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 2006-2007

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16 Apr 2007
9789211561111 (PDF)

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The publication surveys the main economic events and developments of 2006 and the first half of 2007 in the light of the region’s recent economic performance. The fifty-ninth edition of the survey is aimed to provide further inputs for the economic debates concerning means of promoting a rapid, sustainable growth process capable of creating conditions conducive to an improvement in the living conditions in the region. It also describes various aspects of the regions economic growth dynamics. The tables provided in the statistical appendix provide ready access to data for recent years and facilitate the creation of spreadsheets. The edition is supplemented by a CD-ROM.

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  • Foreword

    ECLAC has been publishing the Economic Survey for 59 years now. The first edition of this report was drawn up under the Executive Secretary’s supervision at the behest of the Commission, which requested that “an economic survey of Latin America” be prepared. That document was the new Economic Commission’s first contribution to an understanding of the region’s development process. The Survey thus embodies the Commission’s fulfilment of one of the specific purposes for which it was created by undertaking or sponsoring “the collection, evaluation and dissemination of … economic, technological and statistical information …” on the region. In fact, the former Director of the Central Bank of Argentina, Raúl Prebisch, arrived in Santiago as a consultant to work on the 1948 edition of the Economic Survey. Ever since then, the Survey has served as a witness and as a leading actor in the economic development of Latin America and the Caribbean.

  • Executive summary

    Against the backdrop of an extraordinary performance on the part of the world economy, which is enjoying solid, widespread growth, the Latin American and Caribbean countries are currently going through extremely favourable economic times. Almost all of the countries of the region have been growing steadily since 2003. In 2006, the region posted a growth rate of 5.6%, and ECLAC projections point to GDP growth of 5.0% for 2007 and 4.6% in 2008. If these projections are borne out, the region’s per capita GDP will have risen by 20.6% (over 3% per year, on average) by the time it completes its sixth consecutive year of growth.

  • Regional overview

    Conditions in the Latin American and Caribbean economies have been highly favourable, and this has been reflected in the sustained growth of nearly every country in the region since 2003. In 2006, the region posted a growth rate of 5.6%, and ECLAC is projecting GDP growth of 5.0% for 2007 and 4.6% for 2008. If these projections are borne out, the region will have registered a cumulative increase of 20.6% in per capita GDP (somewhat over 3% per year) by the time it completes its sixth consecutive year of growth in what appears to be turning into the strongest (and longest) growth spell since 1980.

  • Investment, saving and growth in Latin America: Analytical and policy issues

    Under a new outward-looking approach to the promotion of development, Latin America has seen a modest recovery in growth and investment during the 1990s and early 2000s. This recovery comes in the wake of the stabilization efforts and reforms that followed the 1980s debt crisis. While the region’s growth performance has not yet reached the rates achieved in the 1960s and 1970s and remains well below the rates being posted by Asia, the Middle East and Eastern Europe, the reactivation has nonetheless aroused greater interest in the factors that contribute to economic growth in the region and, in particular, in the role played by investment as a source of economic growth.

  • Economic growth in Latin America and the Caribbean: Growth transitions rather than steady states

    Recent evidence on economic growth indicates that growth fluctuations at frequencies of a decade or so are at the centre of the Latin American countries’ growth story. Growth in Latin America in particular and in developing countries in general is an irregular and highly volatile process in which a given country may experience several different growth transitions or growth spells (accelerations and decelerations). Steady growth around a well-defined, stable trend is clearly not a good description of the actual growth experience of Latin American countries. In this context, investment has played an important role as a source of growth, while national saving has been the main source of investment financing. Foreign saving has played a secondary role and has generally been substituted for national saving, rather than augmenting the total amount of savings available in Latin America. The high volatility and vulnerability to external swings exhibited by foreign capital have made foreign saving an unstable source of investment financing.

  • Reflections of economic growth in Latin America and the Caribbean

    In recent years, ECLAC has published several studies and organized two seminars on economic growth in Latin America and the Caribbean. In the first seminar, held in 2003, Solimano and Soto (2006) presented stylized facts revealing that the economic growth of Latin American countries has been very uneven and volatile. Since 1980, growth has slowed and there have been significant differences in the relative performance of the region’s countries. Also presented at the seminar was a series of regional studies analysing the economic growth of each country. In other studies commissioned by ECLAC, Gutiérrez (2005) provided data on the impact of investment and other variables on growth, and went on to analyse the determining factors of the level of savings and how this ties in with economic growth (Gutiérrez, 2007b).

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  • Expand / Collapse Hide / Show all Abstracts South America

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    • Argentina

      The Argentine economy continued to grow briskly in 2006. In fact, GDP increased by 8.5%, while aggregate economic activity expanded by 8.1% in the first quarter of 2007. This represents a marked recovery by the economy in the five-year interval since 2002, in which the absence of external constraints or public borrowing restrictions is a rare occurrence in Argentina.

