Economic Survey of Latin America and the Caribbean

1681-0384 (online)
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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 1997-1998

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31 Dec 1998
9789210582971 (PDF)

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The Economic Survey of Latin America and the Caribbean, 1997-1998 is the fiftieth edition in this series. To mark this milestone, a special chapter has been included in this edition which traces the history of the publication and outlines the way in which the economic situation in the region has been viewed during each of the periods examined. Once again, the Survey has been published as a single volume consisting of three parts. Part 1 contains an overview of the economy in 1997 and the first half of 1998. Part 2 presents reports on the 20 countries of Latin American and on the situation in the countries of the English-speaking Caribbean. Part 3 reviews the 50 years of the Survey.

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  • Foreword

    The Economic Survey of Latin America and the Caribbean, 1997-1998 is the fiftieth edition in this series. To mark this milestone, a special chapter has been included in this edition of the Survey which traces the history of the publication and outlines the way in which the economic situation in the region has been viewed during each of the periods examined.

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    • Summary

      The year 1997 was a highly successful one for many economies in Latin America and the Caribbean, thanks to both a strong expansion of output and low inflation. As predicted earlier, however, external shocks, combined with the effects of policies designed to deal with incipient disequilibria in several countries, have made it impossible to repeat that performance this year.

    • Macroeconomic policy

      Stabilization gains were consolidated in a context of strong economic growth, despite adverse developments on the international scene in the closing months of 1997. Declining inflation confirmed the success of macroeconomic policies designed to meet the challenges of external openness, policies generally based on the management of the exchange rate as a nominal anchor. This strategy was made possible by abundant inflows of external capital, which allowed demand pressures to be absorbed by increased imports.

    • Structural reforms

      The outstanding trend in 1997 was a second wave of privatization that yielded a record amount, largely thanks to Brazil. In addition, further progress was made in social security reform, regional integration and trade liberalization.

    • Level of activity
    • Inflation

      The inflation rate for Latin America and the Caribbean as a whole in 1997 continued the downward trend begun in 1994. The rate of price increase, 888% in 1993, had been reduced to 18.5% by 1996, and in 1997 dropped further to only 10.4%, the lowest level in nearly 50 years. In the first half of 1998 inflation crept up slightly, but this by no means reversed the gains the region has made, which are all the more impressive in that they have coincided with a phase of regional output growth (5.3% in 1997). The inflationary pressures generated by the strong expansion of domestic demand were neutralized by the existence of idle capacity and the substantial increase in external supply. Moreover, an increase in the labour force dampened the potential for wage hikes resulting from a greater demand for labour.

    • Investment and saving
    • Employment and wages

      At the regional level, a moderate improvement was seen in the labour market as the pace of economic growth accelerated, and employment and average labour productivity both rose substantially. A small decline was also registered in open unemployment -from 7.7% to 7.3%-but even so the latter rate was still the second highest of the decade. This fact attests to the seriousness of the labour situation in many countries, although it is also true that the figure for the region as a whole was influenced by Brazil's sluggish rate of job creation. Meanwhile, the regional averages for mean and minimum wage levels rose in real terms.

    • The external sector

      The trends seen in the external sector in 1996 deepened in 1997. Despite the retreat of foreign capital triggered by the Asian crisis in the second half of the year, for 1997 as a whole a record volume of external capital flowed into the region, making it possible to build up reserves and cover larger current account deficits. These shortfalls were associated with a huge increase in the volume of imports, which far outstripped the sharp upswing in exports that took place as the world economy continued to flourish, even though the outlook was dimmed somewhat by the possible implications of the crisis in Asia.

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    • Argentina

      Economic activity expanded significantly in 1997 and unemployment fell, although it continued at high levels. Increased domestic demand had no effect on prices, which remained practically stable. The current account deficit hovered around 3% of GDP, but was financed without problems because of large capital inflows. This economic momentum continued well into 1998, until the current account gap widened as the merchandise trade imbalance was aggravated by a fall in cereal and petroleum prices, weaker demand in Brazil and a continuing high level of imports.

    • Bolivia

      With inflation at its lowest level since 1975 (6.7%), the growth rate of the Bolivian economy exceeded 4% in 1997, but the external and fiscal deficits, mostly financed with external resources, widened considerably. Monetary and fiscal policy remained subordinate to the priority objective of consolidating macroeconomic stability. Supported by the flow of foreign capital, investment was as high as 19% of GDP, an increase linked to the privatization (capitalization) of public enterprises, thereby giving effect to one of the main goals of the outgoing Government. In accordance with the agreement on heavily indebted poor countries concluded with multilateral financing organizations, Bolivia's external debt was reduced by more than US$ 500 million over a period of 10 years. This debt reduction entails a commitment by the State to expand considerably its investments in education and health.

