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 2002-2003

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31 Dec 2003
9789211558777 (PDF)

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The present edition of the Survey consists of three parts. The first part covers the main aspects of the regional economy from a sectorial and thematic perspective. The second part contains information of the analysis of the economic performance of the 19 countries of Latin America and the Spanish-speaking Caribbean and Haiti. The third part is dedicated to the remaining countries of the Caribbean, mainly English-speaking countries. Finally, the Survey offers two statistical appendixes, one of them contained in a CD-ROM distributed with the printed version.

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  • Foreword

    The Economic Survey of Latin America and the Caribbean, 2002-2003 is the fifty-fifth edition in this series and contains an analysis of economic developments in the region during 2002 and of the observable trends as of mid- 2003. The publication is divided into three parts dealing with the region, the Latin American countries and the Caribbean, respectively. It also includes a statistical appendix which presents regional data. The data used in most of the analyses are provided on a CD-ROM.

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    • Current conditions and outlook, 2003

      The Latin American and Caribbean economy will grow by 1.5% in 2003, thereby making a modest recovery from its 0.6% contraction in 2002. With per capita GDP for the year remaining flat, at 2.0% below its 1997 level, this will be the sixth year in a row that has been lost to the region in terms of economic growth.

    • The regional economy in 2000-2003

      This chapter provides an analysis of the regional economy in terms of its main thematic areas. (i) The external sector is analysed from the standpoint of the balance of payments and indicators such as commodity export prices, the terms of trade, goods and services trade, capital flows and foreign borrowing. (ii) Economic policy is reviewed in its fiscal, exchange-rate and monetary dimensions. (iii) Domestic performance is examined from several angles: sectoral supply, aggregate demand, saving as a financing source for investment, inflation, wages and employment.

    • Development banks and production financing

      The financing of productive activity requires that policies for increasing national saving be complemented with measures to ensure that these resources are actually allocated to investors in the production sector. An effective financial system should efficiently channel savings into investment and technological innovation and should make those funds more accessible to the different agents of production.

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  • Expand / Collapse Hide / Show all Abstracts Countries

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    • Argentina

      The Argentine economy suffered a crisis of exceptional intensity in 2002, involving monumental financial upheavals and a suspension of payments on part of the public debt. The convertibility regime had served as a basic economic institution and factor of political legitimacy for nigh on a decade, but in recent years it had faced growing macroeconomic imbalances as recession set in. The collapse of the regime in January 2002 shook the foundations of the entire contract system and was accompanied by political convulsions and deep public discontent. At times, fundamental aspects of the workings of the economy were affected. The deterioration of economic performance was reflected in a sharp output contraction starting in mid-2001, together with soaring poverty indices. The drop in output was particularly steep in the first quarter of 2002, but thereafter a slow but persistent recovery began to take hold. This limited the output decline for the year overall to 10.9%, much of which represented the aftershock of the negative results of 2001. Recovery gathered pace in the new year, and 5.5% growth is forecast for 2003 as a whole.

    • Bolivia

      The Bolivian economy posted a 2.7% expansion in 2002, in a context of sluggish household demand, political uncertainty and faltering exports. Although growth was stronger than in 2001 (1.6%), it still fell short of the 5% recorded in 1997 and 1998. In the first quarter of 2003, gross domestic product (GDP) expanded by just 1.4%, reflecting continued slackness in household consumption compounded by the social disturbances that occurred in February. These growth figures meant a fourth straight year with no improvement in per capita GDP.

    • Brazil

      In 2002 the Brazilian economy came up against serious difficulties that prompted international financial markets to raise its country risk and triggered a drastic decline in capital inflows, which, in turn, led to a significant devaluation of the real and an upsurge in inflation. These difficulties arose from uncertainty as to what economic policy would be adopted by the administration to be elected in October and from the country’s high levels of external and public borrowing, as well as from the reduced availability of international capital as a result of the slump in activity in the developed countries and a loss of confidence in emerging markets following Argentina’s declaration of default in late 2001. Economic policy was accordingly geared to regaining the confidence of financial markets and keeping inflation in check, which forced the authorities to apply very tight monetary and fiscal measures. These actions, together with the end of the uncertainty surrounding the election, made it possible to stem the speculative attack, especially when the new government took office in 2003. However, this tight policy dampened the level of activity, which again posted modest growth (1.4%); the rate for 2003 is expected to approximate the levels of the past two years.

