Economic Survey of Latin America and the Caribbean 1991
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ECONOMIC COMMISSION FOR LATIN AMERICA AND THE CARIBBEAN ECONOMIC SURVEY OF LATIN AMERICA AND THE CARIBBEAN 1991 VOLUME I UNITED NATIONS SANTIAGO, CHILE, 1993 LC/G.1741-P June 1993 Copyright O United Nations 1993 : Al rights reserved Printed In Chile Applications for the right to reproduce this work are welcomed and should be sent to the Secretary of the Publications Board, United Nations Headquarters, New York, N.Y. 10017, U.S.A. Member States and their governmental institutions may reproduce this work without prior authorization, but are requested to mention the source and Inform the United Nations of such reproduction. NOTE Symbols of United Nations documents are composed of capital letters combined with figures. Mention of such a symbol indicates a reference to a United Nations document. The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of Its frontiers or boundaries. UNITED NATIONS PUBLICATION Sales No. E.92.II.G.2 ISSN 0257-2184 ISBN 92-1-121183-2 CONTENTS Page FirstPart ECONOMIC TRENDS IN LATIN AMERICA AND THE CARIBBEAN IN 1991 I. MA1NTRENDS 9 II. LEVEL OF ACTIVITY 19 III. TOTAL SUPPLY AND DEMAND .... 31 1. Regional trends 31 2. Behaviour of demand 32 3. Liberalization, transfers abroad and changes in the structure of demand 33 4. Investment and its financing 35 IV. MACROECONOMIC POLICY AND INFLATION .................. 45 1. Stabilization in chronically high-inflation countries 46 2. Persistently high inflation in countries with controlled instability ......... 52 3. Control of outbreaks of inflation in structurally-adjusted economies 58 4. Stabilization of episodes of inflation 60 V. EMPLOYMENT AND WAGES 65 VI. PUBLIC FINANCES 77 1. Fiscal adjustment programmes 77 2. Widespread reduction of fiscal deficits in 1991 79 3. The impact of the debt on government budgets 81 4. Trends in fiscal revenues 87 5. Trends in public expenditure 101 6. Financing of the deficit 105 Vn. THE EXTERNAL SECTOR 119 1. Foreign trade and the terms of trade 122 2. The balance-of-payments current account 127 3. International interest rates 128 4. Capital flows and international reserves 129 5. Net transfer of resources 130 6. Import trade reforms ................... 131 Vffl. THE EXTERNAL DEBT 153 1. Main trends 153 2. The debt burden . ............;!.............. 155 IX. ECONOMIC TRENDS IN THE CARIBBEAN IN 1991 167 1. Main trends 167 2. Performance of the main sectors 171 3. External trade and balance of payments 174 4. Externaldebt 174 5. Fiscal policy 175 6. Prices 177 7. Employment 177 Second Part Page THE INTERNATIONAL ECONOMY 1. Trends in global output and policies 189 2. International trade 200 3. The international oil market 206 4. Saving, investment and the international transfer of resources 210 Third Part EXCHANGE RATE POLICY IN LATIN AMERICA IN THE EARLY 1990s 1. The role of the exchange rate 229 2. Measurement of real exchange rates 230 3. Trends in exchange rate policies during the 1980s 231 4. The new economic and financial situation in the region and the world 241 STATISTICAL ANNEX 261 Notes and explanation of symbols The following symbols have been used in the tables in this Survey: Three dots (...) indicate that data are not available or are not separately reported. A dash (-) indicates that the amount is nil or negligible. A blank space in a table means that the item in question is not applicable. A minus sign (-) indicates a deficit or decrease, unless otherwise indicated. A full stop (.) is used to indicate decimals. A slash (/) indicates a crop year or fiscal year, e.g., 1969/1979. Use of a hyphen (-) between years, e.g., 1960-1970, signifies an annual average for the calendar years involved, including the beginning and the end years. References to "tons" mean metric tons, and to "dollars" United States dollars, unless otherwise stated. Unless otherwise stated, references to annual growth rates of variation mean cumulative annual rates. Figures and percentages in tables may not neccessariiy add up to the corresponding totals, because of rounding. FIRST PART ECONOMIC TRENDS IN LATIN AMERICA AND THE CARIBBEAN I. MAIN TRENDS In 1991, the economic activity in Latin America example), and in still others, output recovered as and the Caribbean as a whole grew by 3.2%; as a the economy emerged from a state of high result, per capita output registered its first inflation (as occurred in Argentina). improvement in four years. At the same time, If the above cases are supplemented with the inflation receded and hyperinflation was countries which remained in a state of recession virtually eliminated. This moderate progress over because of severe stabilization programmes previous years was achieved in spite of a (Nicaragua, Peru and the Dominican Republic* relatively unfavourable international among other, then .the regional picture, with only environment, which was reflected in the very a