Economic Survey of Latin America and the Caribbean

English
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 2000-2001

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Author(s):
ECLAC
06 Oct 2001
Pages:
292
ISBN:
9789211558661 (PDF)
http://dx.doi.org/10.18356/7a13d8be-en

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This survey presents an overview of the regional economy and the economic performance in 2000 and the first half of 2001. It also offers individual country reports on the performance of the 20 countries of Latin America for the same period. In addition, the Economic Survey of Latin America and the Caribbean analyzes the economic situation in the countries of the English-speaking Caribbean. This year's edition includes a CD-ROM that contains the statistical appendix.

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  • Foreword

    The Economic Survey of Latin America and the Caribbean, 2000-2001 is the fifty-third edition in this series and incorporates a number of changes in the format which are intended to expand its regional coverage and make the study more readable.

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    • Current conditions and outlook 2001
    • Economic policy in 2000

      In a continuation of the trend seen in recent years, in 2000 the leading Latin American economies drew on experience gained from dealing with the decade's wide external fluctuations, in an attempt to reduce their vulnerability to economic shocks. This effort generally aimed at alleviating the financial burden of debt -by reducing the relative weight of short-term obligations and rescheduling external debt repayment liabilities into the long term- while also creating room for manoeuvre in domestic macroeconomic policy in order to have more scope for smoothing out short-run fluctuations. In addition, a number of integration groupings made renewed efforts to coordinate their domestic macroeconomic policies more closely, particularly the Andean Community and Mercosur.

    • The main real variables
    • The external sector

      The positive international economic climate engendered a substantial improvement on the external front regionwide, although results in individual countries varied. External trade was very buoyant in 2000, and the region's chronic balance-of-payments current-account deficit decreased for the second straight year, falling to just over half the 1998 figure, or 2.4% of GDP. Although financial flows remained volatile, the current-account improvement was accompanied by a strengthening of the capital and financial account, basically thanks to a revival of capital inflows into Brazil.

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    • Argentina

      In 2000 the Argentine economy remained mired in the severe crisis that has afflicted it ever since mid-1998. GDP shrank again (this time by 0.5%), employment declined and the unemployment rate soared to 15%. Public financing difficulties became more acute after the government's deficit widened to 2.4% of GDP, and credit access conditions took a turn for the worse. Domestic demand slumped, particularly under the heading of investment, which dropped by 8.3%. Slack demand did, however, help to bring about a 0.7% deflation in consumer prices. Export volumes recovered from the slight fall of 1999 and average prices rebounded (particularly fuel prices). Together with a small decrease in the value of imports, this tipped the merchandise trade balance back into positive figures for the first time in four years. The deficit on the balance-of-payments current account narrowed to less than US$ 9.5 billion (3.2% of GDP). External borrowing requirements were covered by public-sector operations, while net capital inflows to the non-financial private sector were almost nil. Demand for public debt instruments fell sharply during the latter months of the year, prompting the government to negotiate a sizeable financing package with multilateral agencies, banks and foreign governments. This step boosted demand for securities briefly, but bond prices soon dropped again. In the first part of 2001 the attention of the public and policy-makers was focused on the persistent recession, sharp contraction of external credit and fiscal developments.

    • Bolivia

      In 2000 the Bolivian economy's external sector turned in a better performance, but domestic demand remained slack. The economy grew by 2.4% in 2000, which was an improvement over the rate for 1999 (0.4%), but per capita output stagnated and the growth rate fell far short of the annual average of 4% recorded in the 1990s.

    • Brazil

      After two years of stagnation in GDP, and as the exchange-rate turbulence of 1999 faded into the past, the Brazilian economy recovered in 2000, with GDP growing by 4.5% while the unemployment rate fell and inflation declined slightly to just over 5%. The balance-of-payments current-account deficit shrank, while international reserves climbed as the result of a substantial net inflow of capital, especially in the form of direct investment.

    • Chile

      After having been in a recession in 1999, the Chilean economy grew by 5.4% in 2000, with a strong upturn in the first semester and a more modest gain in the second. The highest growth rates were recorded in the primary and basic services sectors, while manufacturing and commerce expanded at a similar rate to overall GDP. The construction sector, which is an important employer, remained very depressed throughout the year. These results, in combination with reduced inflows of foreign capital and the completion of major projects, translated into a hesitant upturn in gross fixed capital formation (4.3%). The terms of trade remained stable, but fluctuations in export prices did make themselves felt. Steadily rising oil prices eroded annual household income by US$800 million, causing private spending to remain sluggish.

