Economic Survey of Latin America and the Caribbean 2005-2006

Economic Survey OF" L A T I N A M E R I C A A N D THE C A R I B B E A N

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The E~wno~nir S u n q qf Lntirz Awrriccr rltd h, Cnribbean is issued annually by the ECLAC Economic Development Division. The 2005-2006 cdition was prepared under the supervision of Osvaldo Kaccf, Officer-in-Charge of the Division; Jiirgcn Wcller and Sandra Manuelito were responsible for its ovcrall coordination. In thc preparation of this edition. the Economic Dcvclopinent Division was assisted by the Statistics and Economic Projections Division, thc Latin American and Caribbean Institute for Economic and Social Planning (ILPES). the Division of Intcr~lationalTradc and Integration, the ECLAC subregional headquarters in Mexico arid Port of Spain and the country offices of the Commission in BogotB, Brasilia. Buenos Aires and Montevideo. Thc regional analyses werc prcparcd by the following experts (listed in order of presenti~tionin the Srlnlql): Osvaldo Kacef (introduction), Omar Bello and Rafiicl L6pcz Monti (intcl-national situation), Juan P;~hluJiminez (fiscal policy), Rodrigo Ckcarno (exchange-rate policy). Herniin Cortks (~nonetarypolicy), Sandra Manuelito (economic ;~clivityand investment arid domestic prices). Jiirgen Weller (ernploymcnt and wages), Omar Bello and Filipa Correia (external sector) arid Roberto Iglcsias (special chapter on the role of the real cxchange rate imd investment in export diversification). The Ecorlonlic Projections Ccntrc of thc Statistics and Economic Projections Division provided inputs on the outlook for economic growth and inHatlon in 2006 and 2007, The country rcports are based on studies conducted by thc following cxpcrts: Omar Rcllo (Bolivia), Adri6n Bratescu (Costa Rica and Nicaragua), Kudolf Buitelaar (Surinamc). Rodrigo Chrcarno (Ecuador), Filipa Correia (Paraguay), ~ l v a r oFuentes and Jorgc Hcrnhnde7 (Uruguay), Jesus Garcia (Cuba), Randolph Gilhert (Haiti), Victor Gotlinez (Dominican Republic), Michael Hendrickson (Barbados and Guyana). Daniel Heymann (Argentina). Luis Fclipc Ji~ndncz(Chilc). Sandra Manuclito (Bolivarian Republic of Venezucla), Jorge Mattar (Mexico), Claudia Meza (Colombia). Guillemio Mundt (,Guatemala and Honduras). Carlos Mussi (Brazil). Oliver Paddison (Bahamas and Belize), Igor Paunovic (Panama). Esteban Perez (Turks and Caicos Islands, Jamaica and OECS). Juan Carlos Rivas (El Salvador) and Jiirgen Weller (Peru). The note on Trinidad and Tobago was prepared by ECLAC Subregional Headquarters for the Caribbean. Jazmin Chiu, Alejandr;~Acevedo and Vianka Aliaga wcrc rcsponsihlc for thc proccssinp and prcscntation of the statistical data. Gloria Bcns:m was responsible for ensuring thc consistcncy of texts, data and stntisticnl material. Jkssica Cuadros and Juan Josk Pereira revised different chaptcrs of thc publication, while the secretarial work was carried out by Maritza Agar.

The following symbols have been used in the tables shown in thc Slrrvey: Three dots ( . ..) indicate that data are not available or arc not separately rcportctl. A dash (-) indicatcs that thc amount is nil or negligible. A 1-ull stop (.) is uscd to indicate decimals. Thc word "dollars" refers t o United States dollars unless otherwise specified.

United Nations Puhlicatiun ISUN: 92-1-121593-5 ISSN printed version: 0257-21 84 ISSN onlinc version: 1681 -0384 LClG.23 14-P Salcs No.: E.06.II.G.2 Copyright Q United Nations. Decenlbcr 2006. All rights reserved Printed in Sar~tiago.Chilc - United Nations

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Economic Survey of Latin America and the Caribbean 2005-2006

Contents

Foreword .............................................................................................................................................................................. Executive Summary............................... ............................................................................................................................... Chapter l Introduction ............................................................................................................................................................................. A . Highlights o f rccent trends ............................................................................................................................................... B . International nirtrket trends and their probable impact on Latin America and the Caribbean ......................................... 1 . Thc international situation ......................................................................................................................................... 2 . Effects on L. atin America and the Caribbean ............................................................................................................. C . The outlook for thc economies of Latin Amcrica and thc Caribbean .............................................................................. D . Imtin America arid the Caribbean: growth and inflation in 2006 and 2007 ..................................................................... Chapter II International economy .......................................................................................................................................................... A . World growth .................................................................................................................................................................... B . Intlr~tionand economic slowdown in the United States: A global conccrn ................................................................... C . Invcst~nentin production declines amid increasing uncertainty .................................................................................... I . Commodity prices ...................................................................................................................................................... Chapter Ill Macroeconomic policy .................................. .,..................................................................................................................... Fiscal policy ..................................................................................................................................................................... 1. Introduction ............................................................................................................................................................... ........................................................................................ 2 . 2003-2005 in comparative t e r m ..................................... 3. The year 2005 in aggregate tcmls .............................................................................................................................. 4 . 2005 in disnggrcgatecl tcrms .................................................................................................................................... 5. Subreginnal overvicw ........................... ................................................................................................................ h . Conclusions ............................................................................................................................................................. Exchange-mte policy ........................................................................................................................................................ 1. Exchange-rate movements in 2005 ............................................................................................................................ 2 . Exchange-rate movements in early 2006................................................................................................................... 3 . Equilibl-ium cxchangc rates and ctnigrant remittances .............................................................................................. 4 . lntervcntion in thc exchangc market .........................................................................................................................

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Economic Commission for Latin America and the Caribbean (ECLAC)

C.

Monetary policy ............................................................................................................................................................... 1. Monetary policy in thc rcgion ................................................................................................................................... . . 2 . Nomtnal lnterest rates ................................................................................................................................................ 3 . Monetary policy of the Caribbean countrics ............................................................................................................. 4 . Countries whose currency is tied to the dollar .......................................................................................................... 5 . Real interest rates ....................................................................................................................................................... h . Bank credit ................................................................................................................................................................. 7 . Monetary aggregate\ ............................ ....................................................................................................................

Chapter lV Domestic performance ................... . . ................................................................................................................................. A . Economic activity and investment ................................................................................................................................... B . Domestic prices ................................................................................................................................................................ C . Employment and wages ................................................................................................................................................... 1. A considerable drop in unernploymcnt ...................................................................................................................... 2 . Reduction in thc labour-forcc participation rate ........................................................................................................ 3. Expansion of employment ......................................................................................................................................... 4 . Little variation in wagcs ............................................................................................................................................ 5 . Prospects for 2006 ..................................................................................................................................................... Chapter V External sector........................................................................................................................................................................ ........................................................................................................... A . Balance-of-pyments current account ........*..... . . l . Thc currcnt account ................................................................................................................................................... 2 . Trade in goods and services ....................................................................................................................................... 3. Tern~sof trade ............................................................................................................................................................ B . Capital flows and exlernal debt ........................................................................................................................................ 1 . Capital and financial account balance .................................................................................................................... ... 2 . Management of external liabll~tles............................................................................................................................ 3 . The region's international reserves ............................................................................................................................ 4 . International bond issucs ........................................................................................................................................... S . External debt to GDP ratio ........................................................................................................................................ 6. Outlook for 2006 ....................................................................................................................................................... Chapter VI The role of the real exchange rate and investment in export diversification in Latin America and the Caribbean ...................... ,. ................................................................................................ Introduction .............................................................................................................................................................................. A . Dctcrmiiiants of export diversification ................... ........................................................................................................ 1. Real devaluation as m instrument for the diversification of production ................................................................ 2 . Volatility of the real exchnngc mte and the reaction of exportable supply ........................................................... 3. Devaluntion of the real exchange rate . macmeconomic instability and investment in exportable goods ................. B . Observations on export diversification i n the region ....................................................................................................... C . Econolnctric analysis of the determinants of export diversification ............................................................................ ... . . ............................................................................................................................... l . The data ....................... . . ...................................................................................................................................... 2. Results ........................ .

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Stat~st~cal Annex .................................................................................................................................................................... ECLAC publications ..............................................................................................................................................................

Economic trends in the countries of the region (See enclosed CD-ROM)

Economic Survey of Latin America and the Caribbean r 2005-2006

Tables Gross domestic product ........................................................................................................................................ Terms of trade: Variation rclativc to the average for the 1990s .......................................................................... Latin America and the Caribbean: GDP growth . 2004-2007 .............................................................................. Latin America and thc Caribbean: Inflation. 2004-2006 .................................................................................... World GDP growth ratcs . 2002-2005 ................................................................................................................... Latin America and the Caribbean: Ccntral government fiscal indicators ........................................................... Latin America and the Caribbean: Variation of fiscal aggregates, 2004-2005 ..................................................... Latin America (selcctcd countries): Bank crcdit ................................................................................................. Latin America and thc Caribbean: Variation in M1 ............................................................................................ Latin Amcrica and the Caribbcan: GDP and per capita GDP, average annual growth ratcs ................................ Latin Amcrica: Components of aggregate supply and demand . average annual growth rates ............................. Latin America: Components of gross domestic investment, average mnual rate of variation ............................ Latin America and the Caribbean: Consumer price indcx . 2004. 2005 and 2006 ............... .......................... Latin Amcrica and the Canbbcan: Nominal exchange rate, local currency per United States dollar. 2004, 2005 and 2006 .................................................................................................... Table 1V.A Latin America and the Caribbean: Wholesale price indcx. 2004 . 2005 arid 200h ............................................... Latin America and the Caribbean: Labour market indicators, 199 1-2005 ........................................................... Table IV.7 Latin America and the Chribbcan: Labonr market indicators, by country. 2004 and 2005 .................................. T~ablcIV.8 Table IV.9 Latin America and the Caribbean: Formal employlnerit indicators. 1998-2005 .................................................. Table IV.10 Latin Amcrica: Unernployinent rates, employment rates and real average wagcs, first hdvcs of 2005 and 2006 ............................................................................................................................... Tablr VI. 1 Exports of durablcs and diffusers of technical progress as a percentage of total exports to the rest of world (XDUTI'IXT) . sclccted periods ................................................................... Table V1.2 Rcsults of the estiinatcs for all the countries in the sample ................................................................................. Table V 1 3 Rcsults for the s:~inplcwhen Mexico and Costa Hica arc cxcluded ..................................................................... Tablc VI.4 Summary of clasticities ........................................................................................................................................

Table I .1 Tablc 1.2 Table 1.3 Table 1.4 Table I1. I F ~ b l e111.1 Table 111.2 Table 111.3 Table 111.4 Tdbk IV.1 Tablc IV.2 Table IV.3 Table IV.4 Tablc IV.5

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Statistical Annex Table A- l Table A-2 Tablr A-3 Table A-4 Table A-S Tablc A-6 T~lblcA-7 Table A-X Table A-9 Tablc A- 10 Table A- l I Tablc A- 12 Table A- 13 Table A-14 Table A- 15 Table A- I h Tnble A- 17 Table A- 18 Tddc A- 19 Table A-20 Tahlc A-2 1 Table A-22 Table A-23 Tablc A-24 Table A-25

Latin America and the Caribbean: Main econon~icindicatoss ............................................................................. Latin America and the Caribbean: Gross domestic producr ............................................................................... Latin America and thc Caribbean: Pcr capita gross domcstic product ................................................................. Latin America and thc Caribbean: Gross fixed capital formation ........................................................................ Latin America and thc Caribbean: Financing of gross domestic investment ..................................................... Latin Arncrica and the Caribbcan: Balance of payments ..................................................................................... Latin A~ncricaand the Claribbcan: Cu~rentaccount of the balance of paymcnts ................................................. Latin America and the Caribbean: Exports and imports of goods . f.o.b. ............................................................. L+tin America and the Caribbean: Exports of goods, f.o.b. ................................................................................. Latin Anlcrica and the Caribbean: Imports of goods .f.o.b. ................................................................................. Latin America and the Caribbean: T r m s of trade for goods . f.o.b.1f.o.b. ........................................................... I.,:~tin America and the Caribbean: Net resourcc transfers .................................................................................... Liltin A~nericaand the Caribbean: Total net capital inflows and net resource transfers ...................................... Latin America and the Caribbean: Ratio of total accrued interest to exports of goods and services ................... Latin America and thc Caribbean: Katio of profit paymcnts to exports of goods and scrvices ........................... Latin America and the Caribbean: Net forcign direct investment ........................................................................ Latin America and thc Caribbean: International bond issues ............................................................................... (.,atin America and the Caribbean: Total gross external dcbt ............................................................................... L:ltin America arid the Caribbean: Ratio of total gross external debt to exports of goods and scrvices .............. Latin America and the Caribbean: Stock exchange indices in dollars ................................................................. Latin America arid the Caribhcan: Real effective cxchange rates ...................................................................... Latin America and the Caribbean: Urban uneinploy~nent.................................................................................... Latin America and the Caribbean: Consumcr prices ............................................................................................ Latin America and the Caribbean: Avcragc rcal wages ....................................................................................... Latin America and the Caribbean: Public-sector deficit (-) or surplus ................................................................

