'Worst year in half a century' for Latin America's economy.

The economic evolution of Latin America in 1983 was characterized by two main features, according to a recent report of the Economic Commission for Latin America (ECLA). The first was the aggravation of the crisis which began in 1981 and which by 1982 had become the most serious one experienced since the Great Depression of the 1930s. The second was the remarkable effort made by most of the countries of the region to reduce the serious imbalances that had been building up in the external sector over the last few years.

Following are excerpts from the ECLA report, "Prelimanary Balance of the Latin America Economy in 1983".

In 1983, as in 1982, the crisis affected almost every country of the region and was evident in the deterioration of the main economic indicators. Thus, according to the preliminary estimates available to ECLA:

1. The gross domestic product of Latin America as a whole dropped by 3.3 per cent, after having already declined by 1 per cent in 1982.

2. As a result of this drop and of the increase in population, the per capita product fell by 5.6 per cent in the region as a whole; it fell in 17 of the 19 countries for which comparable information is available.

3. As a result of this decline and of the fact that it had also fallen during the two preceding years, the per capita product of Latin America was almost 10 per cent lower in 1983 than in 1980 and was back at the level the region had reached in 1977.

4. The national per capita income fell even more sharply (-5.9 per cent), as 1983 brought a further deterioration of the terms of trade for the region as a whole. It was the sixth year in a row of declining terms of trade for the non-oil-exporting Latin American countries.

5. The slow-down of economic activity was accompanied by a new rise in urban unemployment rates in almost every country for which relatively reliable data are available.

6. In spite of this, inflation accelerated spectacularly, as it had over the last three years, reaching record highs. The simple average rate in increase of consumer prices rose from 47 per cent in 1982 to 68 per cent in 1983.

At the same time, the extraordinary effort made by the region to adjust to these problems was reflected in profound changes in the external sector. Thus in 1983:

. Latin America achieved a record merchandise trade surplus. Merchandise trade, which up to 1981 had regularly shown a negative balance, but which by 1982 had recorded a surplus of over $9.7 billion, generated a surplus of almost $31.3 billion in 1983.

. This surplus was due, however, to a new and spectacular drop in the value of imports of goods, which went down by close to 29 per cent after having fallen by 20 per cent in 1982. This unusual reduction in foreign purchases was both an effect and a cause of the shrinkage of domestic economic activity and a reflection of the exceptionally strict adjustment policies applied in many countries.

. The value of exports of goods, on the other hand, fell slightly, even though the volume of exports rose by 7 per cent in the region as a whole and by 9 per cent in the non-oil-exporting countries.

. Net remittances for profits and interest also went down, so that the exceptionally high rate of growth of previous years was halted. These payments, which between 1977 and 1982 had risen more than fourfold, from $8.6 billion to $36.8 billion, fell to somewhat under $34 billion in 1983. Nevertheless, since the value of exports fell at the same time, payments for interest and profits were still equivalent to almost 39 per cent of exports.

. As a result of the changes in merchandise trade and in payments for profits and interest, and of the considerable reduction of net payments for services, the deficit on current account fell sharply, from $36.4 billion in 1982 to under $8.5 billion in 1983, thus reaching the lowest level since 1974.

. This exceptional reduction of the deficit on current account went hand in hand with and, to a very great extent, was caused by a no less drastic shrinkage of the net inflow of capital. This item, which in 1982 had already been cut in half after a record high of $38 billion in 1981, again fell sharply in 1983, amounting to $4.5 billion.

. Because of this sharp contraction in the net movement of loans and investments, and despite the substantial reduction of the negative balance on current account, the balance of payments closed with a deficit of almost $4 billion; although this was much lower than $19.8 billion recorded in 1982, it represented a new and dangerous reduction of Latin America's international reserves.

. As had already been the case in 1982, the abrupt decline of the net inflow of capital meant that much less capital came in than was paid out for interest and profits. Consequently, Latin America, which up to 1981 had received a net transfer of real resources from abroad, in 1983 made a net transfer of resources to the rest of the world of almost $30 billion. Fall in Standard of Living

The figures given above show the unusual scope and depth of the recessive crisis which almost every Latin American country is experiencing and leave no doubt that for the region as a whole 1983 was the worst year in the last half century. For most of the countries, the reduction of income during the period 1982-1983 has meant going back to the standard of living of several years ago.

It is true that in many cases the crisis was partly the result of domestic factors related to ill-advised economic strategies or policies, the prolonged application of which was facilitated by the accelerated growth of external indebtedness and by the international financial permissiveness that previaled during the 1970s.

It is no less true, hwever, that the serious balance-of-payments crisis in recent years may be attributed, to a large extent, to external causes which by their very nature were beyond the control of the countries of the region. Such was the case of the spectacular drop in the terms of trade, the high nominal and real interest rates and the severe contraction of the net inflow of private capital. Even more unredictable were the intensity and the duration of this phenomenon, a situation which is clearly atypical by comparison with what has happened in the large central countries during previous recessions.

What Latin America needs in a firm and vigorous recovery policy. There is no question, however, that any recovery process aimed at strengthening the deteriorated regional economy will be conditioned by both external and internal factors.

Among the former, the most important--and the one which determines over the short run the manoeuvring room which most Latin American Government will have for implementing their recovery--is the rescheduling of the external debt. Over the medium term, on the other hand, the key element for enabling Latin America to achieve rapid and persistent economic growth is the expansion of its external trade, both within the region and with the rest of the world.