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ECONOMY: Latin America Grows Despite Global Uncertainties

Daniela Estrada

SANTIAGO, Jul 24 2010 (IPS) - More fixed capital investment to improve competition, greater added value to exported goods and services, and tax reforms to finance social policies are some of the challenges Latin America and the Caribbean face in the uncertain global economic panorama.

“This year we are going to grow well, but next year the growth rate will be lower and the outlook for the future is quite uncertain,” Osvaldo Kacef, director of the economic development division at the Economic Commission for Latin America and the Caribbean (ECLAC), told IPS.

It is possible that “the future growth rates won’t be enough for the labour markets to absorb the workforce necessary for it to improve the social situation,” Kacef added, considering that the number of people living in poverty increased from 180 million in 2008 to 189 million in 2009 — 34 percent of the region’s population.

That scenario “forces us to maintain public policies that bring income to sectors that are left out of the labour market,” which requires “solid fiscal pacts” so that governments have the necessary resources available, he added.

Most of the Latin American and Caribbean countries are seeing growth this year, with an unexpected expansion of 5.2 percent on average, but in 2011 the forecast is just 3.9 percent, according to figures released by ECLAC, a United Nations regional agency, Wednesday in the Chilean capital.

This year’s growth will help unemployment in the region shrink from 2009’s 8.2 percent of the economically active population to 7.8 percent.

The overall gross domestic product (GDP) of Latin America and the Caribbean shrank 1.9 percent last year as a result of the global economic crisis that emerged in the United States in mid-2008 — the worst since the 1929 Great Depression.

According to the Economic Survey of Latin America and the Caribbean 2009- 2010, the leaders in growth this year are Brazil, with a projected GDP expansion of 7.6 percent, Uruguay and Paraguay with 7.0 percent, Argentina with 6.8 percent and Peru with 6.7 percent.

Following them in the ranking are the Dominican Republic (6.0 percent growth), Panama (5.0 percent), Bolivia (4.5 percent), Chile (4.3 percent), Mexico (4.1 percent), Colombia (3.7 percent), Ecuador and Honduras (both with 2.5 percent), and, finally, Nicaragua and Guatemala (2.0 percent).

In contrast, Venezuela’s GDP will shrink 3.0 percent, due in part to a decline in petroleum exports, which fell 30.4 percent in 2009, and to the rationing of electricity suffered by that country.

Haiti’s economy will see a sharp decline of up to 8.5 percent as a result of the tragic January earthquake in Port-au-Prince, although in 2011 the Caribbean nation is expected to lead the region, with 7.0 percent growth, thanks to broad reconstruction efforts.

Chile, also thrashed by an earthquake as well as a tsunami in February, will follow on Haiti’s heels next year, with 6.0 percent GDP expansion.

For Kacef, the uncertainty arising from the crisis in the European Union is forcing the countries of the region to maintain their macroeconomic balance, but without disincentivising competition, fixed capital investment, or exports of goods and services with greater added value.

“The region has a deficit of fixed capital investment, particularly in infrastructure, machinery, and roads,” he said.

Another aspect is that “sometimes political leaders put too much emphasis on controlling inflation, and the exchange rate is left as a residual variable,” he said by way of critique, noting “the real exchange rate affects the designation of resources in the long term.”

In his view, Latin American and Caribbean countries can improve in regulating the entry of speculative and unproductive foreign capital.

Currently the world’s leading economies are debating the most appropriate strategy for confronting the international economic crisis.

ECLAC executive secretary Alicia Bárcena of Mexico made a distinction between the position of the United States and Mexico, which advocate continued fiscal incentives as a way to reactivate the economy, and that of some European countries, which have staked their bets on reducing their huge fiscal deficits by slashing social expenditures.

According to Bárcena, ECLAC’s recommendation is more in line with the emerging nations and the United States, in that it does not call for drastically eliminating stimulus efforts.

In 2008, most of Latin America’s export goods went to the United States (40.7 percent), followed by Europe (13.9 percent), China (4.8 percent) and Japan (2.2 percent). The remaining 18.2 percent represents interregional trade and sales to other regions.

In regional terms, it means Latin America and the Caribbean are more exposed to fluctuations in the U.S. markets than other export destinations, according to ECLAC.

South America, meanwhile, is more vulnerable to the EU crisis, particularly Argentina, Chile, Peru and Uruguay, because in those countries “the estimated weight of exports to the EU is greater or equal to four percent GDP,” states the report.

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