Economic Survey of Latin America and the Caribbean

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Frequency
Annual
ISSN: 
1681-0384 (online)
http://dx.doi.org/10.18356/851d5c63-en
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The Economic Survey of Latin America and the Caribbean is issued annually by the Economic Development Division of the Economic Commission for Latin America and the Caribbean (ECLAC). It covers the economic situation in Latin America and the Caribbean and provides a concurrent economic overview of the region, as provided by the Division and other experts based on statistical indicators which are collected annually.
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Economic Survey of Latin America and the Caribbean 1994-1995

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Author(s):
ECLAC
31 Dec 1995
Pages:
339
ISBN:
9789210583008 (PDF)
http://dx.doi.org/10.18356/78f1d816-en

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Issued in two volumes - volume I gives insight into the economic trends, the international economy and the role of exchange rate policy in Latin America and the Caribbean. Volume II explores the economic developments by country. Complimentary statistical tables are included.

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    • Foreword

      This issue of the Economic Survey of Latin America and the Caribbean differs in some important respects from previous years. In addition to a detailed analysis of the trends in the region's economies in 1994, it also covers economic developments in the early months of 1995. The aim was to provide continuity by following economic events up to the moment of writing in so far as information was available.

    • Main trends

      During most of 1994, there were further signs of consolidation of a more dynamic economic picture in Latin America and the Caribbean, with faster growth and a substantial reduction in the rate of inflation. With the explosion of the foreign exchange crisis on 20 December in Mexico -where pressure had gradually been building since the early months of the year due to a combination of serious political factors and the accentuation of imbalances already manifest in previous years- the region once again braced for turbulence, and fears were rife that the crisis would spread throughout the region in a repeat of the 1982 crisis.

    • Economic policy

      In 1994 the focus of economic policy in the Latin American and Caribbean countries continued to be on maintaining macroeconomic equilibria, since a recurrence of the serious situations encountered some years earlier remained a distinct possibility. In some countries, old problems did in fact recur or persist and required greater attention. At the same time, countries continued to place emphasis on structural reform policies, in part to help achieve macroeconomic equilibria and in part to strengthen the new operating bases of their respective economies. The momentum of structural reform manifest in the early years of the 1990s did slow somewhat, however. Although major ac vanees were announced for 1995 and following years, in Brazil, for instance, the measures were still in the study phase or in debate in the legislature.

    • Level of activity, inflation and employment
    • The external sector

      The international economy expanded in 1994, owing to the impressive recovery of growth rates in the industrialized countries following four years of slow growth, and to control of inflation, with the lowest rates seen in the past three decades. World trade expanded notably after the previous year's modest showing, while commodity prices rose significantly, in contrast to the declining trend of preceding years. This favoured Latin American exports, which consist largely of raw materials. These trends have generally continued in 1995, although the rate of growth is tending to slow.

    • Economic trends in the Caribbean
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    • Argentina

      Economic activity maintained an upward trend in 1994, especially during the first half, so that the level of activity was 7% higher than in the previous year. Cumulative growth since 1990, which stood at approximately 35%, equivalent to an average annual growth rate of 8%, enabled per capita gross domestic product (GDP) to return to the levels attained in the early 1980s, before the debt crisis broke out.

    • Bolivia

      In 1994 the Bolivian economy grew by over 4% for the second consecutive year, while inflation continued on a downward trend, falling to an 8.5% annual rate, its lowest level in 18 years. At the same time, Bolivia managed to reduce its fiscal and trade deficits. These achievements are signs of further progress towards the attainment of macroeconomic equilibria and a sustained economic recovery; however, per capita gross domestic product (GDP) is still 13% below the level reached in 1980.

    • Brazil

      The performance of the Brazilian economy in 1994 was strongly influenced by the implementation of the Real Plan, which -in contrast with the seven previous stabilization programmes that Brazil had tried out over nearly a decade- succeeded in slashing what had become a runaway inflation rate. The plan was implemented in the midst of the election campaign to fill executive and legislative seats at the federal and state levels. The new administration which took office in January 1995 embraced the main thrust of its predecessor's economic policy and confined itself to making adjustments to strengthen the stabilization programme.

