Latin America: ECLAC warns of impacts from potential US recession

by Gustavo Gonzalez

Santiago, 22 Mar 2001 (IPS) -- The economic cool-down in the United States has been greater than expected and paints a “very worrisome” picture for Latin America, said Jose Antonio Ocampo, executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Thursday, calculating that the region’s growth for this year will be “3.5% or less.”

The virtual US recession, within an already complicated global economic context, prompted ECLAC to revise downward its original 3.8% projection for the region’s combined gross domestic product (GDP) for this year, a rate formulated in December 2000.

Alan Greenspan, chairman of the Federal Reserve, the US central bank, indicated that economic growth in his country is null, while some analysts are already talking about negative growth there, pointed out Ocampo as he presented ECLAC’s annual report on the international economic insertion of Latin America and the Caribbean.

The coincidence of the US slowdown with new economic debilitation in Japan is reflected “in a very strong deceleration of the Asian economies,” said the chief of the regional economic agency of the United Nations.

In confronting this complex international economic situation, Latin America possesses some mitigating factors, including “the vigour [that] the Brazilian economy continues to demonstrate,” Ocampo said.

The Colombian-born economist added that, in the immediate future, the determining factors will be the quickness of US decision-making in combatting the threat of recession, as well as the measures European authorities adopt to maintain their countries’ economic growth.

Ocampo said that Latin America’s central banks should follow the trend set by the United States in reducing interest rates; with greater cuts in those countries whose economies are showing signs of waning.

ECLAC’s latest prediction for the Latin American economy this year - “3.5% or less” - is slightly more pessimistic than that of the Inter-American Development Bank (IDB), which concluded its annual meeting in Santiago on Wednesday with a provisional estimate of “at least” a 3.5% expansion.

Ocampo pointed out that the potential increases daily for a sharper deceleration of the Latin American economies, especially those that are most dependent on the United States.

The greatest threat hangs over Mexico and Central America, which in the last two years escaped the impact of the Asian financial crises, thanks largely to close ties with the United States, both geographically and commercially.

The ECLAC report, presented Thursday, underscores the fact that Latin American and Caribbean exports grew 20% in value and 11% in volume in 2000, compared to 1999, representing the highest export expansion rates of the decade.

The greatest portion of export growth was provided by the leading fossil fuel producers, Colombia, Mexico and Venezuela, and by Chile.

The regional economy saw a 4.0% expansion last year, in the context of a world economy that grew 4.7%.

The only regions that registered lower growth than Latin America were Africa and Europe, with 3.4% each. The United States, meanwhile, saw a GDP rise of 5.0%.

ECLAC states that truly global markets are still a long way off, and that only the financial markets can currently be described as such.

Meanwhile, the migration of the workforce faces all sorts of obstacles, and international trade, especially in areas of interest to Latin America, continues to be subject to protectionist measures.

Financial globalization had a positive impact on domestic economies by permitting access to the means of international financing and to direct foreign investment, says the UN regional agency’s report.

But the text then immediately warns about the impact of the most recent international financial crises on the developing countries that are integrated furthest into the global economy.

This impact has been so intense that “financial instability could become one of the least auspicious characteristics of the world economy.”

Transnational corporations have shown a marked increase in their participation in the region’s exports, growing from 18% in 1995 to more than 31% in 1999, surpassing 30% in Argentina, Chile, Mexico and Peru.

The report also highlights the expansion of intra-regional trade, which in 2000 recovered the dynamic it had lost in the two previous years.  The Community of Andean Nations enjoyed a 35% upsurge in trade among the bloc’s members, while Mercosur (the Southern Common Market) recorded a 20% rise.

ECLAC reported that the region has maintained its commitment to trade opening, a process begun in the 1980s, despite the unfavourable external climate. Latin America and the Caribbean have the lowest tariffs among developing countries.

Nevertheless, asymmetries persist in multilateral trade that grant “greater negotiating power to industrialised countries, (which has) allowed them to defend their national interests with greater effectiveness than other countries,” states the ECLAC annual report.