    • Chile

      The Chilean economy has continued to grow at a modest rate, with GDP expanding by 2.1% in 2002 following its 3.2% rise in 2001. Although inflation displayed seasonal fluctuations and was sensitive to oscillations in the exchange rate and the international price of oil and petroleum products, the rate for the year as a whole ended around 3%, broadly in line with the target set by the monetary authorities. Since 2001, the worldwide economic slowdown, together with the regional crisis and heightened global risk, have conspired to dampen external trade, reduce capital inflows and worsen Chile’s terms of trade, which in 2002 failed to recoup the previous year’s deterioration of nearly 7%. While merchandise exports expanded by over 44% between 1996 and 2002 in volume terms, the fact that prices dropped by almost 25% is a clear indication of how external conditions have deteriorated over the past few years.

    • Colombia

      In 2003 the Colombian economy is showing signs of a moderate recovery, following annual growth of just 1.5% in 2001 and 2002. First quarter growth in 2003 came in at 3.8%, in contrast to a virtual standstill during the same period in 2002. The rate of expansion projected for the year as a whole is 2.5%, but data from the early months show better results. Inflation for the year as a whole is forecast at around 7%, similar to the 2002 figure. Although price increases trended upwards in the first four months of the year, they have eased off since May. With only a modest rise in activity levels, the employment situation remained problematic in 2002; nonetheless unemployment in 13 cities decreased by nearly a whole percentage point in the first half of 2003.

    • Costa Rica

      Economic activity in Costa Rica showed signs of recovery in 2002 after two straight years in which momentum flagged considerably. Gross domestic product grew by 2.6%, boosted by the expansion of domestic demand and an upsurge in exports after two years of decline. Per capita GDP grew by 0.6%, after having shrunk by 0.5% and 0.9% in 2000 and 2001, respectively. At the same time, per capita national income rose for the second year in a row (0.7%) as a result of the less drastic deterioration in the terms of trade and the sharp reduction in profit remittances by foreign firms. The recovery has been gathering strength in 2003 and output is expected to grow by over 4%.

    • Cuba

      Beset by external shocks and bad weather conditions, the Cuban economy lost momentum for the second consecutive year in 2002, and gross domestic product grew by just 1.1%. Per capita GDP increased for the fourth straight year (0.8%), while unemployment again declined (3.3%), and real wages fell by 3% as a result of an upturn in inflation (7%). With the international scenario plagued by uncertainties, growth for 2003 is forecast to be as low as 1.5%. The modest performance of these two years is partly explained by deterioration in the terms of trade (-9.1%), a fall-off in international tourism since September 2001, and damage caused by hurricanes Michelle in 2001 and Isidora and Lily in 2002.

    • Ecuador

      Economic growth in Ecuador faltered during 2002, slipping to 3.8% from its 2001 level of 5.5%. This downward trend carried over into the first quarter of 2003, despite an upturn in oil prices; for although output expanded by 2.4% in relation to the first quarter of 2002, it shrank by 0.3% with respect to the fourth quarter. Demand cooled as the confidence generated by dollarization in 2000 and the energizing effect of the construction of the heavy crude oil pipeline both wore off, while hydrocarbons production shrank, particularly in the State oil company, Petróleos del Ecuador (PETROECUADOR).

    • El Salvador

      Economic growth in El Salvador remained sluggish in 2002. Gross domestic product (GDP) increased by 2.2%, which, while it represented a slight upturn with respect to the 1.9% growth recorded in 2001, resulted in the virtual stagnation of per capita GDP, for the third straight year, at just under US$ 2,000. Family remittances edged slowly upward and continued to play an important role in bolstering private consumption and the external accounts. The almost complete dollarization of the money supply helped to keep interest rates and inflation low.

    • Guatemala

      Guatemala’s economic performance showed marked contrasts in 2002. Significant macroeconomic imbalances were corrected as inflation went down and the fiscal deficit narrowed, but GDP growth, at 2.2%, slowed down for the fourth year running, while the trade deficit widened to 12% of GDP. The current-account deficit contracted thanks to the extraordinary flow of remittances. In addition, the influx of short-term capital and loan disbursements increased international reserves.

    • Haiti

      In 2002 Haiti experienced negative economic growth for the second year running, with a downturn of 0.5% in GDP, in an environment of continuing political and institutional instability and consequent drastic reductions in external financing. The public accounts were increasingly fragile and the fiscal deficit was equivalent to 2.5% of GDP. The value of both exports and imports of goods was sharply down, by 10% and 7%, respectively. This poor performance could only worsen an already delicate economic situation, in a country in which per capita GDP is a meagre US$ 417 at 1995 prices. The economic situation has a massive negative social impact and a number of international institutions have even cited the possibility of an imminent humanitarian crisis, as larger and larger segments of the population have reached critical levels of vulnerability. Accordingly, Haiti is the only country in the region to have been classified as a least developed country (LDC), and as such it is eligible for significant amounts of international assistance on very favourable terms.

