ECONOMY-LATAM: IADB Pessimistic about Immediate Future

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Mar 11 2002 (IPS) - Foreign direct investment in Latin America and the Caribbean is shrinking, but the region is expected to grow two percent this year and inflation will be kept under control, says a new Inter-American Development Bank (IADB) report.

But IADB president Enrique Iglesias was more pessimistic than the report presented at the inauguration of the bank’s 43rd Annual Assembly, a three-day event that began Monday in the northeastern Brazilian city of Fortaleza.

Iglesias forecasts stagnation this year, similar to last year’s, calculating that the region will see just 0.5 percent growth for 2002. A “modest” recovery could potentially begin in 2003, he said, adding that the U.S. economy, if its expansion persists, could improve the outlook.

The IADB report, although it considers the prospects of Latin America and the Caribbean to be better this year, in comparison to those of 2001, it is still “one of the most critical periods in several decades” for the region.

The economy is particularly vulnerable to international turbulence because it depends on foreign direct investment, which is on the decline. In 1999, the in-flows of these resources reached 72 billion dollars, but had fallen to 57 billion last year.

The region also suffers from serious losses resulting from the deterioration in the terms of exchange. Since the Asian financial crisis of 1997, commodity prices, excluding petroleum, have fallen 26 percent, and global trade has slowed, hurting Latin American and Caribbean export revenues.

The IADB report lists some favourable points, such as the fact that economic recession is not expected in the region this year, and that inflation will continue its downward trend, with rates in the single digits for the leading Latin American economies.

But this, of course – says the bank -, excludes Argentina, which is suffering a severe economic, social and political crisis.

Argentina was the hot topic in Fortaleza, the subject of several seminars taking place in the last four days in the lead-up to the IADB’s annual meeting.

Jorge Remes Lenicov, Argentina’s Economy Minister, stressed his country’s urgent need for “material support”, in other words funds aimed at preventing the economic and social crisis from growing any worse and threatening a breakdown in political institutions.

The Eduardo Duhalde government represents Argentina’s “last chance” for maintaining democratic normalcy and governing the country until the September 2003 elections, but time is running out to prevent all-out chaos, warned the minister.

Brazil’s President Fernando Henrique Cardoso urged the International Monetary Fund (IMF) and the entire world financial community to grant “immediate assistance” to Argentina, which, in his opinion, has already implemented the political and economic measures required to receive the “indispensable” credits.

Cardoso participated in the opening ceremony of the IADB assembly, alongside two other presidents, Alejandro Toledo of Peru and Gustavo Noboa of Ecuador, with whom he reviewed the status of the peace accord signed four years ago, ending a border conflict between the two Andean nations.

Brazil’s Planning Minister, Martus Tavares, chairman of this year’s Assembly, underscored that Argentina requires urgent and concrete assistance, and appealed to the IADB to back policies that prevent a more accentuated economic deterioration in the region.

The Latin American economy must expand at least 3.5 percent a year in order to combat poverty and social inequalities, but hopes for such a performance have been dashed in recent years, mostly as a result of external problems, said Tavares.

Bank chief Iglesias, in his opening speech, expressed his concern about the path that Latin America and the Caribbean are following.

He defends the implementation of policies aimed at reducing the social effects of economic stagnation and the financial vulnerability of the region, as well as measures to foment economic growth.

But he criticised the lack of domestic savings, saying it leads to dependence on foreign capital, and he identified new threats to the region, such as the Argentine crisis, the intensification of the civil war in Colombia, and the political instability of Venezuela.

Furthermore, the increased protectionism practiced by industrialised countries hurts the outlook for Latin American exports, said Iglesias.

A study conducted by the adviser to the IADB research department, Eduardo Lora, makes it clear that the region’s population has not been pleased with the results of the economic reforms launched during the last decade, which included privatisations, trade and financial liberalisation, fiscal adjustments, and the loosening of labour laws.

According to opinion polls, 61 percent of respondents give the current economic situation a negative rating, while 85 percent say that income disparities worsened, 63 percent believe privatisations did not produce good results, and 64 percent say that democracy is not delivering on its promises.

And the IADB itself has been targeted for the negative perception of the reforms. More than 1,000 protesters, including rights activists, labour unionists, students, and leftist party militants, marched the streets around the assembly venue, shouting “IADB, the hunger bank!”