    • Bolivarian Republic of Venezuela

      In 2005, the Bolivarian Republic of Venezuela recorded GDP growth of 10.3%, driven by buoyancy in non-oil activities (11.7%). With the exception of the petroleum sector (-1.9%), all branches of economic activity registered rises, with the highest rates being observed in construction (32.1%), financial services (39.2%), communications (23.2%) and commerce (19.9%). On the demand side, the components that showed the strongest growth rates were investment (30%), chiefly public investment in infrastructure, and private consumption (18.8%). In the first quarter of 2007 the economy expanded by 8.8% over the same quarter of the preceding year. Although still high, this rate of growth represents a slowdown in economic activity.

    • Bolivia

      In 2006, in keeping with the two preceding years, the Bolivian economy recorded favourable performances in several sectors. GDP grew by 4.6 %, the non-financial public sector (NFPS) showed a surplus of 4.5 GDP percentage points, and the balance of payments closed with a surplus of US$ 1.516 billion, US$ 1.012 billion above its 2005 value. The current account posted a surplus of US$ 1.319 billion. The balance of payments surplus generated an increase in net international reserves of US$ 1. 464 billion, to an unprecedented high of US$ 3.178 billion. The external debt dropped US$ 1.707 billion and the inflation rate stood at 4.95%.

    • Brazil

      The Brazilian economy increased its growth rate during 2006 and the first few months of 2007. Although the country is growing more slowly than the average for the region and other emerging economies, its economy has nonetheless expanded for 15 consecutive quarters. GDP rose by 3.7% in 2006, with an increase of around 4.5% expected in 2007. In 2006, cumulative inflation fell to 3.1%, while external indicators also showed favourable results. The value of merchandise exports climbed by 16% and merchandise imports by 24%, which resulted in a wide trade surplus (US$ 46.0 billion). International reserves stood at US$ 143.0 billion in June 2007, which is the equivalent of 81% of total external debt (US$ 176.0 billion in March 2007). Real wages increased for the second year in a row in 2006 (4.0%), while the fiscal balance posted a primary surplus for the seventh year running (3.9% of GDP in 2006). Net public debt shrank to 45% of GDP.

    • Chile

      In a year that saw the new government take up office in March, the country’s economy expanded by 4.0% in 2006, which was lower than the figures from the previous two years and initial projections. This was due to declining private and public investment, falling government consumption and the larger proportion of imports within private consumption.

    • Colombia

      The 6.8% growth rate observed in 2006 exceeded the expectations of the economic authorities and leading analysts alike. Buoyant domestic demand (consumer spending and investment) continued to drive growth and the good pace of economic activity improved the fiscal indicators. The central bank raised its intervention rate a number of times from April onwards to curb rising demand. The consumer price index rose 4.5%, thus keeping inflation on target. Unemployment rose in the second semester of the year despite the high economic growth rate. In the area of foreign trade, exports and imports continued to register high growth rates, as did flows of FDI.

    • Ecuador

      Ecuador’s economy grew by 4.1% in 2006, as compared to the 4.9% growth rate recorded in 2005. Unemployment fell and the employment rate rose on the strength of the buoyant performances turned in by sectors employing a large workforce, such as services (including commerce). Annual inflation remained low at 2.9%, while exchange-rate competitiveness was buoyed by a depreciation of the United States dollar against the currencies of Ecuador’s trading partners.

    • Paraguay

      The Paraguayan economy’s expansion by 4.2% in 2006 was driven by the service sector, which registered an exceptionally high growth rate of 6.3%. The agricultural sector recorded a moderate upturn of 0.6% in what turned out to be the third consecutive year of drought. The livestock sector expanded by 9%, with meat exports soaring by 67% as a consequence of an outbreak of foot-and-mouth disease in Brazil and the restrictions placed on Argentine meat exports. The current account showed a deficit of around 2% of GDP despite these results, but the capital and financial account reflected substantial inflows of foreign exchange into the country which resulted in a 13% appreciation of the guaraní against the United States dollar. Inflation rebounded considerably in the last three months to close the year at 12.5%, mainly due to supply constraints in the fruit and vegetable sector.

    • Peru

      The Peruvian economy grew by 8.0% in 2006. Cumulative growth for the past five years stood at 32%, resulting in a 23% rise in per capita GDP. The unusually favourable external environment, particularly the high prices of the country’s main exports, led to high surpluses on the trade balance and the balance-of-payments current account. High fiscal revenue created a surplus equivalent to 2.1% of GDP in the non-financial public sector. This, together with strong inflows of foreign exchange, lessened external vulnerability thanks to reduced debt and increased international reserves. Low inflation (1.1% in late 2006) and a nominal exchange-rate appreciation promoted the dedollarization of the financial system. Unlike that of previous years, economic growth was largely based on domestic demand, which showed its greatest expansion in 10 years, stimulated by considerable job creation and strong private investment.