Economic Commission for Latin America and the Caribbean (ECLAC)

Figures Figurc I .l Figurc 1.2 Figurc 1.3 Figure 1.4 Figurc 1.5 Fipurc 1.6 Flgul-c 1.7 Figurc 1.8 Figurc 1.9 Figure I . l 0 Figure 11.1 Figure 11.2 Figure 11.3 Figure 11.4 Figure 11.5 Figure 11. h Figure 111.I Figure 111.2 Figure 111.3 Figure I11.4 Figure 111.5 Figure 111.6 Figure 111.7 Figurc 111.8 Fipurc 111.9 Figure I11. I0 Figure I11.I1 Figure 111.17 Figure 111.13 F~gurc117.14 Figurc 111.15 Figurc 111.16 Figurc 111.17 Figure 111. I X Figure 111.19 Figure h'.I Figure IV.2 Figure IV.3 Figure IV.4 Figure 1V.S Figure 1V.h Figure IV.7 Figurc IV.8 Figurc IV.9 Figure IV. l 0 Figure IV. I] F~gurcIV.12 Figurc IV.13 Figure IV.14 Figure IV. 1 5

Exports of goods: Average annual growth ratcs . 2004-2005 ................................................................................ Contribution to growth of gross fixed capital formation ...................................................................................... LIBOR: Quarterly average in real terms .............................................................................................................. Latin America: Basic balance, 2005 ..................................................................................................................... Latin America and the Caribbean: Total gross cxtcrnal debt ............................................................................... Latin America and the Caribbean: Short-term cxtcrnal debt ....................... . . .................................................. Latin America and the Caribbean: Revenue . expenditure and primary fiscal balancc ........................................ Latin America, emerging economies and industrialized countries: Public debt as a pcrccntage of GDP............ Economic growth in Latin Amcrica and thc Caribbean. 2000-2007 .................................................................... Latin America: lntlation . 2005-2006 ............................ ........................................................................................ Distribution of growth in developing countries ................................................................................................... United States: Petroleum prices . core inflation and the effective federal funds rate ................... . . .................. United States: Current account imbalances, by component. 1 996-2005 .............................................................. Short- and long-tern yields of United States Treasury Bonds, July 2004-July 2006 .......................................... Yicld curve of United States Treasury Bonds, 2005 and 2006............................................................................. Price indices, scries, trends and cyclical components .......................................................................................... Latin A~ncricaand the Caribbean: Primary balance .ovcrall balance and standard deviation for central government ........................................................................................................... Latin Amcrica and the Caribbean: Primary balancc for thc non-financial public sector ..................................... Latin Amcrica and the Caribbean: Variation of the main ccntral government fiscal indicators .......................... Latin America and the Caribbean: Breakdown of fiscal revenue ............... . ......,.............................................. Latin America and the Caribbean: Tax burden and composition of tax revenues ............................................. Latin America and the Caribbcan: Conlposition of central government cxpcnditure ........................................ Latin An~criricttand thc Caribbean: Central government capital cxpcnditure and physical invcstmcnt expenditure ....................... . . ....................................................................................... Latin America and the Caribbean: Social cxpcnditure ......................... ................................................................ Latin America and the Caribbcan: Public debt of the non-financial public scctor .............................................. Latin America and the Caribbcan: Loans provided by the International Monetary Fund .................................... Latin America and thc Caribbean: Public debt and central govcrnmcnt primary balance . 2005 ......................... Latin America and thc Caribbean: Real effective exchange rate in rclation to the rest of thc world ................... Peru and Chile: Total real effcctivc cxchangc rate ............................................................................................... Brazil and Mexico: Total real effective exchangc ratc .................................... ..................................................... Latin America: Total real effective cxchangc ratc. June 2006 ............................................................................. Latin America and the Carihbam: Net current transfers to the region, 2005 ....................................................... Latin America: Variation in net reserves othcr than gold or IMF resrrves, 2004-2005 ..................................... Latin America and thc Caribbean: Real interest rates .......................................................................................... Latin America and the Caribbean: Nominal interest rates ................................................................................... Latin Amcrica: GDP and per capita GDP............................................................................................................ Latin Amcrica: Year-on-year quarterly CJDP growth rates ................................................................................... Latin Amcrica (14 countries): Year-on-year quarterly GDP growth rates ........................................................... Latin Amcrica: Scasonally adjusted quarterly GDP growth rates in relation to thc immediately preceding quarter ................................................................................................................... Latin America: GDP and gross national disposable inconic .2004-2005, ....................................................................... average annual growth rates for the biennium .................... . . . Latin America: Componcnts of gross national disposable incomc ...................................................................... Latin America: Saving-investment ratio .............................................................................................................. Latin America: Gross fixed capital formation ...................................................................................................... Latin America: National saving in current dollars and its purchasing power in terms of imported capital goods ..................................................................................................................... Latin America: vari;ition in consumer . goods and services price indices ............................................................ Latin Amcrica: Variation in the consumer price index and the corc inflation index .......................................... South America and Mexico: Consumer price index and gasolinc prices, cuniulative variation, 2003-200S....... Economic growth and labour participation .......................................................................................................... Latin America and the Caribbean: Economic growth and employment, 2004-2005 ........................................... Latin America and the Caribbcan: Variation in employment, by brunch of activity and occupational category. 2005 ..........................................................................................................

Economic Survey of Latin America and the Caribbean 2005-2006

Figure V. I Figure V.2 Figure V.3 Figurc V.4 Figure V.5 Figure V.h Figure V.7 Figure V.8 Figure V.9 Figure V.10 Figure V 11 Figure V. 12 Figure V. 13 Figure V.14 F~gurcVI.1 Figure V1.2

Figure VI.3

Latin America m d the Caribbean: Current account balar~ue.............................................................................. Caribbean countries: Current account balance ................................................................................................... Latin Alncrica and the Caribbean: TI-endof the cu~rcntaccount balance ............................................................ Latin Amcrica and the Caribbean: Percentage variations in merchandise exports f.o.b., by unit price and volumc . 2005 ..................................................................................................... Latin America and thc Caribbean: Terms of tndc ................................ ..,,........................................................... Tcr~nsof trade ......................... ..,........................................................................................................................... Latin Americii and the Caribbean: Breakdown of basic balance . 2000-2005 ..................................................... Latin America and the Caribbean: B]-eakdownof basic balance by rcgion, 2000-2005 ..................................... Latin America and thc Caribbean: International reserves .................................................................................... Latin America and the Caribbean: International bond issucs ............................................................................... Latin America: Interest rate sprcads, measured by EMBT+ ............................................................................... Latin America: Country risk as measured by EMBI+ in 2005 and 200h ............................................................. Morgan Stanley Capital International Index (MSCI) for emcrging markets ....................................................... Latin America: Morgan Stmlcy Capital lntcrnational lndcx (MSCI)................................................................ Averagc annual rates of variation in thc proportion of cxports of durables and diffusers of technical progrcss relative to total exports to thc rest of world and in the real exchangc rate ............................................ Annual growth rate of the proportion of exports of durablcs and diffuscrs of technical progress relative to total exports to the rest of world (XDDTPIXT) and annual volatility of thc real exchange rate ........................................................................................................................................................ Annual growth rate of the proportion of exports of durables and diffusers of technical progress relative to total exports to the rest of world (XDDTPIXT) and red imports of capital goods ............................

Boxes Box 1.1 Box 1.2 Box 111.1 Box I 1 1 2 Box 111.3 Box IV.I Box IV.2 Box IV.3 Box V. 1 Box v.2 Box V1.I

Differences between GDP and gross national disposable income ....................................................................... How much should Latin Amcrica and the Caribbean invest'? ............................................................................. Rising p~iccsfor non-rcncwable resources and fiscal policy in countries specializing in such resources .......... Tax revcnuc trer~dsin Latin Aniericn ................................................................................................................... Foundations of ~nacrocconornicpolicy coordination: Fostering dialogue as a policy tool in Latin Amcrica ...... The Cricket World Cup and its expected cffcct on economic activity in English-spcaking Carihbcan countries .................................... ............................................................................. Invest~ncntand growth ......................................................................................................................................... C'hangcs in the characteristics of labour demand ...................................... .,......................................................... Thc oil bill in Central America and the Cxibhcan ............................................................................................... Capital-account volatility and cyclical fluctuations in GDP in Latin American countries .................................. Methodology ......................................................................................................................................................

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Economic Survey of Latin America and the Caribbean 2005-2006

Foreword

This year's edition of the Ecnironlic. S~trr'eyof Ltifiil America nrld the Caril?kecrrl is the fifty-eighth in the series. It is divided into two pwts: the first analyses the main features of the regional economy, while the second cxamines the situation in the individual countries of Latin America and the Caribbcan. A full statistical appendix is included, containing regional and national data. The introduction of the first part outlincs the relatively favourable perlormance af the re,gion's economy as a whole in recent years and analyses the factors which could jcopiirdize that performance. It underlines the growing uncertainties in the global economy. which could endanger the prospects for growth in the region. Nonetheless, it draws attention to improvements in a number of economic indicators, rellecting the reduced vulnerability of the region's economies to any adversc dcvclopments in the global situation. The following chapters are devoted to the international situation, macroeconornic (fiscal, exchange-rate and monetary) policy. and the region's performancc internally (level of economic activity, inflation, employment and wages) and externally (trade balance, transfers and income. capital flows and

external debt). A statistical appendix illustrates trends in the main indiciitors at the rcginnal level. One o f the principal challenges facing the rcgion is export diversification, cspeciiilly the nccd to offer more knowledge-intensive goods. The spccial chapter in this edition of thc Er.ononric Survry provides an analysis from the macroeconomic viewpoint of thc ways in which that process is affected by levels of. and trends in, investments and real cxchange rates. The second part of the document provides overvicws of tnacroeconomic policies and trends in the Latin American and Caribbcan countries in 2005 and the first half of 2006. The country reports includc tables on thc main econonlic indicators. Beginning with this edition of the Ecorroniic. S ~ i r v e y ,these reports and the statistical appendix specific to each country are includcd in the CD-ROM provided with the print version and are available on the ECLAC websitc (www.eclac.org). The tiihles contained in the statistical appendix providc rcady access to data for recent years and fiicilitate the creation of spreadsheets. The CD-ROM also contains the electronic version of the rcgional parts of the text. Thc statistical information contained in this publication has been updatcd to 30 June 2006.