    • Colombia

      In 1994 economic activity continued on the upward path it has followed since the completion of the liberalization programme at the end of 1991. Readily available external financing allowed private consumption to expand greatly, which, combined with the expansion of public spending and gross investment, gave a strong impetus to domestic demand. Thus, the growth rate accelerated to around 6%. The 19% inflation target could not be reached despite the virtual stabilization of the nominal exchange rate. Inflation remained at the same level as in 1993, i.e., around 23%, in what appears to have been a pause in the downward trend in the consumer price index (CPi) since 1991.

    • Costa Rica

      In 1994 the Costa Rican economy expanded significantly, by over 4%, although more slowly than in the previous two years. Despite the growth of aggregate output and a decrease in the foreign trade deficit, signs of macroeconomic disequilibria were perceived during the year. These consisted mainly of a massive fiscal imbalance, the acceleration of domestic price increases to an annual 20%, and the persistence of a high deficit on the current account of the balance of payments.

    • Cuba

      After experiencing a deep slump in production in the years since 1990, the Cuban economy managed to halt its slide in 1994, growing by a modest 0.7%. However, per capita GDP remained close to the lowest levels to have been recorded during the past 20 years.

    • Chile

      The adjustment programme that had been implemented by the Chilean authorities since the previous year realized its chief objective during 1994: to cut inflation while maintaining growth. The inflation rate fell below 9%, its lowest level in the past 30 years, and the gross domestic product (GDP) rose 4%, which brought the average annual growth rate for the past 11 years to around 6.5%.

    • Ecuador

      In 1994, the general course taken by Ecuador's economy was once again primarily determined by the economic programme which had been launched two years earlier in an effort to reduce inflation and introduce major reforms in the public, external and financial sectors. Whereas in 1993 -the first year of the plan's application- the contractive conditions characteristic of stabilization policies had predominated, in 1994 the economy's growth rate picked up to over 4% per annum, resulting in an increase in the country's per capita gross domestic product (GDP). The greater robustness of the economy stemmed from a rapid increase in domestic demand together with a substantial expansion of exports. Nevertheless, since imports were also up sharply, the current account deficit widened; this shortfall was more than covered, however, by Ecuador's abundant inflows of external resources (particularly long-term funds), which included a copious inflow of direct investments made under the new terms granted to investors in the petroleum industry, as well as in other areas of production. Attractive domestic interest rates and the relative stability of the sucre were also contributing factors in the country's short-term capital inflows. As a result, a marked increase (equivalent to about 2.5% of GDP) was seen in international reserves for the second year in a row.

    • El Salvador

      In 1994 El Salvador's economy once again expanded at a satisfactory rate, albeit somewhat more slowly than during the preceding two years. Apart from strictly economic factors, production and investment once again reaped the benefits of the progress being made towards peace. The presidential elections, which led to a changeover of governmental authorities, had no more than a passing effect on economic trends. In the external sector, marked price increases were seen in merchandise exports, and the continuing rise of transfers into the country by non-residents contributed to the growth of national income.

    • Guatemala

      In 1994 the Guatemalan economy once again recorded growth of around 4%, while inflation was kept to the moderate rate of about 12%. These results were achieved despite the tense political situation created by the existing stand-off among the different branches of Government and the slow pace of talks aimed at putting an end to the armed conflict being waged in the country. Bolstered by higher prices for Guatemala's leading exports (especially coffee and sugar), the country's terms of trade also showed a significant improvement in 1994. Moreover, the implementation of the Government's monetary and fiscal policies went smoothly until late in the year, despite the tensions besetting both. Thanks to this combination of circumstances, no appreciable pressure was brought to bear on the foreign-exchange market, and the price of the dollar actually dropped slightly.

    • Haiti

      The recession which overtook Haiti after its institutional breakdown in 1991 continued to worsen in 1994 as a consequence of the sanctions imposed by the international community, since it was not until late in the year that efforts to find a solution to the crisis met with success.

    • Honduras

      In 1994 the Honduran economy felt the effects of a prolonged drought which hurt agricultural production and triggered critical electrical power shortages. The situation was made worse by a decline in the flow of external credit due to the country's failure to meet the conditions it had agreed upon with the International Monetary Fund (IMF). The combination of these two factors resulted in a drop of nearly 2% in gross domestic product (GDP), a considerable depreciation of the lempira, an acceleration of inflation to an annual rate of 29%, and a decrease in the country's already very low levels of personal consumption.