    • Uruguay

      In 2006, the Uruguayan economy continued to expand, recording 7.0% GDP growth with the manufacturing industry, construction, transport and communications and the agricultural sector all putting in a strong performance. Domestic demand was strong, buoyed up by investment. Inflation rose slightly to stand at 6.4%, while the fiscal position improved and the fiscal deficit contracted to 0.6% of GDP. Reflecting the more robust economic activity as well as the rise in oil prices, imports expanded sharply, causing the merchandise trade deficit to widen, but the growing financial flows were more than sufficient to offset the resulting balance-of-payments current-account deficit.

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  • Expand / Collapse Hide / Show all Abstracts Mexico and Central America

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    • Costa Rica

      After a hiatus of 20 years, former President Oscar Arias Sánchez was re-elected to the presidency of Costa Rica in February 2006 and took office in May. Despite the uncertainty typical of any electoral process and change in administration, the country’s growth dynamic and macroeconomic stability were unaffected.

    • El Salvador

      Real GDP in El Salvador grew by 4.2% in 2006, resulting in the largest increase in per capita GDP (2.6%) for nine years. Such buoyancy was due to a rise in investment (10.8%) and an impressive performance in agriculture and services. This in turn helped to bring down unemployment to 6.6%. Nevertheless, this growth rate was below the average for Latin America.

    • Guatemala

      The Guatemalan economy grew by 4.9% in 2006, the best performance since 1998. Growth was driven by burgeoning private consumption fuelled by family remittances (12% of GDP). Inflation was down to 5.8% (8.6% in 2005), the fiscal deficit widened slightly (1.9% of GDP) and the balance-of-payments current account deficit remained unchanged at 5.1% of GDP. Despite the wide trade deficit (17.6% of GDP), international reserves continued to swell thanks to significant receipts from abroad.

    • Honduras

      Economic growth accelerated from to 4.1% in 2005 to 6% in 2006 —its highest rate since 1993. This buoyant performance reflected rises in investment and private consumption fuelled by significant inflows of family remittances (which represent 26% of GDP). Per capita GDP rose for the third year running, while the nationwide unemployment rate dropped to 3.3%, although underemployment remained high (29.9%). Twelve-month inflation fell to 5.3%, compared with 7.7% in 2005. In the external sector, the trade deficit reached at 26% of GDP (21% in 2005). Given that the trade and income deficits were financed using current transfers, the current-account deficit was relatively small (1.9% of GDP).

    • Mexico

      The Mexican economy posted growth of 4.8%, with all the components of aggregate demand rising strongly in the first three quarters, although this trend weakened towards the end of the year. Consumption was up by 5.1%, fixed investment by 10% and exports by 11.1%, all driven by the motor vehicle sector, which contributed to the largest expansion in employment in the last six years and helped to narrow the balance-of-payments current account deficit (0.2% of GDP).

    • Nicaragua

      Economic growth slowed slightly in 2006: GDP expanded by 3.7%, as exports rose and domestic demand lost some of its momentum.

    • Panama

      In 2006 the Panamanian economy grew rapidly for the third consecutive year. GDP rose by 8.1% (6.9% in 2005) while per capita GDP expanded by 6.3% during the year and 17% over the last three years. Favourable international conditions boosted exports of goods and services, while domestic demand remained very buoyant, bolstered by the abundance of credit. The public sector posted a surplus, and the balance-of-payments deficit was halved. Open unemployment continued to fall, and real wages edged up slightly, in part because of the moderating inflation.

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  • Expand / Collapse Hide / Show all Abstracts The Caribbean

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    • Bahamas

      Economic growth in the Bahamas rose to 3.4% in 2006, the highest figure in the past seven years, with tourism as the main engine of that growth. Visitor numbers have declined slightly (1%) but demand for real estate from non-residents and investment in hotel complexes boosted construction, which grew by 25%. Higher tax receipts from increased imports and real-estate transactions helped to improve fiscal accounts. Spending rose by almost one percentage point of GDP, for reasons which included preparations for the general election in April 2007, but revenue increased more, by 1.5 points of GDP. Liquidity increased, particularly credit to the private sector, but inflation remained low, close to the United States price index. The balance-of- payments current account deficit almost doubled, and although the surplus on the financial account expanded owing to very strong external capital inflows, it was not enough to make up for the current-account deficit. Net international reserves diminished.