very few exceptions, is essentially. one of slow growth of exports and a significant generalized containment of inflationary deterioration in the terms of trade. pressures as part of stabilization processes in However, the slackening of external demand varying phases of consolidation. Thus, in the last was accompanied by a notable drop in few months of 1991, most of the Latin American international interest rates which not only and Caribbean countries registered average provided some relief for external debt service but monthly rates of inflation between l%and 1.5%; also helped to bring about a significantly greater price increases in Ecuador and Venezuela were inflow of capital, attracted in part by the higher running between 2% and 3.5% per month; prices yields in the countries of the region. As a result, in Peru and Uruguay (two countries with serious Latin America and the Caribbean registered a antÍTÍnflationary programmes) were still rising at positive transfer of financial resources for the a rate of between 4% and 5% per month, and only first time in 10 years. This, in turn, strengthened Brazil continued to register very high monthly the region's import capacity in spite of the rates of inflation, between 20% and 25%. stagnation of exports, and made possible a In spite of the fragility still displayed by some substantial expansion of imports in response not stabilization processes, most economies of the only to the requirements of moderate growth but region are now operating on new premises which also to the burgeoning demand for consumer and generally are more export-oriented and also capital goods which was emerging as part of the include trade liberalization, fiscal austerity, more processes of trade liberalization. prudent management of monetary policy and In 1991 there was a significant increase in the greater reluctance to resort to public regulation of number of countries which were able to increase economic activity. However, these new rules of their growth rates, and there was also a rise in the public policy doubtless involve even greater number of countries which attained, or were in inequality of income than in the past, a more the process of attaining, macroeconomicstability precarious employment situation, tighter fiscal with varying degrees of consolidation. The resources, and a lesser degree of freedom for the countries displayed a great variety of situations application of economic policy. All this means depending on the stage they had reached in their that there is less capacity to make transfers stabilization programme. In some cases, the between economic sectors or social strata, but at expansion process forged ahead after stabilizing the same time it does inspire greater confidence adjustments (as in Chile and Mexico); in others in the permanence of the rules guiding public the rate of growth slackened as a result of policy. adjustments implemented in 1991 (as in Generally speaking, the economies of the Colombia, Costa Rica and Paraguay, for region are operating with more balanced public 9 budgets, since the leeway for indulging in investment, at times connected with the imbalances without setting off inflationary privatization of public enterprises, although there spirals has been narrowed. Over the two-year have also been cases of substantial portfolio period 1990-1991, many countries carried out investments and even bond issues. In these and massive fiscal adjustments, thanks to which their the majority of the other countries, however, public sector financing needs have been reduced considerable short-term financial investments by between 2% and 1% of gross domestic product are attracted by the differential between the real (GDP). Most of the remaining countries reduced domestic dollar equivalent interest rates their fiscal deficit by more than 1 % of GDP over (including the reduced risk premium assigned to the same period. cover the possibility of abrupt changes in the The structural fragility of the fiscal balance is exchange rate) and low international rates. naturally greater in the countries whose In the countries where volume has been restructuring processes were launched more substantial, these capital inflows have had two recently and it diminishes proportionately with immediate consequences. On the one hand, they the degree to which new fiscal parameters are have obliged the central banks to buy up the consolidated into permanent institutions. In excess supply of foreign exchange and many cases, the adjustment has been achieved accumulate reserves. On the other, they have kept through an extraordinarily severe compression of the real exchange rate below the levels which consumption and investment expenditure which prevailed when the counterpart of the trade will be difficult to sustain up in more normal surplus was capital flight. circumstances, even with changes in public The latter situation tends to erode the institutions to enhance their efficiency.