    • Honduras

      In 2002 the performance of the Honduran economy was hampered for the second year in a row by the slow growth of the world economy, whose effects were compounded by a number of domestic factors that conspired against an economic recovery. The result was a meagre growth rate of 2.4%, which was similar to the previous year’s rate. Inflation continued to trend downward to reach 8.1%, while the rate of unemployment and the real exchange rate varied little. The central government and balance-of-payments current-account deficits were lower than in 2001, at 5.5% and 3.7% of GDP, respectively.

    • Mexico

      In 2003 the Mexican economy looks set to complete a third consecutive year of virtual stagnation, having recorded average annual growth of 5.4% between 1996 and 2000. Gross domestic product (GDP) grew by 0.8% in 2002 –barely half the government’s target– and an expansion of around 1.5% is forecast for 2003. This lacklustre performance is insufficient to avert fresh job losses or to halt the slide in per capita income. The 2002 result reflected a combination of sluggish consumption, a slide in investment for the second year running and a weak performance by non-oil exports, which had been the engine of Mexican economic growth in recent years. A robust upswing in oil exports and lower international interest rates gave contrast to an otherwise largely negative external panorama.

    • Nicaragua

      For the third consecutive year, the Nicaraguan economy experienced a slowdown. In 2002, GDP increased by a mere 0.7%, which represented a decrease of more than two percentage points with respect to the previous year. This translated into a further reduction of the country’s already very low per capita GDP (-1.9%) and an increase in open urban unemployment from 11% to 12%.

    • Panama

      Already faltering external demand weakened still further in 2002, with serious repercussions for the economy as a whole. Productive activity expanded by 0.8%, which was slightly higher than the previous year’s growth rate of 0.4%, but per capita GDP diminished again. Growth was driven by an upturn in consumption, as investment retreated for the third year in a row. Inflation at 1.9% remained low, while the labour market registered a slight improvement. The public-sector deficit came in at 2.3% of GDP, compared to 0.8% in 2001, while the balance-of-payments current account deficit held steady at 1.5% of GDP.

    • Paraguay

      While debate over economic reform raged, severe economic crisis, compounded by poor crop harvests due mainly to inclement weather conditions, conspired in 2002 to produce the sharpest contraction since 1983, in which output shrank by 2.3%. Given Parguay’s rate of population growth, per capita GDP declined by 4.7%, falling back to the level recorded in the early 1990s. Domestic demand sagged (-6%), although total demand decreased by only half that figure thanks to more buoyant exports. Both private and public consumption weakened by around 5%, while gross domestic investment declined for the sixth year running. Unemployment rose to 14.7%, up from 10.8% in 2001.

    • Peru

      Notwithstanding the unfavourable regional environment and the sluggish pace of the global economy, the Peruvian economy rallied strongly in 2002 and, in a move that ran counter to regional trends, growth projections were revised upward in the course of the year. The 5.3% economic growth rate was based initially on mining exports, but increasingly on an upturn in domestic demand, which was boosted by a moderately expansionary monetary policy and some degree of recovery in the labour market. Fiscal policy was less important as a contributing factor, and the non-financial public-sector deficit declined slightly from 2.5% of GDP in 2001 to 2.3% in 2002.

    • Dominican Republic

      Economic growth in the Dominican Republic was again satisfactory in 2002, but it took place in a context of serious macroeconomic instability that worsened in the first half of 2003, with rising inflation, currency depreciation, losses in international reserves and a banking crisis. The expansionary fiscal policy applied at the beginning of the year to compensate for the weakness of external demand had to be abandoned in later months because of macroeconomic imbalances.

    • Uruguay

      Following three years of recession and in the midst of a serious economic and financial crisis, economic activity dropped sharply. In 2002, gross domestic product (GDP) fell by 12% and was 17% lower than the maximum reached in 1998, thereby pulling per capita GDP back down to its 1991 level. Such a dramatic decrease resulted in an unemployment rate of 17% of the economically active population, while inflation, after several years of low figures, rose to an annual rate of around 26%. Despite the reduction in real expenditure, the loss of income resulting from the recession thwarted the authorities’ efforts to reduce the public-sector deficit to less than 4% of GDP. Meanwhile a steep downturn in imports, owing to a sharp fall in domestic demand, helped to narrow the trade gap.

    • Venezuela

      The Venezuelan economy faltered in 2002, as gross domestic product (GDP) shrank by 9%, and gross fixed investment receded by 22%. Inflation soared to an annual rate of 31.2%, compared to 12.3% in 2001, while unemployment climbed to 15.8% from the previous year’s 13.3%. Output is set to shrink by a further 12%-14% in 2003, depending on how quickly and thoroughly it manages to bounce back from the 27.6% slump posted in the first quarter, when oil output plummeted by 47.3% and non-oil production plunged by 19%, compared to their 2002 levels. This bleak economic panorama reflects the convergence of several factors.

