Latin American economy: steady growth, issues and opportunities4 juin 2004 —
Latin American economy: steady growth, issues and opportunities
Latin America will recover from its dismal 1998-2002 economic performance. At least that is the prognosis of economists working for the U.N. Economic Commission for Latin America & the Caribbean (ECLAC), the World Bank and, with some reserve, also those at the International Monetary Fund (IMF). Depending on who one believes, in 2004 the Latin American economies are expected to grow by a solid 3.8% to 4,1%.
Venezuela leads the pack. Fueled by expectations for a presidential referendum and the increase in oil prices, the country should rise from its 2002 record breaking -8.9% slump, to a whooping 10.3% in 2004. In Uruguay, thanks to its neighbors’ revitalized appetite for its exports, the economy improved by 2.5% in 2003 and should further grow by 7.5% in 2004, Argentina, leaving behind its massive 2002 debt default, grew by 8.7% in 2003 and hopes to reach 6.5% in 2004, yet it still needs to increase its fiscal surplus. Ecuador, should high oil prices persist, will probably manage a respectable 5,0% growth.
Chile’s economy, one of the most stable in the Region, will likely rise at a rate of 4,7%, Panama at 4,5%, and Peru, Paraguay, Nicaragua, Honduras and Colombia should grow by 3% to 4%.
Investors’ anxiety over the socialist past of Brazilian President Lula da Silva prompted a 0.2% contraction in 2003. However 2004 should be a better year and, depending on Brazil’s ability to manage its financial markets, the economy should grow at a 3,5% pace. Mexico’s economy, having grown only by 1.3% in 2003, anticipates a 3.3% improvement in 2004 but, in order to sustain future growth, will have to continue its reforms program particularly in the areas of energy, labor and taxes.
The least performing economies will be those of the Dominican Republic, Guatemala, Bolivia and El Salvador, expected to grow at less than 3% per annum.
On a sub regional scale, South America’s economy should see an expansion of 4,4%, Mexico together with Central America 3,4%, and the Caribbean 2,9%, a respectable performance when compared to the 1998 - 2003 growth of 2.3% and more so if compared to the 2000 – 2003 period when it was only 0.5%.
Worldwide economic growth rose from 1.8% in 2002 to 2.6% in 2003, and is expected to reach 3.7% this year. It is estimated that the developing countries, as a group, grew by 4.8 % in 2003, and the anticipation for 2004 is 5.4%, thus surpassing their previous 5.2 % percent record high in 2000.
In contrast to other developing regions, 2003 gains in Latin America relied on stronger net exports, contributing in 2003 one percentage point to growth. However, both domestic demand and domestic spending decreased, cutting the aggregate current account deficit from $53 billion in 2001 to $4.5 billion in 2003. As domestic demand recovers so will the propensity to import, with the consequent risk of a deterioration of external accounts, a situation that should be prevented through prudent fiscal policies.
According to Manor Dalai, lead author of the ECLAC report, “Latin America’s policy challenge is to target a sustainable pace of growth, specially by addressing the structural issue of improving productivity, and avoid temptations to over borrow in the context of the weaker dollar and the lower interest-rate spreads. Possibly the principal risk to the outlook for Latin America is a sudden rise in international interest rates”.
Growth in the region has been slow mostly due to the uneven performance throughout the countries. But now, with the broadening recovery across the board, Latin Americans would be wise to use the opportunity to reduce macroeconomic weaknesses and implement structural reforms particularly in terms of controlling inflation, making exchange rates more competitive and flexible, developing outward oriented strategies to increase trade flows and reduce export earnings volatility, and hence build up a resistance to future economic shocks.
While there are aspects that Latin America must rectify, this is not exclusive to that region alone. All countries have economic issues, strengths and weaknesses, and economic cycles are an ineludible fact of life. The truth remains that expected economic growth constitutes a key determinant for attracting business. Latin American growth numbers speak for themselves, specially now when other geographic options suggest a re evaluation of diversification strategies in the light of the improved Latin American economies, and the signing of the Free Trade Area of The Americas in 2005.
Mr. Juan Rada
Venezuelan Exporters’ Association / Latin American Trends
Canada Representation Office
11 St. Pierre Ouest
St. Sauveur des Monts (Québec)
Tél.: (450) 240-1081
Fax.: (514) 284-2397
(c) LatInfo 2004.