    • Brazil

      In 1997 the Brazilian economy grew at the same rather sedate pace (3%) as the year before, while the continued progress of the stabilization process was reflected in the lowest rate of inflation (4.3%) to be recorded in the last 50 years. The deficit on the country's external accounts deepened further, but the copious inflow of external resources provided enough financing to cover the shortfall. Nevertheless, the size of this deficit (the equivalent of over 4% of GDP) and the failure to move more quickly in carrying out a thoroughgoing adjustment in public-sector accounts have placed the country in a highly vulnerable position, as became evident in late October when the Asian crisis began to have a stronger impact on Brazil's economy (primarily in the form of voluminous capital outflows). The adoption of corrective measures and the severe deterioration in the external situation triggered an economic slowdown and pushed the unemployment rate up slightly. The Government did succeed, however, in checking the rapid descent of international reserves, and in the first half of 1998 it actually managed to reverse this trend altogether. The prospect of general elections in October complicated the situation further, since, depending on the outcome, they could spell changes in the course of economic policy.

    • Chile

      In 1997 the Chilean economy completed 14 years of uninterrupted growth. Inflation again declined, slightly, ending at around 6%. Gross domestic product expanded by 6.9%, domestic demand by 8.5%. The national savings rate increased from 26.3% to 27.8%, but the amount saved was insufficient to finance the vigorous effort in gross capital formation (35.6% of output), which again required a significant amount of foreign capital. The current account therefore yielded a deficit of 5.3% of GDP, similar to the figure for 1996 but significantly higher than those for previous years; however, the deficit was more than covered by medium and long-term foreign investment. The public sector helped sustain investment with a savings rate of 5.5% of GDP and an overall surplus of 1.9%. Unemployment affected 6.1% of the labour force, while employment increased by 2.1%, real wages by 2.4% and average labour productivity by 5%.

    • Colombia

      In 1997 the Colombian economy stepped up the pace of growth to 3.2% and inflation slowed, but other macroeconomic indicators were less favourable; the domestic scene was marred by a serious deterioration in public order.

    • Costa Rica

      With a 3.1% increase in gross domestic product (GDP), Costa Rica resumed the growth which had been interrupted in 1996, when there had been a decline of 0.5%. Macroeconomic variables generally showed improvement, particularly the inflation rate, which fell from 13.9% to 11.2%, and the fiscal deficit, which fell from 3.3% to 1.6%. The latter reflected a special effort to break the political pattern of an expansionist phase during the pre-election period.

    • Cuba

      The rate of recovery of the Cuban economy slowed to 2.5% in 1997 (7.8% in 1996) and the balance-of-payments current account deficit grew owing to a large increase (21%) in the volume of merchandise imports and mediocre export performance (3%). Growth in income from tourism services and current transfers helped to mitigate the foreign currency shortage. Despite persistently high liquidity ratios and a deterioration of 20% in the exchange rate, no major price adjustments were reported and the fiscal gap was reduced to 2% of output.

    • Ecuador

      Despite political problems, Ecuador's economy grew by 3.7%, a better performance than in the preceding two years. Ecuador also managed to curb the upsurge in inflation that occurred in the early part of the year and to reduce the non-financial public-sector deficit. Even so, these were again modest achievements compared with the regional average.

    • El Salvador

      In 1997, the economy of El Salvador performed better than in the previous year. Gross domestic product (GDP) rose by 4.1%, a change which was mostly due to a significant increase in exports. Although the trade deficit was still high, the current account balance moved into the black, leading to a considerable accumulation of international reserves. The overall economic picture was remarkably stable. December-to- December inflation fell to a record low of 1.9%, while the annual average was 4.5%; the nominal exchange rate remained unchanged and the fiscal deficit decreased. However, there was no improvement in the employment situation and real wages fell.

    • Guatemala

      Guatemala's gross domestic product grew by 4%, a percentage better than the 3% achieved in 1996 and consistent with the original expectations of the authorities. Important factors in the expansion were the good performance of exports -especially coffee- and the easing of monetary policy during the course of the year. Moreover, inflation slowed to 7.1%.

    • Haiti

      In fiscal year 1997, the performance of the Haitian economy was quite mediocre, with overall growth barely exceeding 1%. Dissension between the executive and legislative branches of government hampered the implementation of the reforms agreed upon at the beginning of the year with the International Monetary Fund (IMF). This cut deeply into inflows of official finance from abroad and held up the progress of the development plans that had been designed to spur the economic recovery.

