(18 December 2002) Regional economic activity is expected to fall 0.5% in 2002. The economies most affected include Argentina, Uruguay and Venezuela, while the rest have seen gross domestic product (GDP) stagnate. For the second year in a row, per capita GDP growth in Latin America and the Caribbean was negative (-1.9%). The region has already experienced half a decade of low economic growth amidst adverse conditions in the world economy.
This critical outlook is apparent in the Preliminary Overview of the Economies of Latin America and the Caribbean, 2002, published today by the Economic Commission for Latin America and the Caribbean (ECLAC). This year, the region transferred net financial resources abroad for the first time since the end of the 1980s, the terms of trade continued to worsen and inflation rose to 12%, double that of 2001, after eight years in decline.
As a result, the living conditions of many Latin Americans worsened and poverty is estimated to have risen by seven million people. The unemployment rate rose from 8.4% of the workforce in 2001 to 9.1%, while real wages fell on average by 1.5%. Among other signs of the weak labour market, unemployment and informal employment are both on the rise.
But there is a positive note. Starting in the second quarter, the region showed signs of an incipient recovery, because a significant part of the change in GDP this year occurred due to the slowdown in growth during 2001. The fourth quarter of 2002 will post a 1.6% rise over the last quarter of 2001. In almost every country the downward slide has been stopped. Even in Argentina, this decline halted during the second quarter. ECLAC emphasizes this tendency to recover, which leads to estimates that GDP in Latin America and the Caribbean could rise 2.1% in 2003.
In 2002, worsening international financial conditions combined with domestic factors meant that Latin America and the Caribbean transferred financial resources worth about US$39 billion abroad, half of which came from Argentina. Moreover, rising risk premiums on public debt securities more than offset lower international interest rates.
The terms of trade for every Latin American economy worsened from 1998 on, except for those exporting oil (Argentina, Ecuador, Colombia, México and Venezuela). The largest losses in accumulated external relative prices in the past five years affected Peru (-21%), Chile (-19%) and Brazil (-16%). In 2002, the countries hardest hit by worsening terms of trade have been Brazil (-4%), Bolivia and Honduras (about -3%), while Peru posted a recovery of 5% after four years of losses.
According to ECLAC, the fiscal and monetary policies applied in most countries have tended to reinforce the impacts of the adverse external scenario with a clearly pro-cyclic content, and this year's events confirmed perceptions that the authorities had little room left to manoeuvre. With few exceptions, monetary policy contracted, in response to pressures on foreign exchange markets. Barbados and Chile were the only economies where fiscal and monetary approaches were explicitly expansive.
Some countries, such as Guatemala, Nicaragua and the Dominican Republic, applied structural reforms to improve public finance and boost government income. Ecuador and Brazil increased tax revenues, also thanks to reforms of this nature.
Another characteristic peculiar to 2002 was the uneven trend in real bilateral exchange rates within the region. Except for dollarized economies, the region's currencies depreciated against the dollar, clearly demonstrating that sooner or later the real exchange rate ends up lining up with the competitiveness in the real sector of economies, the report concludes. It adds that, when the exchange rate distances itself from this logic, whether to stabilize inflation or because financial stimuli are directed to other areas for some circumstantial reason, the decline in real sector competitiveness ends up forcing a policy change.
The economies most affected by economic slowdown were those of South America. Per capita GDP in Argentina will fall 12%, accumulating -22.4% in four years, while Uruguay accumulated a decline of 20% in per capita GDP over four years. In Mercosur, only Brazil will post marginal growth (0.2%) this year. The Andean Community economies have followed different trends, but Venezuela will see its per capita GDP fall by about 9%. Peru will show good economic growth as will Ecuador, but to a lesser degree. Bolivia and Colombia will post positive economic growth, but smaller than the increase in population. Chile also performed less strongly in 2002.
For Mexico, the five economies of the Central American Common Market, Haiti, Panama and the Dominican Republic, the weaker performance of the United States economy during 2001-2002 was a significant factor limiting their strength. Only Costa Rica, El Salvador and the Dominican Republic will post positive per capita GDP growth.
Significant inflation has reappeared after eight years in decline, averaging 12% compared to 6% in 2001. However, the United Nations commission warns, higher inflation is not the result of wage pressures exceeding productivity increases. The economies with the most significant devaluations (above all Argentina, Uruguay and Venezuela, and to a lesser degree, Brazil), did not experience inflationary spirals. In most cases, the nominal devaluation has affected changes in the real exchange rate and corrected relative prices more than inflation.
The summary, in Spanish, of the Preliminary Overview of the Economies of Latin America and the Caribbean 2002 is available on the ECLAC website, www.eclac.cl.
The printed edition of the report can be requested from the ECLAC distribution unit, Casilla 179-D, Santiago, Chile, in Spanish from 23 December on, and in English, in January.
For more information, please contact Manuel Marfán or Alfredo Calcagno, of the Economic Development Division, Tel: (56-2) 210- 2246 or 210 2661, e-mails: mmarfan eclac.cl and acalcagnoeclac.cl. |