    • Barbados

      The GDP of Barbados grew for the fifth consecutive year since the recession of 2001, this time by 3.8%. As in the previous year, growth in 2006 was boosted by the domestic economy, with both construction and basic services showing growth of almost 7%, while traditional export sectors such as tourism and manufacturing stagnated. The imbalance between growth in sectors that cater to the external and domestic markets is worrisome, particularly because the economy of Barbados operates under a fixed exchange rate regime whose sustainability depends on international reserves and therefore on its capacity to generate or attract foreign exchange. The planned removal of exchange controls in 2007, part of the gradual integration of the CARICOM Single Market and Economy (CSME), will accentuate the need to stimulate the foreign exchange-generating sectors. The National Strategic Plan of Barbados 2006-2025 lays out strategies to enhance competitiveness and strengthen the brand image of Barbados in world markets.

    • Belize

      The Government of Belize has calculated GDP growth at 5.8% for 2006; this includes a 3.3 percentage point contribution from oil drilling activities which started that same year. Demand for tourism services and the high prices brought by agricultural exports stimulated the performance of the economy, but construction and manufactures contracted. The external debt, which had a fairly short maturity profile, was restructured through new bond issues with terms up to 2029.

    • Cuba

      According to information from the National Statistical Office, the Cuban economy expanded by 12.5% in 2006, which was similar to the figure for per capita GDP growth, owing to the standstill in population numbers during the year. The fiscal deficit was equivalent to 3.2% of GDP, one percentage point smaller than in 2005. The inflation figure to December was two percentage points higher than for 2005, at 5.7%. Open unemployment remained low, registering 1.9%, the same rate as in 2005.

    • Dominican Republic

      In 2006, the economy of the Dominican Republic posted considerable growth. Annual GDP growth was 10.7%, the highest rate in 19 years. Employment expanded by 4.8%, more than double the previous year’s figures. Despite higher international oil prices, inflation fell again and stood at 5%. However, the public-sector deficit widened to 3.7% of GDP and the trade deficit broadened to 15.1% of GDP.

    • Guyana

      Following its contraction in 2005, the Guyana economy achieved significant growth (4.7%), driven mainly by the construction and agriculture sectors. Gasoline subsidies helped to curb inflation. Various infrastructure works, notably those undertaken in preparation for the Cricket World Cup, resulted in some level of fiscal expansion, although fiscal savings were also achieved thanks to the Multilateral Debt Relief Initiative (MDRI).

    • Haiti

      In 2006, the Haitian economy again experienced positive GDP growth (2.3%) and a drop in inflation to 10.2% for the 12-month period to December 2006 (down from 14.8% in the previous year). Steps taken to restructure public finances resulted in fiscal equilibrium without monetary financing from the central bank and the economy benefited from the inflow of current transfers to the tune of US$ 1.382 billion, or the equivalent of 29% of GDP.

    • Jamaica

      Jamaica’s economy expanded by 2.5% in 2006 which, although a modest performance, was the best for 11 years. The growth was driven by good macroeconomic conditions, including a drop in the inflation rate to 5.8% (the first single-digit record since 2002), falling interest rates and a rise in net international reserves. The economic expansion reflected the recovery in agriculture (15%) and a strong performance from tourism-related services, such as transport and communications (4.6%) and commerce, restaurants and hotels (3.9%).

    • Suriname

      The economy of Suriname has been improving steadily, with sustained growth since 2000. GDP was up 5.8% in 2006 and inflation fell to 4.7%, showing that the abolition of the petrol subsidy in September 2005 did not have a lasting impact on inflation. This positive situation resulted from prudent monetary and fiscal policies together with favourable commodity prices, particularly for crude oil. The debt to output ratio fell, and part of the overdue debt was restructured. As a result, Standard & Poor upgraded the country’s sovereign debt for the first time, with ratings of B+ and B for bonds in local and foreign currencies, respectively, with a positive outlook.

    • Trinidad and Tobago

      Trinidad and Tobago’s impressive economic growth reached 12% in 2006. The main driving force continues to be the energy sector, which includes oil, natural gas and related products. Growth in the energy sector followed the positive trend of recent years and, thanks to its contribution to tax receipts, financed a considerable increase in public spending. This in turn gave rise to rapid growth in the construction and manufacturing sectors.

    • Member countries of the Eastern Caribbean Currency Union

      In 2006, the economies of the Eastern Caribbean Currency Union (ECCU) recorded growth for the fifth consecutive year, following a contraction in activity in 2001, when tourism and FDI were dampened by fallout from the events of 11 September. The 7.1% expansion exceeded the 2005 rate of 5.8% and was the highest for the five-year period. This reflected the dynamism exhibited by the construction industry as the countries undertook to construct or modernize stadiums, road networks and other infrastructure, while the private sector expanded the capacity of hotels and other accommodation facilities in preparation for the Cricket World Cup. The demand pressure associated with accelerated growth did not affect price levels, however, as inflation eased from 4.6% in 2005 to 1.4% in 2006.

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