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Economic Survey of Latin America and the Caribbean 2005-2006

Executive Summary

Thc econonly of the Latin Arncncan and Caribbean rcgion grew by 4.5% in 2005 and is expccted to expand by around S%, in 2006, thereby completing a fourth consecutive year of growth. If thesc projections are borne out, the averaze annuitl increasc in the region's GDP for this period will amount to approximately 4.3%, which translates into an average risc in per capita GDPof nearly 2.8% per year. In view of the moderate slowdown projected for the world economy, ECLAC estimates put the rcgion's growth rate for 2007 at about 4.5%. Although the region is growing more slowly than some other parts of the developing world, its economics' expansion is, in thc aggregate, combined with surpluscs on the countries' balance-of-paymcnts current accounts and sound public finances. This makes Latin America and the Caribbean considerably less vulnerable to external shocks. Under prevailing international conditions, which includc increasing market volatility and thc prospects of a gradual declino in world cconornic growth, the stylc (31' growth seen in the region over the past few years is providing a safety margin thitt will hclp it cope with m y changes in external conditions. The region's growth has been underpinned by the highly favourable external environment created by the world economy's steady expansion and abundant liquidity

on international capital markets. These factors have cnabled it to significantly incrcase its export volumes and have improvcd the terms of tradc for the South American countries, Mexico, and Trinidad and Tobago. In Mcxico. Central America and somc Caribbean nations, such as Grenada, Guyana and Jamaica, remittances from emigrant workers have been a major source of revenue. While the world economy may succeed in dealing with the threat of inflation and in rectifying existing global imbalances without any steep downturn in its growth rate, these factors are still a source of uncertainty. Some indicators iippear to be heralding a pcriod of greater global volatility. and the possibility cannot be ruled out that this may dampen growth somewhat and trigger a reversal in the net direction of somc capital flows back toward developcd countries. In view of the region's less vulnerable cxternal and fiscal positions, and so long as thcsc changes arc n~oderatc and occur gradually, thcre is no rciison to expect the region to make any major departures from the growth path it hits been following in rccent years. Thc world economy's growth rate slowed somcwhat in 2005, with the incrciise in global GDP amounting to 3.5%, cornparcd to 4.0% in 2004. However, China's and India's striking dynamism. with 2005 growth rates of

Economic Commission for Latin America and the Caribbean (ECLAC)

ovcr 9% and 8%, rcspcctively, has improved thc terms of trade for commodity exporters. and many emerging economies have therefore been able to sustain higher rates of expansion. In fact, Latin America's average commodity export prices continued to rise by rates of over 1 3 %with ~~ thc incrcase being led -as in 2004- by energy prices. This was reflected in a commodity pricc indcx that was 59.9% higher than its average level for the 1990s. In 2003-2005, unlike what occurred during some carlier cpisodes in the region, the countries' governments avoidcd expansionary fiscal policies and instead opted to usc the present growth phase to build up their primary surpluses and pay down their debt. The fiscal performance of the region's central governments allowed ~t to amass ii primary surplus (measured as a simple averagc) of 1.4% of GDP in 2005, compared with one of 0.6% in 2004. Calculations of the overall balance (i.e., once interest payments on public debt havc been iktorcd into the equation) show a reduction in the deficit from 1.9%)to 1.2% of GDP. Taking into account the broader nature of government accounts in the more decentralized countries of thc region, the nonfinancial public sector's primaly surplus climbed from 0.9% of GDP, on average, in 2002 to 3.1 % in 2005. The improvement seen in 2005 is attributablc to the widespread incrciisc in fiscal rcvcnucs, which outweighed a smaller increasc in expenditure. At the level of the non-financial public sector, the public debt-to-GDPratio for 2005, measured as a simple avcmgc, camc to 48.6%. down from thc 2004 figurc of 55.9%. The main factors behind this trend have been the region's large primary surpluses, debt restmcturings and the appreciation of many of the countries' currencies against thc dollar. Si~eablereductions were also made in the total public dcbts 01' countries included in the Heavily Indebted Poor Countries (HIPC) Debt Initiative. Thanks to the irnproved fiscal situation (which has reduced the countrics' borrowing requirements) and the build-up of reserves, there was less of an incentive for countries to enter into stand-by arrangements with the International Monetary Fund (IMF). One of thc major events to occur in this connection was the early repayment of IMF loans by two of the Fund's largest borrowers, Argentina and Brazil, in late 2005. As a result 01' these early repayments, which reduced the Fund's loan portfolio by ncarly half, Latin America ceased to be one of the Fund's main borrowers for the first time in many ycars. Judging from the budgets drawn up by the countries in late 2005, the fiscal information available during thc early months of 2006, and what appears to bc an upswing in expenditures during the first quarter, a smaller primary surplus is expected for 2006.

Exchange-rate policy in 2005 was quite heterogeneous and was a very influcntial factor in the build-up of reserves. One of the main reasons why it varicd so much from case to case is that the countries of the region usc different types of exchange-rate regimes. Countries that use exchange-rate targets havc to intcrvenc in thc market in order to keep their nominal parities within their target range, while counrrics with flexible exchange rates may intervene for a varicty of reasons, such as to rcducc cxchangc-rate volatility and avoid a serious currcncy misalignment or to accumulate reserves in ordcr to replenish stocks m d thuv be able to better withstand sudden changes in foreign-exchange flows (especially in thc case of countries with highly dollarized financial sectors). Between December 2004 and December 2005, thc Latin American and Caribbean region's real effective exchangc rate vis-a-vis the rest of the world appreciated by 8.3%. The extraregional effective ratc of cxchange appreciated throughout 2005, however, so a comparison of the average rates for 2004 and 2005 yields a smaller figure (4.5%). In 2005. the appreciation of the real effective exchangc ratc relative to the rest of the world was almost twice as high for South America (10.1% between December 2004 and December 2005) as, on average, for Central America, the Caribbean and Mexico (6%). In contrast. the aggregate rcal cffectivc exchange rate for the region vis-h-vis the rest of the world showed a slight depreciation (0.8%) in the first four months of 2006. Monetary policy in thc region has been adapting quitc swiftly when turning points were reached in external conditions, and particularly to dcvelopmcnts in I'inanciiil markets and shifts in the outlook for international cconomic activity. With some dilTcrcnccs in dcgrce depending on the status ofthc economy, priority has continued to be placed on keeping inllation undcr control. The central banks of the region are concerned about the nccd to prcvent the surge in oil prices from driving up price indices. Thc appreciation of almost all thc countries' currencies has helped to rein in the pace of price rises. howcver. Increases in the monetary policy rate were very slight in the great mitjority of the countries in 2005, despite the fact that real interest rates are fairly low in historical terms. The few exceptions are significant, however, since they include Brazil and Mexico, the region's largest countries. Frorn a medium-term perspective, in most of the countries real rates at the start of 2006 arc only slightly lower or higher than they werc three ycars ago. A majority of the countrics have seen a rise in rcal lending rates in recent months. This trend reflects the change ill direction of the United States Federal Reserve's interest ratc adjustmcnts in June 2004. Since that time, many of the region's central banks hiwe followed its lead. [,ending activity has rebounded from the depressed

Economic Survey of Latin America and the Caribbean 2005-2006

lcvcls observed beforc 2003. Nominal growth rates for total credit and private credit both topped 15% in the 12 months prior to the first quarter of 2006. This increase, which is a reflection of the improvement in global economic conditions. is higher than in preceding years and has brought thcse variables back up to their pre-200 1 levels. Thc Latin American and Caribbean region's economic growth rate of 4.5% in 2005 (5.9% in 2004) is attributable to the momentum provided by both domestic and extcinal demand. AlZcr having fallen steadily between 1999 and 2003, investment began to rebound in 2004 and continued to do so in 2005, thanks to the persistence of favourable external conditions, a high capacity utilization rate in many industries, the appreciation of the countries' exchange rates relative to their 2002-2003 levcls, and a larger credit supply. Meanwhile, low interest rates. the greatcr ~ivailabilityof credit and an increase in total wagcs fuelled an upswing in private consumption. In fact, total consumption was the only component of denland to rise more sharply in 2005 t l ~ in n 2004. Thc growth of the region's export volumcs in 2005 (8.4%) continued to outpacc GDP, while the expansion of imports ( 1 1.4%) attested to the strength of domestic demand (5. l %). The various sectors o f economic activity reflected the behaviour of the corresponding components of expenditure. More robust extcrnal demand continued to drive production in the mining and hydrocarbons sector (3.6%), and the cxpansion of domestic demand buoyed the manufacturing sector's performance (3.2%,) both in branches of industry catcring to the domestic market and in those that primarily expoiz their pl-odvcts to other countries within the region. Output in thc agriculturiil sector was up by 2.2Y0.The construction sector's strong growth (6.4% for the region as a wholc) i n many of the countries was reflected in an increasc in gross fixed capital fbrmation. Generally speaking. services expanded more than goods-producing sectors. The upturn in consumption spurred commerce, which posted an 5.6% incrcase regionwide. while the expansion of transport and communications (7.7% in regional tenns) was in large part a result of the strength of activity in goods-producing sectors and the growth sccn in communications, particularly mobile telephony. Tourism-related activities such as hotcls and restaurants. as well as the transport scctor, exhibited a great deal of dynamism. One of the most striking aspects of the region's performance in the last two years has becn the sharp rise in gross national disposable income, which (measurcd at constant prices) outstripped GDP growth, surging by 7.1 (% in 2004 and 5.9% in 2005. This incrcase can be attributed to the trading gains deriving from change in the terms of

trade, which, measured at 2000 prices, were equivalent to 1.7% 01' GDP in 2005 (0.4% in 2004). The region's national savings rates continued to climb, reaching a regional average. in currcnt dollars, equivalent to 22.4% of GDP -the highest since 1990. Inflation in the Latin An~cricanand Caribbean countries continued to trend downward in 2005. falling to a weighted average of 6.1% (as cornparcd to 7.4% in 2004). Measured as a simple average of national ratcs, it amounted to 7.3% (versus 8.6% ill 2004). Even though domestic demand (particularly private consumption) was significantly stronger in 2005, in v d o u s cases thc rise did not translate into steeper increases in consurner prices: as a result. core inllation was lower than the gcneral inllation ratc in almost all of thc countrics. The region's relatively high rate of economic growth in recent years has had it noticeable impact on its labour markets. In fact, 2005 was the third ycm in a rnw of marked increases in thc employment ratc. The 2005 rise of 0.5 points takes the rate up to 53.6% of the working-age population. It is inlportant to bear in mind, howcver, that thcse recent in~provementsare simply bringing the region's employment rate back up to where it stood in 1997. The reactivation of employment since 2003 has been of a markedly differcnt composition than beforc, as it is increasingly driven by the creation of wage-based jobs. 'This reflects businesses' growing confidencc in the outlock for growth and has led to an expansion of formal-sector employment in Inany economics of the rcgion. Against the backdrop of thcse favouriible economic trends, unemployment fie11 by over one percentage point to 9.1%. its lowest level sincc the mid- 1990s. This was due both to an increasc in ernploynient and a slowdown in thc growth of thc labour supply, as the labour participation rate dipped by 0.3 of a percentage point to 59.2% of the working-age population. Rccent irnprovententsnotwithstanding,unemployment remains high, with an estimated 1 X million pcople out of work. Furthermore, a sizeable percentage of new jobs nre in low-paying positions, and the number of short-tcrm employment arrangements in thc formal sector is on the rise. Thc labour market's reactivation in 2005 has not yet led to any significant risc in real wages, which were up by just 0.5%. 111the early n~onthsof 3006, the region's uncmploynlcnt rate continued to decline at ii fairly moderatc puce as thc net result of an increasc in employment and a modcst upturn in the participation rate. while real wages began to climb more quickly. For the third year in a row, thc region's balanccof-payments current account yielded a surplus. with the 2005 average amounting to US$ 35.325 billion, or the equivalent of 1.5% of its GDP. It also posted a

Economic Commission for Latin America and the Caribbean (ECLAC)

surplus of US$2 1.65 billion on the capital and financial accounts (including errors and omissions), or 0.9% of regional GDP. As it result, thc global balitncc totallcd US$ 56.977 billion, or 2.4% of regional GDP. The corresponding counterpart items were a US$ 35.265 billion ( 1 .S% of the region's GDP) increase in reserve assets, US$ 26.816 billion in payments on IMF loans ( l . 1% of GDP),and US$ 5.105 billion in cxccptional financing. The region therefore became a net recipient of' capital flows while at the same time running a surplus on its current account. This was the first timc that had happened (with thc cxccption of 2003, whcn both surpluses were much smaller) sincc thc beginning of the data series in 1980. The current account included a US$80.627 billion merchitndisc tradc surplus and a US$48.7 billion surplus in currcnt transfers, which represented 3.4% and 2.1 % of the region's GDP, respectively. Exports and imports were up by 20.0% and 18.2%. respectively. The expansion of external sales was the combined effect of an 8.1% increase in thc volumc of shipmcnts and an 1 1.0% risc in prices. In the case of imports, the volume was 12.1% higher and prices were 5.5% above the preceding year's levels. In contrast, the services and income balances ran deficits of US$ 18.5 19 billion (0.8% of GDP) and US$75.476 billion (3.2% of GDP), respectively. Foreign direct investment (FDI) totalled US$47.8 billion (2% of GDP), which was 9.7% more than the year before. At USs26.2 billion (I. I % of GDP),the deficit in short-term capital flows was smaller than in 2004. This figure was the net result of two opposing flows: on the

one hand, debt paydowns and external asset formation and. on the other, sizeable capital inflows in the form of portfolio investments. Thc rcduction in the region's externid debt wits coupled with a widcsprcad restructuring or debt profilcs aimed at diminishing cxposurc to shifting cxtcrnal conditions, particularly interest-rate and exchange-rate moven~ents. Liiibility management operations focused on extending external-debt maturities. retiring the more expensive debts, diversifying cxchangc-ratc risk by issuing debt instruments in currencies other than the United States dollar, and reducing that same form of risk by shifting more debt balances into local currencies. As a result, the Latin American and Caribbean region's external debtto-GDP ratio shrank from 37% of GDP in 2004 to 27% by late 2005. In 2006, rising intercst rates in the United States have begun to make thc markct morc risk-avcrsc. Whcn the United States posted a higher-than-cxpcctcd ratc of inflation in May, financial markets slumped, particularly in emerging (including Latin American) markets. This was triggered by investors' expectations of a stecp incrcasc in interest ratcs, which could in turn lcad to a cooling of the global economy's growth. Thc continuation ofthese trends is uncertain, as are the implications of a possible adjustment of global disequilibria. Be that as it may, macroeconomic conditions in the region, particularly its primary surpluses, build-up of reserves, and improved debt profiles, givc rcason to belicvc that the region is in a better financial position to copc with any future deterioration in the external environment.