    • Colombia

      The Colombian economy saw a moderate recovery (2.8%) in 2000, after having suffered its most severe recession of the century in 1999. The urban unemployment rate remained high, however, at 20%. The fiscal deficit, in contrast, fell to 3.5% of GDP; the balance-of-payments current account closed in balance; and the downward trend in inflation continued (8.8%). The devaluation of the last two years brought the real exchange rate to a level not seen in seven years. Industrial production and exports of petroleum and of non-traditional items led the growth of the economy. Although it was slowly making a recovery, the financial sector remained fragile, and this limited the supply of financing available to the real sector of the economy.

    • Costa Rica

      The Costa Rican economy suffered a serious external blow that significantly reduced its growth rate. In the second quarter of 1999, economic activity began to flag after two years of growth exceeding 8% a year. This trend became accentuated in 2000, when gross domestic product (GDP) increased by a mere 1.7%. Open unemployment fell, but per capita income contracted slightly. The authorities continued with their policy of mini-devaluations of the exchange rate with a view to preserving external competitiveness, while inflation remained at a level similar to the previous year's (10%) and interest rates came down. Although the management of the public debt improved, public finances weakened.

    • Cuba

      Cuba's gross domestic product (GDP) increased by 5.6% during the year, giving an average annual growth rate of 4.6% for the five-year period 1996-2000. Faced with a chronic shortage of foreign exchange and a sharp increase in the oil bill, the authorities had to curb the rapid growth seen in the first six months. Rising interest payments and, to a lesser extent, the expansion of the trade deficit drove the balance-of-payments current-account deficit upward for the second consecutive year, to the equivalent of 2.1% of GDP. The main reason for the widening trade gap was the continuing deterioration in the terms of trade since, in volume terms, goods exports actually rose faster than imports. Nevertheless, a capital-account surplus made it possible to finance the current-account deficit and increase the country's depleted foreign reserves by a small amount. As regards the monetary and price situation, there were no significant changes; prices fell slightly once again, while the parallel exchange rate remained stable.

    • Ecuador

      In January 2000, the Ecuadorian authorities decided to formally replace the sucre as legal tender with the United States dollar, in response to the acute crisis of confidence in the currency which had caused its external value to collapse. Although the announcement of this radical change in the economic system exacerbated an already unstable political situation that culminated in the removal of the President, the new authorities continued with the dollarization policy and introduced the new monetary scheme in the course of the year. It was under these circumstances that, after contracting sharply in 1999, the Ecuadorian economy recorded a modest growth rate of 2.3%, which was sustained by an upturn in domestic demand and increased oil exports.

    • El Salvador

      For the third consecutive year, economic growth slowed in El Salvador. With real gross domestic product (GDP) increasing by a mere 2%, per capita GDP remained practically flat. The expansion of domestic demand was limited, but income from abroad, in contrast, increased substantially as both family remittances -equivalent to 13% of GDP- and exports of goods rose. Imports, however, also climbed strongly, and at the same time there was a substantial deterioration in the terms of trade, widening the current-account deficit to 3% of GDP. Increased public spending also expanded the fiscal gap. Year-on-year inflation rose by 4.3% after being negative in 1999, while the open unemployment rate dipped slightly and real wages fell.

    • Guatemala

      In 2000, Guatemala was able to control the inflationary pressures and exchange-rate instability that had been unleashed the previous year, but it could not stop the economic slowdown that had begun in that same period. Thus, inflation was 5.1%, the budget deficit was 1.9% of gross domestic product (GDP), net international reserves rose by 50%, and the nominal exchange rate ended the year at the same level it had stood at 12 months previously. GDP grew by just 3.3%, however, below the 1999 and 1998 rates (3.6% and 5%, respectively).

    • Haiti

      Preliminary indicators show that the Haitian economy grew by an extremely modest 1.2% in 2000. This figure represented a slide in both per capita output (-0.6%) and gross national income (-0.2%), the latter due to a severe deterioration in the country's terms of trade, albeit mitigated by remittances that remained substantial. The modest achievements in the direction of macroeconomic stability seen in previous years proved too fragile to weather the adverse socio-political environment and suffered significant setbacks. The inflation rate climbed back into two digits (19%), the fiscal deficit widened to almost 3% of gross domestic product (GDP) and the currency depreciated sharply (44%). A rise of almost 80% in the oil import bill severely hurt the Haitian economy and the authorities had no alternative but to increase domestic fuel prices after three years in which they had gone unchanged.

    • Honduras

      The Honduran economy picked up in 2000, and although it has not yet regained the production levels attained in some key sectors prior to Hurricane Mitch, recent economic trends appear to have laid the groundwork for recovery to consolidate in 2001. During this process, a number of social and economic policy measures have been taken to continue dealing in an orderly manner with the pressing problems left by the devastation of late 1998. GDP grew by 4.8% in 2000 and per capita GDP by 2.3%, the best performance since 1995.