    • Honduras

      In 1997 the Honduran economy developed in an increasingly stable environment, thanks to a conjunction of domestic and external factors which reversed its unfavourable performance of the previous year. Gross domestic product (GDP) increased by 4.5%, inflation slowed significantly, and progress was made in fiscal consolidation. The current account deficit was reduced by almost than half, while capital inflows continued to increase, contributing to an accumulation of almost US$ 300 million in international reserves. In the labour market, although there were high levels of underemployment, real wages made a strong recovery.

    • Mexico

      The Mexican economy has continued to experience strong growth, with GDP advancing by 7.3%. An upswing in domestic demand and robust exports pushed down unemployment to a rate nearly as low as the level recorded before the 1994 crisis. On the other hand, real wages remained depressed.

    • Nicaragua

      In 1997 Nicaragua achieved Us highest rate of GDP growth of the decade (5.5%) thanks to abundant foreign capital inflows that underpinned private investment and consumption. The progress made in terms of well-being was even greater, as open unemployment fell, the inflation rate dropped to single-digit levels (7.3%) and the country's terms of trade with the rest of the world improved. However, the already excessive deficit on the balance-of-payments current account increased further, although only slightly, due above all to a widening of the merchandise trade gap.

    • Panama

      The Panamanian economy picked up in 1997, posting GDP growth of 4.3%. This performance, a marked improvement on the 2.4% growth recorded in the previous year, may be attributed to a number of factors: the recovery in re-exports from the Colón Free Zone, the upsurge in capital expenditure -directed essentially to the development of production infrastructure- and the expansion in private consumption following increases in employment, wages and credit. The inflation rate, traditionally among the lowest in Latin America, was close to zero.

    • Paraguay

      In 1997, the Paraguayan economy began to revive, recording 2.6% growth. However, per capita GDP remained at the same level as in the previous year. A recovery in the important agricultural sector sustained a moderate increase in domestic spending, although in a general context of financial instability and stagnant foreign trade.

    • Peru

      The Peruvian economy's performance has been in keeping with the economic model being implemented since 1990, which has included major structural reforms anda stabilization policy that has remained in place since the model's inception. Over the past five years, the economy has grown at an average rate of 7.5% per annum, while inflation has exhibited a downward trend, coming in at single-digit figures. The economy has continued to suffer from weaknesses in the external sector and on the employment front, however. Against this backdrop, the Peruvian economy in 1997 exceeded initial expectations, posting growth of over 7%; this was an improvement upon the modest performance recorded the previous year, when the Government's adjustment policy had been a dominant factor. The trend in inflation was also very positive, with the annualized rate falling to 6.5% by December.

    • Dominican Republic

      In 1997, the Dominican Republic achieved its highest growth rate of the decade (8.2%), and this helped to ease the problem of unemployment, which fell below 16%. Monetary expansion, fuelled by abundant foreign currency inflows, formed the backdrop for economic activity, which was boosted by private investment, total consumption and exports in a context of exchange-rate stability.

    • Uruguay

      The Uruguayan economy again made significant strides in 1997. Aggregate demand expanded vigorously, bringing GDP growth to more than 5%, while inflation, which continued to fall, reached 15%, its lowest level in 30 years. The unemployment rate was slow to react, however, and only in the last few months of the year did it decline to something on the order of 10%.

    • Venezuela

      The Venezuelan economy grew at a rate of 5.6% in 1997, climbing out of the previous year's recession. This result was once again influenced by a notable (nearly 9%) expansion in the oil sector, although the other sectors also stepped up their activity levels, availing themselves of an improved macroeconomic climate and the favourable expectations generated by the implementation of the "Agenda Venezuela" adjustment programme in 1996. Thus the upward trend of unemployment was halted, and in the second half of the year the jobless total fell below 11%.

    • Economic trends in the Caribbean

      Overall, economic expansion was slightly less vigorous in 1997 than in the preceding year, although the rate of growth showed greater divergence between the countries surveyed than in 1996. The sectors recording the strongest performance were tourism, construction and the distributive trades. Agriculture had a mixed performance with declining output in Barbados, Jamaica and the Organization of Eastern Caribbean States (OECS) countries. The traditional agricultural exports suffered from lower prices, while output in the sector as a whole was adversely affected by unfavourable climatic conditions. The manufacturing sector showed heterogeneous behaviour, declining in Jamaica and the OECS countries but with moderate increases elsewhere.

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  • Fifty years of the Economic Survey

    At its first session, the Economic Commission for Latin America of the United Nations requested the Executive Secretary, within the possibilities and facilities at his disposal, to undertake an economic survey of Latin America. The survey prepared in fulfilment of this request was the first step in what it was felt would be a long and difficult task: that of providing a complete and fully documented analysis of the economic situation in the region.

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