Economic Survey of Latin America and the Caribbean 2005-2006

Chapter I

Introduction

The Latin Amcncan and Caribbean region gscw by 4.5% in 3,005 and is expected to expand by around 5% in 2006, thereby completing a fourth consecutive year of growth. Tf these projwtions are borne out, the average annual increase in the region's GDP for this period will aniount to approximately 17.6% (an annual average of 4.3%). which tran4utes into an average rise in pacapita GDPof nearly 12% (2.8% per year). This is only the second time that this has occurred in the region in the last 25 years (the first was in 1991-1994). In vicw of the moderate slowdown projected Sor the world economy. ECLAC estimates put the region's growth ratc for 2007 at around 4.591. Although high in historical tcrms, the region's prcscnt growth ratcs are lower than thosc bcing observed in some other parts of the developing world. It is noteworthy, however, that this economic expansion is, in the aggrcgatc, taking place in combination with surpluses on the countries' balance-of-payments current accounts and sound public finances. This makes the region considerably less vulncrable to external shocks. In this sense, the region's current growth phase is remarkable cven when viewed from a comparative intclnational perspective, both because of its reduced reliance on extel-nal saving and because of the speed at which it is paying down its debt. Under prevailing international conditions, which include increasing market volatility and the prospccts of a gradual slowing of world ecnncnnic growth, the style of growth sccn in Latin America and the Caribbean over the past fcw years is providing the region with a safety margin that will help it cope with any changes in extcrnd conditions.

Table 1.1

GROSS DOMESTIC PRODUCT (Projected growth rates) Country

2006

2007

7.6 4.2 4.0

5.5 4.0 4.0 5.5 4.5 5.0 3.0 3.0 3.5 2.5 4.0

Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Haiti Honduras Mexico

5.6 4.8 5.5 3.5 3.5 4.0 2.5 4.8 4.0

Nicaragua

3.5

Panama Paraguay Peru Dominican Republic Uruguay Venezuela (BolivarianRep. of)

6.5

Latin America Caribbean Latin America and the Caribbean

3.5 3.5

3.5

6.5 3.5

5.8 8.0 5.0 8.0

6.0 4.0 6.0

4.9

5.5

6.3

4.3 4.3

5.0

4.3

Source: Economic Comm~ss~on for Latin Amerlca and the Caribbean (ECLAC).on the bas~sof off~cialf~gures.

Economic Commission for Latin America and the Caribbean (ECLAC)

16

A. Highlights of recent trends Thc region's growth has been underpinned by the highly favourable external environment created by tlic world economy's steady expansion and abundant liquidity on international capital markets. Thesc conditions have enabled it to significantly incrcasc its export volumes and have improved the terms of tradc for the South American countries and Mexico, and both of these factors have hclpcd thc rcgion to generate increasingly large tradc surpluses. Thc region's terms of trade in 2005 were 23.4% higher than thc iivcragc for the 1990s: if the comparison is made using their avcragc lcvel for 2003-2005, then the increase amounts to 17.7%. As shown in table 1.2, most of this improvement was attributable to commodity prices, but in thc casc of thc 2003-2005 average, a portion of it also stems from lower import prices. Towards thc cnd of this period, however, the impact of fucl pricc increases also began to be felt.

Figure 1.1

EXPORTS OF GOODS: AVERAGE ANNUAL GROWTH RATES, 2004-2005

Source: Econornlc Commlsslon for Latin America and the Carlbbean (ECLAC), on the basls of offlclal flgures.

Table 1.2 TERMS OF TRADE: VARIATION RELATIVE TO THE AVERAGE FOR THE 1990s (Percentages) 2005 Export price index Commodities Natural-resource-based, manufactures Other lmpon price lndex Variation

Average 2003-2005

27.8

16.2

24.4

16.2

1.g

1 .l

1.5 4.4 23.4

-1 .l

-1.5 17.7

Source: Econornlc Cornm~ss~on for Latm Amerca and the Carlbbean (ECLAC),on the basls of offlclal figures

Thc rise in the terms-of-trade index was accompanied, as noted earlier, by an upswing of nearly 9%, on avcragc, in export volumes over thc past two years. In the case of South America, thc increase amounted to 12% (see figure 1.1). Within this subregion. six out of eight countries posted average increases in export volumes of over 10% pcr ycar. Although they inay expand somcwhat lcss in 2006, thc fact that they have risen by an average of 7.3%) per ycar over the past decade attests to the increasing openness of thc countries' economies. Anothcr feature of this growth cycle has been the expanding flow ofrcmittanccs being sent back, especially to Central America and Mexico. by emigrant workers.

This combination of trade surpluses and hefty unrequited transfers accounts for the surplus on the balance-of-payments current account. which, for the first time ever, is occurring in conjunction with positivc cconornic growth rates. As a result of the combined effect of favourable terms of trade and thc high level of transfers, thc region's aggregate national income rose faster than its GDP (7.1 % vcrsus 5.9% in 2004 and 5.9% versus 4.5% in 2005) (see box I. 1). Consumption pickcd up spced, climbing by 4.2% in 2004 and by 5.3% in 2005. It has not. howcvcr, kept pace with the growth rates for national income, which means that national saving has been on the rise, especially in South America. Gross fixcd capital l'omlation has been the fastestgrowing component of demand (especially in countries where the terms of trade improved). with growth rates of 13% in 2004 and 10.7% in 2005 for the rcgion as a whole. Construction and additional machinery and cquipment contributed more or lcss cqually to thc expansion of investment in 2004. but in 2005 nearly two thirds of the total increase was accounted for by the growth of investment in equipment.

Economic Survey of Latin America and the Caribbean

2005-2006

Box 1.1 DIFFERENCES BETWEEN GDP AND GROSS NATIONAL DISPOSABLE INCOME The trend in gross national disposable income

Table 1

in Latin America and the Caribbean has been

LATIN AMERICA AND THE CARIBBEAN: GROSS NATIONAL DISPOSABLE INCOME AND ITS COMPONENTS, 2004-2005c (Millions of dollars at 2000 prices, growth rates in percentages)

one of the most notable aspects of the region’s economic performanceover the past two years. Measured in United States dollars at 2000 GDP, the trading gain or loss resulting from

Gross national disposable income

GDP

prices, it is calculated as the sum of the region’s

2004

2005

2004

2005

9.0 3.9 4.9 6.2 4.8 4.1 7.6 1.a 2.7 -3.5 5.0 4.2 5.1 7.6 4.1 5.2 2.7 11.a 17.9 5.9

9.2 4.1 2.3 6.3 5.1 5.9 3.9 2.8 3.2 1.a 4.1 3.0 4.0 6.4 2.9 6.4 9.2 6.6 9.3 4.5

9.5 5.6 5.3 10.4 6.6 4.4 7.9 3.4 3.6 -2.4 5.1 5.6 5.8 4.6 4.9 5.3 1.8 12.1 22.8 7.1

10.1 6.5 2.5 9.9 6.4 6.0 8.9 3.0 3.8 2.3 11.0 3.8 5.3 4.6 1.9 7.2 8.9 5.8 20.7 5.9

4.5% (5.9% in 2004). This growth differential

Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruauav Vengzukla (Bolivarian Rep. of) Latin America

is attributable to the considerabletrading gain

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official prices.

changes in the terms of trade,a net payments to the rest of the world of the profits of foreign corporations operating in the region, interest payments on external debt, and net current transfers received from the rest of the world, includingemigrants’ remittances and net grants and donations.b Measured in dollars at constant 2000 prices, the regional aggregate of gross national disposable income increasedby 5.9% in 2005 (7.1% in 2004), compared with GDP growth of

resultingfrom an improvement in the terms of trade, which amountedto 1.7% of GDP for the

Table 2

region as a whole (0.4% in 2004). The higher

LATIN AMERICA AND THE CARIBBEAN COMPONENTS OF GROSS NATIONAL DISPOSABLE INCOME, 2004-2005c

increase in income was shared by most of

(Millions of dollars at 2000 prices, percentages of GDP)

the countries in the region. In 2004-2005, the averageannual rate of increase in gross national

Trading gain or loss

disposable income exceeded GDP growth in all the countries, except the Dominican Republic, Panama and Uruguay. The reasons for this greater increase in incomevatyacmsscountries.Insomecountries, the main factor was the positiveterms-of-trade effect: this was particularly true in those that saw a greater increase in the purchasing power of their exports (exporters of metals, minerals and hydrocarbons).In Argentina’s case, it was due to lower factor payments, while in some Central American and Caribbeancountries (El Salvador, Haiti, Hondurasand Nicaragua)it was

Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay

Peru

Net payment of profit and interest

2004

2005

2004

-0.2 7.0 -0.3 6.5 1.1 -3.0 -3.5 -0.3 -0.7 -0.6 -5.6 0.2 -6.6 -1 .o -0.2 1.7 -2.6 0.1 3.9 0.4

-0.5 8.6 0.3 10.8 3.1 -4.3 1.2 -0.3 -0.7 -0.8 -5.1 1.o -7.0 -2.6 -2.7 3.6 -2.7 -0.9 12.8 1.7

-3.0 -4.6 -2.9 -8.8 -4.3 -2.3 -7.0 -3.1 -1.4 -0.3 -5.2 -1.5 -3.9 -7.2 -0.9 -5.0 -6.2 -2.9 -2.9 -3.0

2005 -1.9 -4.0 -3.3 -10.2 -5.0 -1.1 -8.8 -3.6 -1.3 -0.9 -4.1 -1.8 -2.2 -7.1 0.5 -8.4 -5.9 -2.5 -1.3 -3.0

Current net transfers

2004

2005

0.2 5.9 0.5 1.2 3.7 1.1 8.9 17.2 13.1 25.9 20.2 2.6 13.8 1.6 2.4 2.1 9.0 0.6 -0.1 1.9

0.2 6.2 0.5 1.7 3.7 1.3 8.7 18.0 13.6 27.3 25.9 2.9 13.6 1.5 2.5 2.3 8.8 0.5 -0.1 2.0

~~

at constant prices, of current transfers (mostly

Dominican Republic Uruguay Venezuela (Bolivarian Rep. of) Latin America

remittances from nationals living abroad).

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official prices.

accounted for by increasedinflows, measured

See United Nations, Commissionof the European Communities,Organisationfor Economic Co-operation and Development (OECD), International Monetaly Fund and World Bank, System of National Accounts 1993, 1993, New York, 1993, chapter XVI, paragraphs 16.151-16.156. According to the definition used by ECLAC, the trading gain or loss resulting from changes in the terms of trade is determined by multiplyingthe value of goods and services exports at constant prices by the variation of the terms of trade index. (See ECLAC, Product0 interno bruto de 10s paises de America Latina, E/CN.12/L.51/Add.2), Santiago, Chile, 1970, part II. The formula used is as follows: T= Qx (PxfPm -1) Where: T = the trading gain or loss resulting from changes in the terms of trade Qx =goods and services exports at constant prices Px =unit value index for goods and services exports Pm =unit value index for goods and services imports a

As an approximation for the last two aggregates, the income balance and the current transfers balance of the balance of payments, in dollars at constant 2000 prices, are used. Table 1 measures the annual variations in GDP and national income, both at dollars in 2000 prices. Table 2 measures the ratio in each year between each of the three aggregates and GDP at 2000 prices. The relationship between the two tables is as follows: the difference between the aggregates shown in table 1 in any given year (e.g., for all of Latin America in 2005: 5.9 - 4.5 = 1.4) should be equal to the sum of the differences between the three pairs of the series shown in table 2 (for all of Latin America in 2005: (1.7 - 0.4) + [-3.0-(3.0)] + (2.0 - 1.9) = 1.4).