    • Mexico

      In 1994 the Mexican economy was beset by a marked degree of uncertainty and was particularly affected by a number of crucial political events. Trends in the leading variables were in keeping with the Government's economic programme for most of the year, but the external sector's cumulative imbalances, the implementation of an expansionary monetary policy at a time when reserves were being drawn down, and a number of serious political developments all combined to set off a major crisis in the last 10 days of December. Economic growth sped up to an annual rate of 3.5% after two years of meagre results. The rate of inflation, whose reduction remained the economic programme's main objective, continued to fall, reaching just 7% per annum -the lowest rate in 20 years. The non-financial public sector, for its part, was unable to reproduce the strong performance it had turned in during the preceding three years -when its accounts alternated between balance and surplus- but did manage to hold its deficit to less than 1% of gross domestic product (GDP). Other developments were less positive, however. In particular, the deficit on the balance-of-payments current account widened to US$ 29 billion, or almost 8% of GDP, and the flow of external resources, which in past years had more than covered this deficit, began to exhibit fluctuations that made it necessary for the country to draw down its international reserves. Furthermore, on the assumption that both the outflow of foreign exchange and the higher level of uncertainty in the economy were only temporary trends which would reverse their course once the elections were over -in view of the firm support forthcoming from Mexico's partners in the North American Free Trade Agreement (NAFTA) and the new prospects opened up by economic integration- an expansionary monetary policy vas adopted. Finally, domestic borrowing inci eased, at the same time as debt maturities were shortened and the face value of debt instruments 'vas pegged to the exchange rate in an effort to reduce the uncertainty prevailing in financial markets.

    • Nicaragua

      The Nicaraguan economy expanded by more than 3% in 1994, thereby marking up its highest growth rate in a decade. This creditable performance -which was primarily the result of a combination of internal political events, consistency in the management of the country's economy and the availability of external resources- was achieved against the backdrop of the challenges and obstacles posed by the complex transition that the country had embarked upon in 1990 as it moved from war to peace, from a single-party political system to a parliamentary democracy, and from a planned economy to a market economy.

    • Panama

      The Panamanian economy marked up its fifth consecutive year of growth in 1994 against a backdrop of price stability. At a little over 4%, the economy's growth rate was lower than the high rates achieved in the preceding years, but even so it was enough to bring per capita GDP back up to the level it had reached prior to the 1988 crisis. Despite this strong performance, however, the open unemployment rate was verging on the disquieting level of 14%.

    • Paraguay

      The Paraguayan economy's 3.5% growth rate for 1994 was somewhat lower than it had been in 1993 as a result of the fact that the boost given to the economy by the growth of private consumption was counteracted by the poor performance of Paraguay's main agricultural export products due to bad weather conditions and crop diseases.

    • Peru

      Overall, 1994 marked the second year of the Peruvian economy's recovery -this time at a rate of nearly 13%- from the prolonged recession, political unrest and social crisis which had plagued the country since the mid-1980s. Even so, gross domestic product (GDP) was still 10% below its 1987 level, and the cumulative gain achieved over the last two years was equivalent to scarcely one third of the amount of per capita income lost during the preceding period.

    • Dominican Republic

      The uncertainty generated by the Dominican Republic's upcoming elections was a factor of overriding importance during the first eight months of the year; it contributed to a deterioration in fiscal and external accounts, helped to fuel expectations of a devaluation as well as inflationary pressures, and played a part in the erosion of international reserves. In September, after the elections, the authorities began to implement new fiscal, monetary and exchange policies which led to an improvement in the economic picture: aggregate demand contracted, the exchange rate stabilized in banking and non-bank markets, and international reserves made a partial recovery.

    • Uruguay

      The Uruguayan economy's growth rate accelerated to 5% in 1994. Meanwhile, inflation continued its gradual decline (falling to an annual level of around 45%), the country's external deficit remained quite high and its fiscal deficit deepened.

    • Venezuela

      The recession which swept over the Venezuelan economy in 1993 deepened in 1994. In the wake of the political and economic instability of the year before, a severe crisis erupted in the financial system which caused expectations to take a turn for the worse and generated sharp imbalances in exchange and money markets, GDP shrank by 3% and inflation heated up in the first half of the year, closing out 1994 with a 71% increase in the consumer price index (CPi) within an economic environment influenced by exchange and price controls. Although these controls, which were introduced late in June, were adopted as a temporary measure by the administration that had taken office in February, they none the less signalled a turnaround in economic policy five years after the initiation of a liberalization programme.

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