Economic Survey of Latin America and the Caribbean • 2006-2007 1 2006-2007 Economic Survey of latin america and the caribbean 2 Economic Commission for Latin America and the Caribbean (ECLAC) The Economic Survey of Latin America and the Caribbean is issued annually by the Economic Development Division of the Economic Commission for Latin America and the Caribbean (ECLAC). This 2006-2007 edition was prepared under the supervision of Osvaldo Kacef, Officer-in-Charge of the Division; Jürgen Weller was responsible for its overall coordination. In the preparation of this edition, the Economic Development Division was assisted by the Statistics and Economic Projections Division, the Latin American and Caribbean Institute for Economic and Social Planning (ILPES), the Division of International Trade and Integration, the ECLAC subregional headquarters in Mexico City and Port of Spain and the country offices of the Commission in Bogotá, Brasilia, Buenos Aires and Montevideo. Chapter I, “Regional overview”, was prepared by Osvaldo Kacef with input from Omar Bello, Rodrigo Cárcamo, Filipa Correia, Juan Pablo Jiménez, Rafael López Monti, Sandra Manuelito, Andrew Mold and Jürgen Weller. The Economic Projections Centre of the Statistics and Economic Projections Division provided inputs on the outlook for economic growth in 2007 and 2008. Chapters II and III, “Investment, saving and growth in Latin America: Analytical and policy issues” and “Economic growth in Latin America and the Caribbean: Multiple growth transitions rather than steady states” are based on papers by Mario Gutiérrez, ECLAC consultant. Chapter IV, “Reflections of economic growth of Latin America and the Caribbean” was written by Omar Bello with the collaboration of Alejandra Acevedo and Filipa Correia. The country reports are based on studies conducted by the following experts: Olga Lucía Acosta and María Alejandra Botiva (Colombia), Dillon Alleyne (Jamaica), Omar Bello (Bolivia), Bineswaree Bolaky (Barbados), Adrián Bratescu (Costa Rica and Nicaragua), Rudolf Buitelaar (Belize and, with Stefan Edwards, Bahamas), Rodrigo Cárcamo (Ecuador), Filipa Correia (Paraguay), Karel Ekhorst (Suriname), Álvaro Fuentes (Uruguay), Randolph Gilbert (Haiti), Víctor Godínez (Dominican Republic), Michael Hendrickson (Guyana and Eastern Caribbean Currency Union), Daniel Heymann and Adrián Ramos (Argentina), Luis Felipe Jiménez (Chile), Sandra Manuelito (Bolivarian Republic of Venezuela), José Octavio Martínez (Panama), Jorge Mattar (Mexico), Guillermo Mundt (Guatemala and Honduras), Carlos Mussi (Brazil), Igor Paunovic (Cuba), Juan Carlos Rivas (El Salvador) and Jürgen Weller (Peru). The note on Trinidad and Tobago was prepared by ECLAC subregional headquarters for the Caribbean. Alejandra Acevedo, Vianka Aliaga and Jazmín Chiu were responsible for the processing and presentation of the statistical data. Gloria Bensan and Juan José Pereira checked the consistency of data and texts and provided observations concerning various chapters of the publication, while the secretarial work was carried out by Maritza Agar. Notes The following symbols have been used in the tables shown in the 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 full stop (.) is used to indicate decimals. The word “dollars” refers to United States dollars unless otherwise specifi ed. United Nations Publication ISBN: 978-92-1-121640-0 ISSN printed version: 0257-2184 ISSN online version: 1681-0384 - CD-ROM: 1811-6191 LC/G.2338-P Sales No.: E.07.II.G.2 Copyright © United Nations, October 2007. All rights reserved Printed in Santiago, 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. Economic Survey of Latin America and the Caribbean • 2006-2007 3 Contents Page Foreword ............................................................................................................................................................................. 9 Executive summary .......................................................................................................................................................... 11 Chapter I Regional overview ............................................................................................................................................................. 15 A. Highlights of recent trends in the economies of Latin America and the Caribbean ........................................................ 15 B. The international environment ......................................................................................................................................... 17 C. A nearly unprecedented combination of events ............................................................................................................... 18 1. The external environment and the current account ..................................................................................................... 18 2. GDP, income and demand components ...................................................................................................................... 20 3. Labour market, wages and prices................................................................................................................................ 21 4. External assets and liabilities and the region’s macroeconomic vulnerability ........................................................... 23 D. The contribution of macroeconomic policy ..................................................................................................................... 25 1. Fiscal policy ................................................................................................................................................................ 25 2. Monetary and exchange-rate policy ............................................................................................................................ 26 E. Major differences across subregions and countries ......................................................................................................... 28 1. Demand ....................................................................................................................................................................... 28 2. Terms of trade and the current account ....................................................................................................................... 29 3. Fiscal balance .............................................................................................................................................................. 31 4. External debt and dollarization ................................................................................................................................... 32 F. The outlook, threats and challenges for the region in the short term ............................................................................... 32 1. The external context and overall disequilibria ............................................................................................................ 33 2. Economic policy dilemmas ......................................................................................................................................... 34 3. Monetary and exchange-rate policy ............................................................................................................................ 35 4. Fiscal policy ................................................................................................................................................................ 35 5. Competitiveness beyond the short term ...................................................................................................................... 36 4 Economic Commission for Latin America and the Caribbean (ECLAC) Page Chapter II Investment, saving and growth in Latin America: analytical and policy issues .................................. 37 A. Background ...................................................................................................................................................................... 37 B. Stylized facts about investment, saving and growth ........................................................................................................ 38 C. The contribution to growth made by physical capital: growth accounting ...................................................................... 40 1. Methodology ............................................................................................................................................................... 41 2. Main results................................................................................................................................................................. 42 3. Observations regarding the growth accounting results ............................................................................................... 46 D. The contributions to growth made by investment in machinery and equipment, investment in construction, and economic policies: a regression analysis..................................................................................................................