Economic Commission for Latin America and the Caribbean (ECLAC)

18

Figure 12 CONTRIBUTION TO GROWTH OF GROSS FIXED CAPITAL FORMATION

Thc investment rate for 2005 (21.6%) was still, however, lower than it had bcen before the series o f finmcial crises that bcgan in 1997. Indeed, prcsent irivcstment coefficients are ton low to sustain a fast enough growth rate to fuel job creation in the formal sector at the levcl nccded to help alleviate the delicate social situation existing in Latin America and thc Caribbean. Thus, even though a great dcal of headway has bccn made thanks to the rebounding level of economic activity, as discussed in the chapter on the labour market, the region still has a long way to go.

Source:

Econom~cCommlss~onfor Lat~nArner~caand the Car~bbean(ECLAC), on the basls of offlclal f~gures

Box 1.2 HOW MUCH SHOULD LATIN AMERICA AND THE CARIBBEAN INVEST?

There is no simple way to determine what level of investment is needed in Latin America and the Caribbean. The answer

of around 4, and then climbed higher with the crisis of the 1980s. It then declined slowly until it rose again with the crises

depends, among other factors, on the type of investment, the sectors involved, how it is financed and a variety of factors that

of the late 1990s. If, in the absence of further shocks, the value of this coefficient

determine the effectiveness of any given investment. A shortcut which is often used, although it is not free of criticism,a is to assume that the ratio of the investment rate to the GDP growth rate [(//Y)/(AY/Y)], or the incremental capitaVoutput ratio (ICOR), is fixed, and then to use this as a basis for calculating how much investment is needed to sustain a given economic growth rate. The following figure shows the trend in this coefficient for Latin America since

(which is currently over 5) were to settle back to around 4-4.5, then the region would need to invest between 24 and 27 points of GDP in order to achieve an annual growth rate of 6%.

LATIN AMERICA INCREMENTAL CAPITAL/OUTPUT RATIO (ICOR)

10 -

9-

8-

7-

6-

5 -

1950. As the figure show, it remained fairly stable up to the 1970s, with values 3 ! 1950

a

1960

1970

1980

1990

2000

See, inter alia, William Easterly, “The Ghost of Financing Gap: Testing the Growth Model of the International Financial Institutions”, Journal of Development Economics, VOI. 60, NO. 2, 1999, pp. 423-438.

Economic Survey of Latin America and the Caribbean 2005-2006

19

B. International market trends and their probable impact on Latin America and the Caribbean

Y 1.

The international situation

The pace of world economic growth remained brisk in the early months of 2006, but most pro.icctions point to a slowdown in the second half of the ycar th:it will probably carry over into 2007. Lower growth ratcs are being predicted for the future in response to the rising levels of risks that have been prcscnt in the world economy for sornc time now and thc fact that financial markets and commodities have b c y n to exhibit heightened volatility midway through the ycar. The main risks at the global levcl are associated with the growing deficit on the United States' balanceof-payments current account. This imbalance could cnncei vabl y trigger a sudden, disorderly adjustment which could dampen demand in that country and, givcn its position as an engine of growth for the international economy, havc a magnified ripple effect in the rest of the world. The most immediate conccrn, however, is what sort of impact rising oil prices may have on infl~itionand consumcr cxpectations in the United States. Fears of a possible upswing in inflation have prompted intescst ratc hikes, with the incrcascs being steeper for shorttcrm rates than they h a w in the case of medium- and long-term rates. From a global perspective, one of the questions now being asked is to what extent a morc cnergetic pace of activity in Europe iind Japan might offset slackening growth in the United Statcs econorny. The likelihood of this occurring will be inlluenced by the position adopted by Europe's and Japan's central banks, sincc too steep iin interest-rate hike could curb a faster rate of expansion in these economics. If, against thc backdrop of the Asian and especially Chinese economies' robust expansion, Europe and Japan continuc to grow at the samc p a w iis they have in recent months, it may be possible Ihl- the world economy to accomplish an orderly adjustment that would allow it to diminish global disequilibria whilc continuing to prow at its present rate or only slightly morc shwly.

Clearly. the chances of haviny this positive outcome come to pass will dcpcnd a great deal o n the extent of thc supply shock rcprcscnted by the continued rise in oil prices and on the implications in terms ol' a tightening of monetary policy to stifle inflationary pressures. Both of these factors (supply shocks and rising interest ratcs) are usually present durlng global ~*ecessions. Either way, the low real intcrest rates sccn for most of thc last decade (see figure 1.3)are probably coming to an end. As noted carlicr, thus far increascs in short-term interest ratcs havc not fully carried over into longer-term rates. This Ihct may be a sign of confidence in the central banks' and, in particular, the United States Federal Rcsc~ve's ability to hold inflation in check. In the future, however, these higher ralcs iire likely to dampen demand and spur a flight to quality that would hurt emerging markets. In fact, as the mid-point of 2006 approached, country-risk was rising and some emerging-economy currencies wcrc beginning to dcprcciiite. Just how much of an impact this situation will have on the region's markets will dcpcnd primarily on the scale of the slowdown in world economic activity, which will surely have a negative inilusnce on commodity price\ and exports. Figure 1.3 LIBOR: QUARTERLY AVERAGE IN REAL TERMS

Source: Econorn~cCommlss~onfor Latln Arnerlca and the Car~bbean(ECLAC), on tne basis of oftic~alflgures.

.

Economic Commission for Latin America and the Caribbean (ECLAC)

2.

Effects on Latin America and the Caribbean

Judging from thc above factors, the medium-tcrrn prospects for the Latin American and Caribbean rcgion will depend, first and foremost, on the type\ of commercial ties maintained by its countries. If a smooth, orderly adjustment is itchicved, then the United States cconomy's slower rate of growth can be expected to aITcct Mexico and Central America more than the rcst of the regron, since their export structure is more concentrated in that market. South America, by contrast, has a more diversified structure in which China and other Asian economies are playing an increasingly important role. In addition, a large pcrccntage of Mexico's and Ccntral America's exports are manufactures that are engineered to mcct dcstinationmarket specilications and that would therefore be more difficult to d~vcrtto other markets in the short run. Anothcr consideration i \ how much of' an impact the supply shock generated by rising hydrocarbons prlces may have on indiv~dualcountries depend~ngon whether thcy are net oil exportcrs or importers. The Central American and Caribbean countries (with the exception of Trinidad and Tobago) would appear to be the most vulnerable in this respect. Sorric South American nations arc also in this position. The implications ol'mounting uncertainty and volatil~ty and their effects on financial markets are another element to bc considered. In fact, as a rcsult of the growing uneasc that began to be seen in intcrnational financial markets in May, the demand for emerging-economy bonds has slackcned. This. in turn, has driven up country-risk and exerted varylng degrees of pressure on thesc countries' currencies. Nevertheless. as notcd earlier, the I,atrn American and Caribbean region is better prepared to deal with thesc typcs of processes than it has been on other occasions. But although this is true for the rcgion as a whole, there are quite significant differences across countries, depending on the following factors: (i) their current account balance itnd thc assoc~ateddegree of reliance on external savmg; (ii) the extent to which their current account balance is determined by commodity price levels; (iii) thc lcvcls and, especially. structure of their external asscts and l~abillties;and (iv) their fiscal position.

'

(a) Current account balance and reliance on external saving As noted eiirlier, thc rcgion as a whole is registering an increasingly l a y c surplus on its balance-of-payments current account, with the final balance for 2005 being estimatcd at 1.5% of GDP In 2004, only 8 out of 19 Latin American countries had a surplus on this account, but in 2005 thc rcgion's surplus was attributablc to the results posted by just 7 countries. In a number of countrics that did run deficits, however, thosc shortfalls were quite small and were more than offset by forcign-exchange inflows in the fiwn of forcign direct investment. An analysis of trends in the basic balance (rather than in the current account balance) shows that the region as a whole had a surplus equivalent to 3.2% of GDP in 2004 and 3.5% in 2005. In addition. out of the 19 countries covered by this study, there were 12 countries with surpluses in 2004 and 15 in 2005. The Caribbean as a whole registered a small dcficit on its current account in 2005 and a surplus on its basic balance equivalent to 5.2% of GDP. This result is duc entirely to the results posted by Trinidad and Tobago (an oil exporter), however; the rcst of the countries in the subregion ran deficits on both of thcsc accounts. In summary, then, with the exception of some Central American and most Caribbean countries, thc region can be described as exhibiting a lowcr dcgrcc of external vulnerability than in the past. '

(h) External accounts and terms of trade It is also clear that thc surpluses recorded by some countries were heavily influenced by changes in their tcrrns of trade. If, for example, the value of the region's merchandise trade flows were calculated on the basis of its ternls of trade during the 1990s, then its current account surplus would turn into a dcficit equal to 2.7% of GDP and its basic surplus would turn into a deficit amounting to 0.7% of crnrl. A return to the rcgion's terms of trade in the 1990s would, howcvcr, make almost no changc at all in the

One factor that has helped to Icsscn vulnerability tu external shocks in some cases is the reducdon of the deyree of dollarization in some of the rcgion's economies, especially in South America. This continues to bc a risk factor in a number of the economics, however.

Economic Survey of Latin America and the Caribbean 2005-2006

number of countries having a basic surplus in 2005, since some oil importers (especially Central American countries) would, all other things being equal, then have a surplus instead of a deficit. Something quite similar would surely happcn if such calculations werc done for the Caribbean countries (with the exception of Trinidad and Tobago), but some of the information needcd to prepare such an estimate is not available. Some countries that arc highly specialized in raw rnatcriitl exports, such as Chile and, to a lesser extent. the Uolivarian Republic of Venezuclii and Mexico, would thcn run sizeable dcficits, howcvcr, although the Chilean cconomy is. on the other hand, the least vulnerable to external sl~crcksthanks to its countercyclical policy, lowcr degree of dollarization and low public debt levels. Thc MEKCOSUR economies (which are largc exporters of agricultural commodities) eithcr d o not exhibit any ma.jor impact from thc terms-of-trade effect (Argentina, Brazil) or this type of price correction would rcsult in a larger surplus (Paraguay and Uruguay). In this casc, the comparison based on 1990 price levels docs not show up such a marked different in the tcrnis of trade bccause price rises have not bcen as sharp in rccent years. Another reason for this result is that agricultural prices were relatively higher in the 1990s than mctul and oil prices were. In this case it should iilso be noted that. with few exceptions, the ~nacroecnno~nic equilibria associated with the external sector arc not as sensitive to the level of the countrics' terms of trade.

21

seen from figure 1.5, thc ratio of thc total dcbt to exports of goods and serviccs is less than half of what it was 10 years ago, and if the debt nct of international reserves is substituted for the total debt, then the ratio falls to around one third of its Sormer level. Although some countrics' external debt ratios arc still high (6 out of 19 Latin American countrics and 6 out of 13 Caribbean countries have ratios of over 100%). the situatioti is significantly better now than it has bcen since the 1980s. This is not only because the external debt-toexports ratio is lower, but also because ol'the change in the ratio between short-term debt and international reserves. As figure 1.6 shows, improvements in the dcbt structure and increases in international reserves have altercd the trend of this coefficient, which is now only one third as high iis it was 10 years ago. Figure 1.5 LATIN AMERICA AND THE CARIBBEAN: TOTAL GROSS EXTERNAL DEBT

Figure 1.4 LATIN AMERICA: BASIC BALANCE. 2005

Source: Economic Commlsslon for Latin America and the Car~bbean(ECLAC),on the basts of otflclal f~gures.

F ~ g u r e1.6

LATIN AMERICA AND THE CARIBBEAN: SHORT-TERM EXTERNAL DEBT

Source: Econom~cCornmlsslon for Latln Arner~caand the Carlbbean (ECLAC). on the basts of offlclal flgures.