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  • Expand / Collapse Hide / Show all Abstracts The Caribbean subregion, 2002-2003

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    • General trends

      In 2002 the OECS economies registered negative growth (-0.3%) as key productive sectors stagnated. The tourism sector languished, reflecting significant structural weaknesses. The manufacturing sector remained uncompetitive by international standards and construction suffered from a reduction in the rate of implementation of investment projects. Agriculture proved to be the exception to this trend, but its development potential remains constrained by internal difficulties and by the effects that the gradual withdrawal of preferential market access will have on the industry.

    • Organisation of Eastern Caribbean States (OECS)

      At the aggregate level the OECS economies improved their fiscal position with respect to the previous year, owing mainly to an improvement in the capital account. This resulted, in turn, from an increase in capital revenue (from EC$ 11 million in 2001 to EC$ 42 million in 2002) and, most importantly, a contraction in capital expenditure (-14%). The reduction in capital expenditure reflected the completion of investment projects and also, in some countries, low rates of implementation of public-sector investment programmes.

    • Bahamas

      The central government’s deficit widened significantly between fiscal years 2000/2001 and 2001/ 2002, then narrowed in fiscal year 2002/2003 (B$ 16, B$ 95 and B$ 147 million). The 2001/2002 outcome resulted from a decline in tax revenues. These revenues were negatively affected by the events of 11 September, which translated into lower receipts from international trade and transactions taxes. Import taxes, which account for 46% of total tax revenues, declined by 12%. In the same vein, tax receipts from tourism-related gaming and hotel occupancy were also affected (-10%). Finally, lower-than-expected non-tax revenues from fines, forfeits and administrative fees aggravated the problem. Meanwhile, expenditure was determined by transfer payments to public corporations (29%), as emoluments remained within the authorities’ target range and capital expenditure fell short (5%) of the amount budgeted. The deficit was financed from domestic and external sources (52% and 48% of the total). This included 80% of the total supplementary borrowing approved by the legislature in June to pay accumulated arrears due to the negative effects of the 11 September events on government revenues.

    • Barbados

      The fiscal result for 2002/2003 was a deficit bigger than the one recorded in the previous fiscal year (12.0% of GDP, as opposed to 11.0% in 2001/2002; excluding amortization and net enterprises, the percentages were 5.6% and 3.8%). This resulted from an increase in expenditure (from 42% to 44% of GDP between the two periods), since the tax/GDP ratio remained constant at 32%. In an effort to avoid increasing in its external debt stock (19% of GDP at the end of 2002), the government financed its deficit from domestic sources, particularly through the ways and means accounts and by drawing on government deposits held at the Central Bank.

    • Belize

      The government reduced its fiscal imbalance (from -6% of GDP in 2001 to -5% in 2002) through improved revenue performance (21% and 25% of GDP in 2001 and 2002) and by restraining the growth of current and capital expenditure (0.3% and 0.7% for 2001 and 2002, respectively). The deficit was financed from external sources. As a result, the external debt increased from 43% to 54% of GDP.

    • Guyana

      The central government reduced its fiscal deficit in relation to the previous year (-9.2% of GDP in 2001 and -7.5% in 2002) as current fiscal revenues (37% and 38% of GDP in 2001 and 2002, respectively) increased and current expenditures stagnated (41% and 42% of GDP in 2001 and 2002). Capital expenditures and revenues did not experience any substantial changes. The deficit was financed by external borrowing and net domestic credit (44% and 56% of the total).

    • Jamaica

      The budget deficit increased from 3.8% of GDP in fiscal year 2001-2002 to 7.7% in fiscal year 2002-2003 as a result of lower-than-budgeted fiscal revenues and a lax fiscal stance. The poor performance of fiscal revenues was mainly attributable to shortfalls in earnings from taxes on interest and, to a lesser extent, on dividends, the self-employment tax, corporate taxes, the bauxite/ alumina tax and international trade taxes.

    • Suriname

      In 2002 the fiscal balance deteriorated from -1.4% of GDP in 2001 to -10.9% in 2002 as a result of an increase in expenditure (from 34% of GDP in 2001 to 43% in 2002) and a marginal decline in tax revenues (33% and 31% of GDP in 2001 and 2002, respectively). The deficit was partly covered by financial development assistance and funds from the central bank, though central bank financing of the fiscal deficit is limited to 10% of government revenues.

    • Trinidad and Tobago

      The central government reduced its surplus from the figure recorded in fiscal year 2000/2001 and registered a virtual balance on its fiscal accounts for fiscal year 2001/2002 (1.8% and -0.3% of GDP, respectively) as a result of tax buoyancy from non-energy sources (8% and 5% of GDP for the two fiscal years, respectively), which partly offset the underperformance of the petroleum sector’s earnings (8% and 5% of GDP in the same period). This result notwithstanding, the taxto- GDP ratio declined from 24.5% to 22.7%.

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