Latin American Economies Hammered in 1998

By Thalif Deen, IPS, 11 June 1999

UNITED NATIONS, June 11 (IPS) - Latin America and the Caribbean fared the worst of any region in the world last year after being hit by a severe economic crisis and then by a series of natural disasters, according to the United Nations.

1998 was one of the most problematic years of recent times, said a new UN economic survey of Latin America and the Caribbean released here Thursday.

Unlike Southeast Asia - which was devastated only by a financial crisis - Latin America and the Caribbean suffered from adverse weather conditions perhaps on an unrivalled scale.

First, there was the El Nino phenomenon which affected the entire region. Then came a series of hurricanes that ravaged several Central American and Caribbean countries, including Nicaragua, El Salvador, Guatemala and Honduras.

Additionally, the destructive economic effects of the international financial crisis that broke out in Asia in mid-1997 also restricted Latin America's access to external financing.

Tumbling export prices translated into the first drop in the value of the countries' exports to be recorded so far this decade, and this in turn led to a further deterioration in the balance-of- payments current accoount, the UN study said.

Faced with this bleak outlook, economic authorities displayed a strong determination to confront the crisis head on and build confidency by applying no-nonsense monetary, fiscal and exchange- rate policies, the report said.

The average economic growth of the entire region was halved - falling from 5.5 percent in 1997 to 2.2 percent in 1998. However, the only consolation was that the growth rate was still higher than the average for the world economy as a whole, which stood at 1.7 percent.

The prospects for 1999 are sombre, the report said, adding that the outlook remains highly problematic.

The full economic impact on the nations that sustained hurricane damage would only be felt later this year, the report said.

Argentina's growth rate fell from 8.0 percent in 1997 to 4.2 in 1998, Brazil's from 3.8 percent to 0.2 percent, Chile's from 6.4 percent to 3.3 percent, Colombia's from 3.2 to 0.2 percent, Guyana's from 6.1 percent to minus 1.6 percent, Venezuela's from 5.5 percent to minus 0.7 percent, and Mexico's from 7.1 percent to 4.8 percent.

The UN report said that the slowdown in the overall level of activity was due to the results recorded by 13 of the countries in the region - notably, Argentina, Brazil, Guyana, Peru and Venezuela, where growth in 1998 was between 3.5 and 7.0 points lower than the previous year.

Costa Rica was one of only two countries to buck this trend and turn in a substantially better performance than the year before, with a 6.2 percent growth rate in 1998 compared with 3.4 percent in 1997.

The Dominican Republic, on the other hand, posted an average of about 7.0 percent for the third year in a row: rising from 4.5 percent in 1995 to 6.8 percent in 1996, 7.1 percent in 1997 and 7.3 percent in 1998.

According to the report, the downsizing of the region's economies was more serious than suggested by growth rates because, in many countries, it deepened as the year progressed. The unfavourable conditions observed in 1998 were reflected more clearly in the industrial activity of the countries in the region.

The most serious downturn was in Brazil, where industrial output dropped by 3.0 percent after having climbed by more than 4.0 percent in 1997, the report said.

Argentina also returned poor results industrial activity sliding during the closing months of 1998 following a strong performance earlier in the year. The same thing happened in Chile, Colombia and Venezuela, all of which showed clear recessionary trends in the final quarter of 1998.

Meanwhile, economic acticity in a number of countries was adversely affected in 1998 by El Nino, which caused serious droughts and flooding that had a particularly severe impact on agriculture.

Housing, social infrastructure and production facilities were destroyed or damaged by extensive flooding along the coasts of Peru and Ecuador and in various areas of Argentina, Chile, Brazil and Paraguay. Fisheries were also hurt by this phenomenon.

Central America and the Caribbean were hit particularly hard in late October by Hurricane Mitch, which also damaged Guatemala and El Salvador. Preliminary estimates put the direct and indirect losses at more than 7.0 billion dollars.

In an assessment of 1999, the report said that economic growth in Latin America is expected to weaken further in 1999 as a result of the continuing international economic crisis and the impact of the adjustment policies that countries have begun to implement in order to cope with it.

The report predicts that the region's export policies will remain low for at least several more months. This will make it necessary to proceed with macroeconomic adjustment measures that will lead to a contraction of economic activity.