(C)

Level and structure of external assets and liabilities

In recent years, the countries ofthe region have sharply Of theit.debt burdens' both re'ative reduced the CDP iind as a ratio of the region's exports. As may bc

Source: Econom~cCommission for Latm America and the Carlbbean (ECLAC), on the bas~sof off~c~al flgures

Economic Commission for Latin America and the Caribbean (ECLAC)

Figure 1.8

d) Fiscal position The countries of the region havc also bccn consolidating their fiscal positions in rcccnt years. On the one hand. the macroeconomic situation has boosted fiscal revenues thanks both to the upswing in cconomic activity and to the irnprovcment in the countries' terms of tradc. On the other, unlikc what has occurred during other growth phases, public expcnditurc has been kept under control. The combination ai'thcse two factors has resulted in hefty primary surpluses which thc countries have used to pay down their debts (see figurc 1.7).

LATIN AMERICA, EMERGING ECONOMIES AND INDUSTRIALIZED COUNTRIES: PUBLIC DEBT AS A PERCENTAGE OF GDP

Figure 1.7

LATIN AMERICA AND THE CARIBBEAN: REVENUE, EXPENDITURE AND PRIMARY FISCAL BALANCE (Central government, as a percentage of GDP) Source: Economlc Commission for Latin America and the Cartbbean (ECLAC), on the basis of offlcial f~gures.

Source: Economic Commiss~onfor Lat~nAmer~caand the Caribbean (ECLAC), on the basls of official f~gures.

Thc rcduction in the public debt relativc to GDPhas bccn sharper in the region than in developed countries and in dcvcloping countries as a group (see figurc 1.8). Not only has the debt been cut in size, but its composition has changed in ways that hclp make the region less vulnerablc. One of thcse improvements has been the incrcase in the share of the debt that carries a fixed interest rate. Fixed-rate obligations have risen from 45% of the total in the late 1990s to nearly 70% in Argentina, from 7% at the start of 2002 to 28% in early 2006 in Brazil, from 38% in 200 1 to 60% in 2006 in Peru and from 43% in 2000 to 70% at prcscnt in Uruguay. Another important improvement has t o do with the shift in the currency mix o f t h e debt towards a larger proportion of debt denominated in local

currencies. For example, just 10% of Argentina's debt was denominated in pesos in the late 1990s, but that share has riscn to 52% now, while Brazil has increased the share of its net obligations that are denominated In reais from 54% to 95% between 2002 and early 2006. The widespread improvement in public accounts is thc nct result o f difi'crmg situations, however. For example, only a fifth of the Latin American countries (Argentina, Bnlivarinn Republic of Venezucla, Chile and Paraguay) have overall fiscal surpluses and half of them havc dcbts amounting to over 50% of GDI? In addition, thc need to maintain balanced fiscal accounts poses formidable challenges for economic policymakers. For countries specializing in non-renewable resources, the sharp rise in revenues has prompted a debate about how these windfall profits can be used to best advantage. Given the existence of a justified need to raise the level of social spending and to invcst morc in infrastructure, the region as a whole must now strive to determine the most appropriate direction for fiscal policy. Above and beyond these issues, and although much remains to be done in order to ensure the sustainability of internal and external macroeconomic equilibria, it is clcar that the Latin American and Caribbean region is better placed now that it was in the past to contend with any change for the worse in the external environment, providcd that it takes place in a gradual, controlled manner.

Economic Survey of Latin America and the Caribbean 2005-2006

23

C. The outlook for the economies of Latin America and the Caribbean Although it is certainly possible that the world economy may be able to cope with the risks represented by inflation and the correction of global discquilibria without experiencing a hardlanding, these phenorncna constitute a source of uncertainty. The csciilatio~~ of the conflict in the Middle East and other intcrnational disputes are also a cause of concern. Eve11 if cvcrything works out well, a pcriod of grcater global volatility appears to be in thc offing, and the possibility cannot be ruled out that this could cause growth ratcs to decline and capital flows to reverse direction and begin lnovrng towards developed countries. whcrc the levcl of risk is pcrccived as being lower. Against this backdrop, the prices of the region's commodity exports are not expected to display a great deal of forward monientum, and this could h a w an impact on the size or sign ol'the countiics'current account balances. Smaller trade surpluses and a tighter supply of external funds could havc w ~mpacton cxchange marhcts that would either halt or partially reva-se the currency appreciations witnessed over the past two years. So long as thcsc changes arc moderate and occur gradually. and givcn the region's lcss vulnerable external

and fiscal positions, it is unlikely to dcpiirt in any major way horn the growth path that it has rccently embarked upon. In an international environrnenl such as this, the economics hiivitlg a more clivcrsified expm stnlcturc in rcms of the countries of destination and a con~paratively smitll sharc of sales to the Unitcd States market (and especially o f products that cannot easily bc diverted to other markets) will he the oncs that er~+joy the greatest amount of manoeuvring room. Furthermore. although somewhat lowcr commodity prices and slightly higher real exchange rates may pose a grcater challenge for public finances, they may also spur the search for a morc cliversificd and knowledge-intensive pattern of specialization. In this sensc, the proccss of defining the region's style of growth in the coming years should provide some scope for thc application of productive policies. As ECLAC has noted on rcpcated occasions. it is also essential for the rcgion to boost its rate of investment, sincc, although investment has made a considerably rccove.ry, it is still too low to ensure sustained growth at the pacc needed to alleviate the social situation in Latin Amcrica and the Caribbean.

D. Latin America and the Caribbean: growth and inflation in 2006 and 2007 The Latin American and Caribbean countries' GDP will grow by 5% in 2006 and by slightly less (nearly 4.5%) in 2007.' In gencral. iis shown in tiihle 1.3. the various subregions will grow at fairly similar rates in 2005, with most falling into the rangc of 3.5%-6.5%. The exceptions will be Argentina, the Rolivarian Kepublic of Venezuela and thc Doininican Republic, whosc economies will expand

by over 7.5%, and Haiti, with a projected growth rate of 2.5%. As in past years, thc Southern Cone and thc Andean countries will be the two fastest-growing subregions, with ratcs of 7% and 6.2%. respectively. The outlook for Latin America and the Caribbciin in 2007 continues to he quite promising, with growth projected at 4.3%. Thc predicted ratc is sonlcwhitt lower

Economic Projections Centre. "Latin America and the Caribbean. Pr~iections2006-2007". E.~trrrliosr.studkricn~ prnsprc~rivosr r i r s , No. 42 (LCiL.2528-PII). Sanliago. Chile. Economic Comnlission lor Latin Arrlerica and thc Caribbean (EULAC), April 2006; and Economic Cv~rurlissior~ for Latin Amcrica and the Caribbean (ECLAC), "Atlas del crecimicnro, 2006-2007" [onlinej www.e~lac.cl/dcyjleiatlaa~crecitnien~o/indcx.l~trn.

Economic Commission for Latin America and the Caribbean (ECLAC)

Table 1.3 LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH, 2004-2007 (Annual growth rates, in percentages)

Latin America and the Caribbean South America Brazil Southern Cone Andean countries Mexico and Central America Central Amenca Mexico Caribbean

2004

2005

2006

2007

5.9 6.9

4.5 5.1 2.3

5.0 5.4 4.0 7.0 6.2 4.1 4.5 4.0 6.3

4.3 4.7 4.0 5.4

4.9

8.4 9.5 4.2 4.0 4.2 3.7

8.3

6.9 3.2 4.4 3.0 4.0

Figure 1.9 ECONOMIC GROWTH IN LATIN AMERICA AND THE CARIBBEAN, 2000-2007 (Annual growth rates)

5.2

3.6 4.1 3.5 4.3

Source: Economic Commission for Lat~nAmerica and the Caribbean (ECLAC),on the basls of offlc~alfigures.

than the figurc for 200h chiefly because domestic demand is expected to be more sluggish in most of the countries of the region and the world economy's expansion is likely m slow its pace slightly. The Southern Conc's growth rate for 2006 is projected at nearly 7%, mainly because the Argentine economy is expected to expand by 7.6% thanks to the strength of domestic dcmand, particularly for investment. In 7007, Argcntina's growth rate is expected to slip to around 5.5%. The Andean countries are likely to post a rate of h.2%, primarily owing to the Bolivarian Republic of Venezuela's continucd rapid pace of growth. A slower ratc. within the range of 5%-SS%, is expccted for the Andcan countries and thc Southern Cone in 2007. In Brazil, the statistics published for the first quiirter of 2006 provide confirmation of a positive economic outlook for the year. during which domestic demand will continuc to respond to the expansionary monetary and fiscal policies, marking up a growth rate of 4%. As in the past few ycars, Mexico and Ccntral America are expected to grow more slowly than South America in 2006 (see figurc 1.9), but the gap between them will narrow as the formcr subreg~onexpands by about 4.1%. Primarily as a consequence of the Uriitcd States' robust growth pattern, the Mexican economy will cxpand by 4% in 2006. Its projected rate fbr 2007 will be around 3.5%. Thc projection that Central America will post a rate for 2006 of around 4.5% is based on the strengthenmg of demand bcing seen in most of that subregion's countries. This figure also represents a slight irnprovemcnt over its 2005 performance. Private consumption will continue to bc spurred by increascd consumer credit and remittances. In addition, implementation of the Dominican Republic - Central America - United States Frec Trade Agreement (CAFTA-DR) is cxpccted to boost investment in thc sccond half of the ycar. Some countrics' non-traditional exports will continue to rise quite sharply, and the Central

Source: Economic Commtssion for Latin America and tile Caribbean (ECLAC), on the bass of off~c~al flgures.

American countries are expcctcd to continuc growing at a rate slightly above 4.0% in 2007. The Caribbean subregion's economy is likcly to grow at over 6.0% in 2006, with Trinidad and Tobago leading the field with a ratc of around 10%. The 2006 hurricane season represents the biggest risk in terms of the Caribbean's economic performance: there is also somc concern about some countrics' public finances. Consumer prices in thc rcgion are expected to rise by 5.4% in 2006. as compared to thc 6.1 % rate of inflation recorded in 2005. This reduction is associated with the fairly fiivourable pricc indices registcrcd early in thc year (see l'igur-e I. 10) and will enable the rcgion to continue to hold inflation to historical lows (sec table 1.4). F~gure1.10 LATIN AMERICA: INFLATION, 2005-20C16~ (Annual rate of vanation)

Source: Econom~cCommission for Latln Amer~caand the Caribbean (ECLAG),on the bas~sof off~c~al figures " Average lnflat~onrates are calculated using population f~guresas the basis for we~ghtlngs.

Economic Survey of Latin America and the Caribbean 2005-2006

Table 1.4 LATIN AMERICA AND THE CARIBBEAN: INFLATION, 204-2006" (Annual growth rates, In percentages)

Latin America and the Caribbean South America Southern Cone and Brazil Andean countries Mexico and Central America Caribbean

2004

2005

7.4 7.1 6.9 7.5 8.0

6.1

6.4 6.7 6.0

9.1

9.5

5.4

2006 Low 4.6 4.8 4.8

4.9 4.1 7.2

Projected

High

5.4

5.9 6.2

5.5 5.6 54

6.1

4.9

6.5 5.2

7.6

7.9

Source: Economtc Comnws~onfor Lat~nAmer~caand the Caribbean (ECLAC), on the bas~sof offlclal flgures ' Average mflatlon rates are calculated using population f~guresas the bass for

welghtlngs

Trends in inflat~onat the regonal and subregional levels are depicted in figure 1.10. A slight reduction is shown for the Southern Cone and Brazil, while the

25

prc?jection for 2006 of 5.5% is mainly a reflection of trcnds in Argentina, sincc the other countries' inflation rates are expectcd to be quite nioderatc. Thc Andean countries arc rdso showing a reduction relativc to 2005, and their 2006 inflation rate is expected to come in at an estimated 5.5% as well. This is partly attributable to the positive results achieved by a numbcr of countries in this subregion through the use of inflation targets. There continues to bc some uncertainty as to future trends in the Bolivarian Republic of Venezuela, howcver, where inflation remains at double-digit lcvels. Pmjcctions put the rate for Central America and Mexico at nearly 5% Sor 2006, which is slightly lower rhan the 2005 figure. even though don~csticprices in Central Arncrica continue to rcflcct the trend in oil prices. The Caribbean subregion's inilation rate is cxpecte,dto Fall to 7.6%, mainly thanks to price trends in Jarnaicn.

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Economic Survey of Latin America and the Caribbean 2005-2006

Chapter II

International economy

A. World growth World economic growth slowed in 2005, with globiil output increasing by 3.5% comparcd to 4.0% in 2004. This was partly duc to the fact that many ccononiics have finishcd making a recovery from the recession that took place at the beginning of the decade; the slower expansion of thc Unitcd States economy at year's end was anothcr Sactor.'