    • Mexico

      The growth rate of the Mexican economy (6.9%) was the highest in almost two decades, exceeding early-year expectations. The main factors behind its strong performance were the economic boom in the United States and high oil prices, in addition to a marked increase in domestic demand despite an increasingly restrictive monetary policy. Higher real wages and employment drove up private consumption by 9.5% while investment increased by 10%.

    • Nicaragua

      Growth in the Nicaraguan economy slowed dramatically in 2000. Gross domestic product (GDP) rose 4.3%, three percentage points below the previous year's growth rate. In addition, deteriorating terms of trade left national income virtually flat. As domestic demand fell by 4.1%, growth was sustained by a large increase in exports (11.5%).

    • Panama

      The trend towards slower growth in Panama continued, with the economy expanding by just 2.7%, compared to 4.4% in 1998 and 3% in 1999. As a result, per capita GDP increased by only 1.1%. Economic performance was even lower than had been expected by the authorities at the beginning of the year (3.5%-4%), and this was due to a fall in internal demand, as external demand showed a recovery after two years of decline. The slackening of both investment and consumption drove up the unemployment level. The central government deficit increased slightly owing to reduced tax receipts, but remained at a low level of just over 1% of GDP. Inflation returned to almost zero, despite the increase in international oil prices. The high current-account deficit of the balance of payments was reduced.

    • Paraguay

      The Paraguayan economy shrank by half a percentage point in 2000, the third consecutive year of GDP stagnation and the fifth of declining per capita GDP. The country was again at the mercy of fluctuations in the agricultural sector and in external demand, which an expansionary economic policy was unable to counter.

    • Peru

      GDP grew by 3.1% in 2000. This rate, less than the average for the decade (3.8%), is modest in comparison with the hopes for a significant recovery that existed at the end of the previous year. In fact, it is disturbing in that it conceals a slowdown. After growing by an annualized average of 5.2% for nine consecutive months, GDP began to lose its momentum in the third quarter of 2000, and a recession began in the fourth quarter. A variety of factors explain this development. Private demand did not pick up, due to political uncertainties, and the supply factors that had been shoring up the primary sectors ran out of steam. Fiscal policy, which played a stabilizing role in 1999 and the early months of 2000, became more austere, as evidenced by the spending cuts instituted in the third quarter for the purpose of containing a persistent fiscal deficit amounting to 3% of GDP. This situation did not affect the achievements of the stabilization policy, however; the current-account deficit was reduced to 3% of GDP, and inflation was held below 4%, in a context of relative exchange-rate stability. Nonetheless, growth was insufficient to improve the labour situation by much.

    • Dominican Republic

      The economy of the Dominican Republic maintained the strong growth it had been displaying since 1996. Stimulated mainly by private consumption and by exports, the country' s GDP grew by 7.8%, a rate close to the average for the previous five years. The most serious threat to economic performance was the rise in international oil prices, a problem of external origin that affected tax receipts, external trade and the inflation rate. Inflation almost doubled to 9% after the increase in domestic fuel prices ordered by the new Administration that took office in August.

    • Uruguay

      The Uruguayan economy failed to emerge from the recession that has afflicted it since mid-1998. Gross domestic product (GDP) shrank by more than 1% in 2000, after falling by 3% in 1999. This persistent recession had pushed the unemployment rate up to 14% by the end of the year, while the consolidated public-sector deficit, which is closely associated with the economic cycle, remained above 4% of GDP. A sharp rise in the international oil price counteracted the effect of an incipient upturn in exports, so that the external deficit widened to 3% of GDP while inflation rose by one percentage point to an annual rate of 5%. The country continued to finance its fiscal deficit by means of domestic and external borrowing in foreign currency, which increased the net debt burden of the public sector to over 40% of GDP by the end of 2000.

    • Venezuela

      The soaring price of petroleum boosted Venezuela's gross national income by a substantial 20% or so, thanks to a nearly 50% improvement in the real terms of trade. Economic activity accelerated during the year, and a 3.2% rise in gross domestic product (GDP) helped recoup part of the more than 6% decline suffered in 1999, bringing the high unemployment rate down slightly. The recovery was based primarily on growth in the oil sector, and to a lesser extent on an expansionary fiscal policy sustained by higher revenue from oil sales. As the external situation eased, the balance-of-payments current account posted a hefty surplus and the crawling peg exchange-rate policy helped to contain pressure on domestic prices. The inflation rate dropped for the fourth year in a row, to 13.4%.

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  • Caribbean countries

    The economic performance of the countries belonging to the Organization of Eastern Caribbean States was varied in 2000, as they reacted differently to the external stimuli of globalization, adverse prices trends in main export crops and a slump in tourist arrivals that was largely due to a preference for cheaper destinations. In 2000 real growth ranged from a decline of 1.9% in Montserrat to a gain of 7.5% in Grenada.

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