pero en tan sólo un año, el crecimiento de su economía, dominada por el cobre, se ha reducido de casi el 5% por ciento de un año atrás a algo tan bajo como 1,5% por ciento en el tercer trimestre. El ambiente político de Santiago se ha vuelto tóxico y Michelle Bachelet ha visto la caída de su popularidad después de una aplastante victoria electoral el año pasado", artículo que es complementado por otro en el mismo medio a mediados de octubre: Chile enfrenta una venta más difícil a los inversionistas cuando el crecimiento se frena (Chile faces tougher sell to investors as growth stalls), y señala "Chile captura a la perfección el eslogan de las reuniones del Fondo Monetario Internacional y del Banco Mundial de la semana pasada: la "nueva mediocridad". Después de siete meses de la nueva administración de la presidenta socialista Michelle Bachelet, el crecimiento se ha estancado en Chile y la inflación está presionando al alza."

Si bien Chile es el país de mayor ingreso por habitante en la región, y el que lidera en términos de otros indicadores de desarrollo social y económicos, es un país pequeño, y sus únicas posibilidades de desarrollo están determinadas por lo eficientes que se logre ser respecto de la economía global y de lo atractivo que el país sea para la inversión extranjera.

La reforma tributaria que, entre otros, incrementa los impuestos a las empresas de 20% a 25%, se espera que aumente la recaudación fiscal en tres puntos porcentuales del PIB, con el objetivo de financiar la reforma educacional, que en nada garantiza que la calidad de la educación vaya a mejorar. Un artículo publicado esta semana en el Wall Street Journal: El milagro de Chile va en reversa (The Chile miracles "goes" in reverse) , da cuenta de los enormes riesgos que presenta la reforma educacional impulsada por el Gobierno. Si bien las principales reformas de la actual administración no han tirado por la borda el modelo de desarrollo que le permitió a Chile ser un referente, si ponen dudas respecto de sus beneficios y el riesgo que significan para el crecimiento económico del país.

Los ingresos fiscales son aproximadamente un 20,8% del PIB, y el objetivo de la reforma es incrementar esa recaudación en 3 puntos porcentuales adicionales el 2018, para llegar a una cifra cercana a 23,8% del PIB. Si el impacto de la reforma tributaria es castigar la tasa de crecimiento en 2 puntos porcentuales (el 2013 la economía creció cerca de 4,5% y para este año 2014 la cifra no superaría el 2%), entonces la mayor recaudación que se obtendría en el corto plazo, cuando la reforma esté implementada, no compensa la pérdida de crecimiento económico y los mayores recursos que obtendría el Fisco por esta otra vía. Con la economía creciendo a tasas de 4,5%, sólo por el efecto del mayor crecimiento, y en una ventana de cuatro años, la economía entregaría al Fisco ese 3% de recursos adicionales que se obtienen con la implementación de la reforma tributaria pero con un elevado riesgo de frenar el crecimiento del país. Además, con un mayor crecimiento manteniendo los ingresos fiscales en 20,8% del PIB, después de cinco años los ingresos fiscales en términos absolutos superarían con creces los que se obtendrían con la reforma tributaria que busca en el corto plazo elevar los ingresos de aproximadamente 20,8% a 23,8%. Por lo tanto, si el costo de la reforma es un menor crecimiento, la reforma nos va a hacer a todos más pobres, el Fisco obtendría un porcentaje mayor pero de un PIB más chico, y no sólo serían menores los recursos que recibe el Fisco sino también los recursos que quedan en las manos del resto de la ciudadanía y economía. Si el costo de la reforma tributaria ha sido sacrificar el crecimiento, entonces el país ha hecho un muy mal negocio.
Tasa de Impuesto Corporativo OECD (%), Mayo 2014
Desde el regreso a la democracia en 1990, y con excepción del período del gobierno  del Presidente Sebastián Piñera (marzo 2010 - marzo 2014), el desempeño económico del país, medido por su tasa de crecimiento promedio, ha sido cada vez menor. Chile necesita de buenas reformas, en el sector energético, educación, salud, pensiones, y muchas otras, y ciertamente las reformas que ha estado impulsando la actual administración generan muchas dudas tal como lo ha señalado José María Aznar.

Con el reciente informe de Doing Business, Alan Garcia tiene mucho que celebrar, y en ello ha existido una gran merito del pueblo y los gobiernos del Perú, pero también una gran cuota de responsabilidad de los gobiernos en Chile que han estado en un letargo y no han llevado adelante las buenas reformas de segunda generación que el país necesita para dar un fuerte impulso al crecimiento económico.

** Lugar número 39 si a los datos del Doing Business 2014 se les aplica la nueva metodología.

The Doing Business 2015

This week the World Bank presented the Doing Business 2015 Report. This is the most well known report of the World Bank Group, the one that brings the highest attention from the media, business sector, and the governments. The Doing Business generates mixed fillings within many government authorities around the world. Some countries are strong supporters while others dislike the ranking itself, complaining that it does not provides a fair assessment of business environment and their attractiveness for investors. Beyond the criticism which mostly comes from those countries that are lagging behind in the rankings and on truth reforms to improve the business environment, Doing Business has been a remarkable success tool by which the World Bank Group has persuaded countries to improve the business environment promoting best practices and the proper regulatory reforms.
The Doing Business 2015 is the 12th in a series of annual reports investigating the regulations and the protection of property rights that can be compared across 189 economies, in11 areas of a life of a business:
  1. staring a business
  2. dealing with construction permits
  3. getting electricity
  4. registering property
  5. getting credit
  6. protecting minority investors
  7. paying taxes
  8. trading across borders
  9. enforcing contracts
  10. resolving insolvency
  11. labor market regulations (that was not included in the 2015 ranking)
Doing Business 2015 come with many improvements. First the launch of a new methodology agreed after two years of work within the World Bank Group and with other external and advisory groups. This new methodology implies an enhancement respect to the previous one, and makes this excellent document an even better one. In particular, the new ranking uses the concept of the distance of each country in each aspect to the frontier of the best practices in assessing each economies within the ranking.
With an accumulated data set for more than 12 years, Doing Business allows time series comparison on how the business environment has improved or worsen across the 189 economies considered, and what sees remarkable is that in general the economies worldwide have been improving their business environments, and better practices within the different indicators have been spread across the different economies. The gap between the best and the worst performers is narrowing, where the worst performers are catching up with the best performers that continue improving their business environments. For example, the difference of the time needed to start a business within the worst and the best performing economies was more than 90 days in 2005, and today this distance has contracted to about 25 days; and a similar pattern can be observed in the other variables measured by the Doing Business report. There is no doubt that this World Bank tool has had an important and positive impact on governments and business regulations around the world. Everyone wants to appear among the best performers.
The regions where improvements have been the most and faster are Europe and Central Asia, while the worst is South Asia. And in the case of the Latin American and Caribbean region, it is lagging behind even dough is a region where exist a lot of low hanging fruit to catch-up. Today in a more integrated and connected world, where market economies have gain ground worldwide, the competition to attract foreign investment is fierce, and the countries that doesn't improve their business environment, making them much more friendlier with respect to the rest, will have to pay a much higher price if they want to convince foreign investors to bring those scarce investments resources into their economies.
The invitation to improve the regulations and property rights which affect the business environment with well crafted policies is there, already done by the Doing Business report, and the countries that does not take it seriously will hinder economic growth losing ground to improve the living conditions of their citizens.