As shown in table 11.I , growth slowed throughout the world in 2005. Both thc Unitcd States' cconomy and that of the euro area posted lowcr growth rates than thosc of 2004; the former grew by 3.5% in 2005, comparcd to 4.2% in 2004, while the euro arca grew by 1.3%, down from 2.1 % in 2004. While the rate of expansion in developing countrics also slackcncd somewhat, dropping from an aggregate rate of 6.8% in 2004 to 6.2% in 2005, it should be notcd that growth in thcsc countrics ovcr thc last thrcc years hiis cxc~cdcd5% -something which had not occurred sincc the late 1960s and early 1970s. Moreover, when the distribution OS growth in developed countries is comparcd to the averqc Sor thc first five years of the last few decades, it becomcs clcar that not only were growth rates higher in 2000-2005. but variations across countltes also dcclincd (see figure 11.1). In fact, thc rcmarkablc buoyancy of thc Chinese and Indian economies -which grew at rates exceeding 9% and 8%. respectively, in 2005 - hiis hclpcd

l

Table 11.1

WORLD GDP GROWTH RATES, 2002-2005 (Percentages)

World Developed countries United States Euro area Japan Developing countries Latin America and the Caribbean China Newly tndustrialired economies Transition economies

1.8 1.2 1.6 0.9 01 3.7 -0.8 9.1 5.0 5.3

2.7 1.9 2.7 0.8 1.8 5.2 2.0 10.0 3.0 6.8

4.0 3.1 4.2 2.1

2.3 6.8

5.9 10.1 5.4 7.9

3.5 2.6 3.5 1.3 2.7 6.2 4.5 9.6 4.4 7.6

Source: Econom~cCommission for Latin America and the Caribbean (ECLAC), on the basls of offlclal figures.

The reduced growth of the Unitcd Statcs during thc last quarter o f 2005 was mainly the one-off result of Hurricanc Katrina

Economic Commission for Latin America and the Caribbean (ECLAC)

to improve the tcrrns of trade for commodity-exporting countries, thereby enabling emerging economics to sustain hiyhcr ratcs of expansion. Conscqucntly, the price of petroleum continues to rise, driven by an upsurge in global dcmand. In 2005, the price per barrcl of West Texas Intermed~ate(WTl) showed a year-on-year Increase of 32% measured in constant May 2006 dollars. Uncertainty regarding the possible impact of high petroleum prices on inflation is one of thc main concerns facing developed and emerging

economics that import crude 011. The world growth rate in 2006 may thcrcforc be close to that of 2005. with a 0.2% range of vwiation, dcpcnding on the reaction o f clcveloped econo~niesto stricter monctary policies aimed at curbing inllation. While the growth rate of thc United Statcs is cxpected to slow slightly, the greater buoyancy displayed this ycar by the euro area and the Japancsc economy. coupled with continuing high growth rates in China, may offset this slowdown and prcscrve the favourable international environmcnt.

Source: EGonornlc Cornrn~ss~on for Latin Arnerlca and the Car~bbean(ECLAC), on the basis of offic~alf~gures Does not Include transltlon economies

"

Economic Survey of Latin America and the Caribbean 2005-2006

29

B. Inflation and economic slowdown in the United States: A global concern In the United States, thc inflationary effect of high crude oil prices is a cause of' concern for the Federal Rcscrvc. In mid-2004, thc Federal Reserve began implementing a restrictive monetary policy, as high ~*ealestate prices buoyed the. economy. As shown in figure 11.2, rnonthly core inflation in the United States, measured on the basis of personal consumption, grcw at an average year-on-year rate of 2% between January 2004 alld May 2006. Thc monetary authoritics sct this rate as the upper limit of the permissible rangc (1 %-2%). It is therefore rcasonahle to assume that, in thc short term, the Federal Rcscrvc is likely to continue raising intcrest rates. Thc monetary authorities of the United States are facing :i ycar of mixed economic indicators. After growing at a rntc of 9.2% in 2004, thc cconomy slowed in 2005, growing at a rate 01'3.5%. GDP appears to have cxpandcd by over 2% during the first half' of 2006, thiinks to a strons rally during the first quarter of the year following a weak pcrforniance during the last quarter of 2005.2 Certain indicators are unsettling. howcvcr. These signs include a slowdown in private consumption cxpenditutx in May 2006 due to rising giisoline prices and the apparcnt end of the real estate boom, which may erode consumer conf'idcncc in the short term. Thc impact of interest rate hikes on consurncr credit should also be considcrcd, given the high household indebtedness ratio and heavy reliance on private consumption chiiracteristic of the Unitcd States economy. In short, the growth rate of thc United States may dccline during the second halfol'2006, with GDP for thc ycar as a whole rising by approximately 3.4%. The persistence and expansion of the United States economy's external imbalances remain the most pressing concern from a global perspective. Thc country posted a current account dei'icit of over US$80U billion in 2005, which wiis approximately US$ 137 billion more than in 2004 (see figurc 11.3).As a percentage of GDP, thc deficit rose from 5.7% in 2004 to 6.4% last year. This ppersistcnt imbalance is a reflection of the growing deficit on thc balance of trade in goods and services. While intercst payments to non-resiclcnts have risen as a resul~01incrcased debt issues, the profitability of United States assets abroad has more than offset this increase, thereby cvening out

*

Figure 11.2 UNITED STATES: PETROLEUM PRICES, CORE INFLATION AND THE EFFECTIVE FEDERAL FUNDS RATE

Source: Econorn~cComm~sslonfor Latm Amerlca and the Carlbbean (ECLAC), on the basls of lnternat~onalMonetary Fund, lnternat~onalFlnanc~alStat~st~cs [onllnej, Bureau of Econom~cAnalys~sof the Unlted States Department of Commerce. and Federal Reserve Statlstlcal Release database

Figure 11.3 UNITED STATES: CURRENT ACCOUNT IMBALANCES, BY COMPONENT, 1996-2005 (Milhons of dollars)

Source: Econom~cComniiss~onfor Latln Amerlca and the Carlbbean (ECLAC), on the basis of offmal f~gures

In seasonally adjustcd tcrrns, rlunng the first quarter of 2006 the GDP of thc Uniled States rosc at an armual rale of 5.6% with respect to thc last quarter of the preceding year.

Economic Commission for Latin America and the Caribbean (ECLAC)

30

the result o n the income account. Debate on this issue focuses on thc medium- and long-term sustainability of the imbalance. While some experts have called for an adjustment in the form of a strong depreciation of' the dollar and fiscal discipline, othcrs acknowledge that the imbalance is a problem sharcd with the ecc~nomiesthat are financing this continuing deficit. ln fact, many Asian nittions (particularly China and Japan) and petroleumexporting countries possess large current account surpluses thanks to the competitiveness of thcir products and high commodity prices. The abundant global liquidity which this generates is channelled mainly into dollw-dcnorninated asscts, thereby financing the current account imbalances of thc Unitcd Statcs economy. In real efkctivc tcrms, while the United States dollar depreciated slightly morc than 6% during the first five months of 2006, its cu~nulativedepreciation sincc 2002 is equivalent to over 21%. This is thc rcsult of it gradual process. The euro continucs to gain strength, posting a real effective exchangc ratc increase of 2.4% during the first five months of 2006. Since its revaluation in mid2005, the Chincsc yuan has undergone a real appreciation of slightly more than 5%, which has not been enough to reduce its trade surplus. Thc dollar may be expected to continue depreciating slowly in the future, as pressure for a further revaluation of the yuan continucs. In 2005, the euro area, which includes 12 of the 25 countries that make up the European Union. was unablc to sustain the rate of economic growth it had achieved the preceding ycar. Alicr an aggregate GDP increase of 2.1% in 2004, conditions deteriorated during the last quartcr of 2005; at year's end. growth stood at 1.3%.This slowdown was a result of lower growth in Germany (1.0%). Francc (1.2%)and Italy (U%), which together account for over 70% of thc subregion's GDP.In Germany, private and public consumption both contracted during the last quarter of 2005, in seasonally adjustcd terms. conlpared to the prcvious quarter. The growth rate of overall consumption in Francc declincd during thc same period, while the level of the country's nct exports M. This was also the case in Italy, where the growth of consumption also declined and investment contracted betwccn the third and fourth quarters of' last ycar. In 2005, thc Harmonised Consumer Price lndex (HCPI) of the European Economic and Monetary Union rose by 2.2%. Since 2000, intlation in the euro area has grown at an annual rate exceeding 2%. The rcsponsc of the European Ccntral k i n k (ECB) has been to raise its benchmark rate by 25 basis points, beginning in late 2005,

in order to reduce intlation without unduly interfering with the region's growth. In fact, during the first quarter of 2006, private consumption in Germany and Francc surpassed levels reached during the last quarter of 2005 (0.6% and 0.9%, respectively). Rcncwcd optimism early in the ycar has been rcinforccd by recent improvements in thc European Union's employment indicators, which may bolster overall consumer confidencc. Households in Germany may even begin buying ccrtain types of consumer goods in advance. thereby increasing their overall spending levels, in response to the country's announced 2007 VAT hike. Private consumption expenditure in Europe's major cconomies is likely to become robust once again in 2006, with thc monetary union's aggregate GDP growth hovering itround 2% at year's end. The I'uturc is less ccrtain from 2007 onward, as thc sustainitbility of these rates will depend on thc pass-through of fuel prices to the rest of the economy, as well as the measures adoptcd by the European Ccntral Bitnk within a framework of more restrictive fiscal policies and a stronger e u r ~ . ~ Japan continued to recover, buoyed mainly by an improvemcnt in domestic demand. The country's GDP expanded by 2.3% in 2004 and 2.7% in 2005. Thcse rates exceeded thosc posted between 2001 and 2003, consolidating the rcvitali~ationof an economy that accounts for approximately 14% of global GDR Thus far in 2006, private consumption and investment have continued to risc, accompanied by low unernploymcnt and highcr wages, and improved corporate profits have offset rising fuel prices. Prices have bcgun responding to this increased growth, with cumulative intlation reaching 0.8% during the first quxtcr of 2006 as a result. This dcparturo from eight years of deflation may soon reverse thc Bank of Japan's expansionary monetary policy. More robust domestic demand also generated a 15.7% inclease in imports of goods and scrvices in 2005, surpassing thc upsurge in the country's exports (7.3%) and reducing its trade and current account surpluses, which amounted to 3.6% of GDP. Economic expansion is expected to continue in 2006, with GDPgrowth approaching 2.8%. In the futurc. the Japanese economy's hcfty fiscal deficit (5.5% of GDP in 2005) may lcad the government to make adjustments in an effort to increase revenues or cut spending. Depending on thcir intensity. these adjustments may dampcn private consumption and corporate profits. The Chinese economy remains vibrant. GDP in China expandcd by 9.6% last year, after marking up a 10% rate for 2 0 0 4 . ~Thc country has experienced two

In addition to a VAT hike in Germany, thc rcstrictivc policies planned for 2007 include a 1 % cut in governrncnt spending in France. The National Bureau of Statistics of China has revised ils GDP l'igures. increasing its cstimatcs for recent years lo rellecl lhe good performancc of the service seclor.

Economic Survey of Latin America and the Caribbean 2005-2006

dccadcs of high, sustained growth, at an averagc annual rate of 10% between 1987 and 1996 and 8.4% between 1995 and 2005. This forceful economic perSorniance is founded upon three main pillars: it considerable increase in net exports, invcstmcnt (mainly in infrastructure) 'and thc energizing cffcct of domestic consumption. In 2005, exports increased by 28.4% over the preceding year, totalling US$ 762 billion -more than the combined total of all exports from Latin America and the Caribbcan (US$576 billion). Spurred by domestic demand, imports climbed by 17.6% following a 36% increase in 2004.

This resulted in a US$90 billion increase in the country's current account surplus in 2005 -from 3.6% of GDP in 2004 to over 7% only one year later. Investment in China is estimated to have excccdcd 42%) of CUP in 2005 -down slightly from 45.3% in 2004. This decline is a rcsult of stmnger administrative restrictions on the real estate scctor that are intended to rcgulatc its growth. In 2006, thc Chinese economy is expected to grow at niuch the same rate as in 2005, although questions rcrnain regarding its sustainability and possible inflationary pressures.

