Positive outlook for economy in Latin America and Caribbean.

In 1996, Latin America and the Caribbean returned to the path of moderate growth with stable prices that characterized the regional economy in the nineties before the eruption of the Mexican financial crisis at the end of 1994, according to estimates contained in a preliminary overview of the region's economy, released on 19 December 1996 by the Economic Commission for Latin America and the Caribbean (ECLAC).

Countries in the Latin American and Caribbean region registered an average growth in the region of some 3.5 per cent (1.5 per cent per capita) for 1996, and average inflation fell to 20 per cent. More than half the countries registered single-digit price increases or very little more. Growth was due to a sustained expansion of exports and to greater access to external finance; the increase in the volume of exports was almost three times the growth of the gross domestic product (GDP).

The region is improving its ability to attract external finance, both in volume and type, although most such finance still goes to the larger economies.

Prices of the commodities most important for the region evolved unevenly For example, prices of many metals and coffee fell, while grain prices rose. Oil prices were higher than in previous years, which favoured exporters, but created difficulties for importers. Average regional inflation continued to fall in 1996 - to 20 per cent - the lowest rate since the beginning of the 1970s. Economic stability remained a priority for the majority of the Governments of the region.

Great variations in economic performance characterized the region in 1995 - Mexico and Argentina contracted, while other countries continued to expand. With 1996 showing greater homogeneity, Mexico and Argentina registered positive growth, although not enough to counteract the fall of the previous year. On the other hand, several economies expanded more slowly in 1996, due to the adoption of policies aimed at reducing inflation (Brazil, Chile, Costa Rica and Colombia), or due to avoiding balance of payments problems (Peru). As a result, growth fluctuated between 3 and 5 per cent in most countries, only surpassing those rates in Barbados, Chile, Guyana, Nicaragua and the Dominican Republic. The more favourable evolution of growth has not been translated into increased employment.

On the contrary, unemployment continued to rise after a considerable increase in 1995 and is becoming a serious problem. Indeed, urban unemployment in 1996 was at its highest this decade. As a result, it may be supposed that in 1996 patterns of growth continued to be characterized by inequality, as has been happening since the beginning of the decade. If the modest rates of per capita growth were also considered, then the minimal contribution of current expansion to overcoming the great social backwardness in the countries of the region became a cause for concern.

On the positive side, despite the adverse effects in 1995 of the Mexican financial crisis, in 1996 the regional economy returned to the path of moderate growth with stable prices. As a result, a pattern of 3 to 4 per cent annual growth appeared to be consolidating: a significant achievement compared with results in the past decade, but certainly insufficient to meet the challenges of equity and modernization of production which face the region. Another positive factor was the dynamism of exports, in which intraregional trade played an important role. In addition, the region in general achieved improved access to external medium- and long-term financing, including a growing proportion of direct investment.

On the negative side, two interrelated factors were especially significant. In the first place, the dilemma between faster growth and macroeconomic equilibrium had not been overcome. The priority given to price stabilization required limits to be placed on the expansive effects of the accumulation of reserves. That, together with austere fiscal policies, demanded restrictive monetary policies and the fixing of high interest rates, which in turn held back investment. Secondly, a tendency was becoming evident towards inelasticity of employment in relation to GDP, a phenomenon which was one of the causes of the unequal distribution of the benefits of growth. ECLAC has repeatedly insisted that overcoming those negative factors was the greatest challenge facing the economies of the region, and priority must be given to improving competitiveness, stimulating production, reforming institutions and mobilizing internal savings.