C. Investment in production declines amid increasing uncertainty The last few years have been charrrctcri~edby high lcvels 01' inicrnational liquidity owing to improved corporate profils and thc Ibrcign trade surpluses generated by high con~modityprices -particularly for petrolcuni. Institutional investors, such as the ccntral bank\ of surplus countries (mainly Asian nations and some petroleurnproducing countries), havc placed a significant portion of their reserves in dollar-denominated assets. Higher earnings in the production scctor have not been used to increase installed capacity, but rather to purchase financial assets, most of them in dollars. This has kept investment demand below the levels that would gcncrally bc cxpcctcd, givcn thc abundance of liquidity in the

economy. One cxplanat~onfor thls phenomenon Inay be that transnational corporiitions have already undergone a restructuring process in early 2000 and havc thcrcfore ruled out thc idea of cxpand~ngthe~rinstalled capacity in the short tern1 at a time when productivity is on thc risc Stronger demand for dollal*-denom~natedtcrrri asset\ has put an end to thc trcnd in long-term intcrcst rates, which had been rlsing nwre slowly than 3hort-tcrm rate\ (which were being hiked by thc major economics' ccntral banks). thereby flattening the asset yield curve (sec I'igurcs 11.4 and 11.5). The helghtcncd uncertainty sparked by the ~ncreased paw-through of fuel prices m developed economies uoaitted

Figure 11.4 SHORT- AND LONB-TERM YIELDS OF UNITED STATES TREASURY BONDS. JULY 2004 -JULY 2006

Figure 11.5 YIELD CURVE OF UNITED STATES TREASURY BONDS, 2005 AND 2006

Source: Economtc Comnrissionfor Latin America and the Caribbean (ECLAC). 017 the bass of f~guresobtamed from Bloomberg.

Source: Econorntc Comrnrsslonfor Latln Arner~caand the Caribbean (ECLAC), on the basis of f~guresobta~nedfrom Bloomberg.

Economic Commission for Latin America and the Caribbean (ECLAC)

32

wlth higher production and shipment cost

m a,

-

6

-’

7

n m

.Ea m

4-

0 0

n

u1

U 2

I 0

Ic

D a,

m

0

W Tax revenues

0

> 0

m

I 1 11

-

-

7

mx

2

a a,

W

0

0

Is)

a

3

m a

a

U

-

h

W

:.8

7

0

m

x

2

n 2

I m

J

>

0

m ma, N

E

2

W Social contributions

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a

General government coverage. Data for 2004. Simple average.

and asset taxes have accounted for an extremely small fraction of total receipts, but since this study has focused on central governments, further investigation of this last point at the subnational level is called for. Lastly, tax structures have been oriented towards deriving receipts from a reduced range of taxes, thanks to the elimination of a substantial number of minor taxes. These trends have been seen in all the countries to a greater or lesser degree, regardless of the level of their tax burdens in absolute terms. Internationalexperience has shown that the movement away from a reliance on taxes on foreign trade has

been counterbalanced by an increased use of taxes on consumption, although in many cases this has also been coupled with increases in income taxation. This process has not been as widespread in Latin America, however. There is also a growing problem with informality in labour and goods marketsand increasingunregisteredeconomic activities. These factors’ effects on the countries’ tax structures is substantial in relation both to the level of availabletax resources and to the equity and neutralityof the system, since the fact that some taxpayers do not actually pay any taxes introduces vertical and horizontal inequities.

Source: Juan C. Gomez Sabaini, “Evolucion y situacion tributaria actual en America Latina: una serie de temas para la discusion”, Santiago, Chile, Economic Commission a

for Latin America and the Caribbean (ECLAC), September 2005. See R. Bird, “Taxation in Latin America: Reflections on sustainability and the balance between equity and efficiency”, IfTfapel; No. 0306, Rotman, University of Toronto, June 2003; R. Martner and V. Tromben, “Tax reform and fiscal stabilization in Latin American countries”, Gestion pljblica series, No. 45 (LC/L.2145-P), Santiago, Chile, Economic Commission for Latin America and the Caribbean (ECLAC), June 2004; P. Bird, “Taxation in Latin America: Structural trends and impact of administration”, Working fapel; No. 99/19, Washington, D.C., International Monetary Fund, 1999; V. Tanzi, “Taxation in Latin America in the last decade”, working paper, No. 76, Center for Research on Economic Development and Policy Reform, Stanford University, December 2000. See J.C. Gomez Sabaini, “La tributacion a la renta en el lstmo Centroamericano: una serie de temas para la discusion”, Santiago, Chile, Economic Commission for Latin America and the Caribbean (ECLAC), July 2005. Macroeconomia del desarrollo series, No. 37 (LC/L.2359-P); Agosin, A. Barreix and R. Machado, Recaudar para crecer: bases para la reforma tributaria en Centroamerica, Washington, D.C., Inter-American Development Bank (IDB), 2005.

Economic Commission for Latin America and the Caribbean (ECLAC)

LATIN AMERICA AND THE CARIBBEAN: TAX BURDEN AND COMPOSITION OF TAX REVENUES (S~mpleaverages, percentages of GDP)

Figure 111.6 LATIN AMERICA AND THE CARIBBEAN: COMPOSITION OF CENTRAL GOVERNMENT EXPENDITURE (Simple averages, percentages of GDP)

Source: Economrc Commission for Latm Amerlca and the Carlbbean (ECLAC), on

Source: Economrc Comm~sslonfor Latm Amerlca and the Car~bbsan(ECLAC), on

Figure 111.5

the bas~sof offlclal flgures Data shown falzl Coefficient

(1)

(2)

XDDPTIXT v-1)

0.52 (0.03)

0.00

0.52 (0.03)

Real world imports (T1)

0.37 (0.48)

0.76

0.38 (0.11)

REER (T)

0.86 (0.16)

0.00

0.86 (0.16)

Volatility of the REER over 12 months (T) Imports of capital goods1GDP (T) Constant Sargan test Wald test (Chi2)

eight percentage points higher. Anothcr dimension of the atypical bchaviour of thesc two countrics is indicated by the fact that the ncxt-largest dilTcrcnuc is that of Brazil. with an absolute 15 pcrccntagc-point incrciisc in the ratio. The increase for the rest of the countries of the region was far below these values. Furthermore, the geogruphical proximity of the Unitcd States as a major consumer and producer market has influenccd Mcxico's spccialization and production structurc. and this factor is imperfectly captured by the lagged dependent variable in these estimates. In the case of Costa Rica, specific investments in the 1990s had a strong impact on the economy in terms of its level of activity and completely transformed this cconorny's export profile, as can be seen if its performance is compared with that of the region before and after that dccadc. A new estimate was thcrelbrc prepared cxcluding Mexico and Costa Rica from the sample of' countrics. This new estimate is presented in table V1.3. In cquation ( I )the signs are correct. The coefficients differ statistically from zero within a 10% confidence intcrval. with the exception of the v:iriablc of real world imports. The p-value does not allow us to reject the null hypothesis that the instruments are valid Thc constant was eliminated and equation (2) was estiniatcd. This cquation yields cocfficicnts with correct signs, and all thc variables, both individually and taken together, arc statistically different from ~ c r o . Table VI.4 prcscnts clasticitics for the complctc sample and the sample excluding Mcxico and Costa Rica, which arc not statistically different. A rise of 1% in the real effective exchange rate increases the XDDTPIXT by almost 0.9%. The weight of the structure and history of the ratio is significant. All clse remaining constant, a I % rise in the t-l ratio increases the t ratio by 0.5%. The volatility of the exchange rate and imports of

-0.1 2 (0.05)

Table V1.4 SUMMARY OF ELASTICITIES

0.12 (0.06) 0.00

Complete sample

Sample excluding Mex~coand Costa Rica

XDDPT/XT (T-l)

0.53

0.52

World demand

0.40

0.38

REER

0.86

0.86

-0.1 1

-0.1 2

0.13

0.12

Elasticities

0.39 320.2

1st-order auto-correlation (p-value)

0.0

2nd-order auto-correlation (p-value)

0.9

Volatility of REER

Source: Econorntc Cornrn~ss~on for Latin America and the Car~bbean(ECLAC) on the basis of Unlted Natlons. Comrnodtty Trade Database (COMTRADE)

Imports of capital goods

Source: Econom~cCornrn~ss~on for Lattn Amer~caand the Car~bbean(ECLAC) on the basis of Un~tedNations. Commod~tyTrade Database (COMTRADE)

Blundell and Bond recommend using the results ot onc stcp to tnakc intcrcnccs about thc coefficicnts (K. Ulundcll and S. K. Bond. "Initial conditions and moment restrictions in dynamic pancl data models", Joirrrrul c!f L~otrotrrer~~i~~.~, vol. 87. 1998).

Economic Survey of Latin America and the Caribbean 2005-2006

capital goods havc very little effect on XDDTPIXT. but thc combination of a real appreciation and sustnincd volatility ends up having a strong impact on the XDD'I'PI XT ratio. 'The relcvant literature and empirical evidencc appear to mdicatc that the region's difficulty in Increasing the production of tradable goods has bcen associated with the high degrec of macrocconornic ~nstahilitycxpericnced ovcr the la\t three decades, wh~chhas affectcd some of the determinants of the relative growth of tradables m the production structure. The econometric analysis demonstrates that, in order to increase the proportion ol'durable goods and diffusers ol'technical progress in total exports, a high, stablc rcal exchange ratc is rcquircd along with investment in

machinery and equipment. Macroeconornic instability and other factors rnditated agiiinst thc possibility of having real sustamed devaluations, a low degrce of volatility in thc real exchange rate and high investment ratcs. Macroeconomic institbility has therefore played a crucial ~ o l ein limiting thc diversification of exports in the sense traditionally referred to by ECLAC, namely an increasc in thc proportion of exports having a high technological content. The findings of this study thus provide empirical cvidence to backup two public policy recommendations for stimulating cxpori divcrsificatlon in the mcdium term: thc achicvemcnt and maintenance of macrocconomic stability, and a gradual and sustained devaluation of the real cxchange ratc.

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Economic Survey of Latin America and the Caribbean 2005-2006

Statistical Annex

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Economic Survey of Latin America and the Caribbean 2005-2006

Table A-l LATIN AMERICA AND THE CARIBBEAN: MAIN ECONOMIC INDICATORS

Annual rates of variation

Gross domestic product Per capita gross domestic product" Consumer prices C Percentages

Urban open unemployment rated Total gross external debt / GDP Total gross external debt I exports of goods and setvices Millions of dollars Balance of payments

Current account balance Merchandise trade balance Export at goods. f.o.b. Import of goods. f.o.b. Services trade balance Income balance Net current transfers

'

Capital and financial balance Net forelgn direct investment Financial capital 4 Overall balance Variation in reserve assetsh Other financing Source: Economic Commissionfor Latin America arid the Caribbean (ECLAC). on the bass of off~cialfigures.

Preliminary figures. Based on official fgures expressed in constant 2000 dollars. December - December vanation. O The data for Argentma. Brazil and Mexico have been adjusted to allow for changes in methodology in 2003. 2002 pand 2005 respectively. Estimates based on figures denominated in dollars at current prices. Includes errors and omiss~ons. 9 Refers to the capital and financial balance (including errors and omissions). minus net foreign d~rectInvestment. V minus slgn (-) indicates an increase in reserve assets. I Includes the use of IMF cred~t and loans and exceptional financing. a

h

Economic Commission for Latin America and the Caribbean (ECLAC)

Table A-2 LATIN AMERICA AND THE CARIBBEAN: GROSS DOMESTIC PRODUCT (Annual growth rates)

Latin America and the Caribbean Latin America Argentina Bolivia Brazil Chile Colombia Costa Rica Cuba Cuba Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Dommican Republic Uruguay Venezuela (Bolivartan Republic 09 Caribbean Antigua and Barbuda Bahamas Barbados Belize Dominica Grenada Guyana Jamaica Samt Kitts and Nevis Saint Vincent and the Grenadines Saint Lucia Suriname Trinidad and Tobago

Source: Economic Comm~ssionfor Latin Amer~caand the Caribbean (ECLAC). on the basis of official f~guresexpressed in constant 2000 dollars a Prelim~nary figures. Qased on new national accounts calculations from the National Stat~sticalOffice of Cuba.

Economic Survey of Latin America and the Caribbean 2005-2006

Table A-3 LATIN AMERICA AND THE CARIBBEAN: PER CAPITA GROSS DOMESTIC PRODUCT (Annual growth rates)

Latin America and the Caribbean Latin America Argentrna Boliv~a Brazil Chile Colombia Costa Rlca Cuba Cuba h Ecuador El Salvador Guatemala Hait1 Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguay Venezuela (Bolivarian Republic of) Caribbean Antigua and Barbuda Bahamas Barbados Belize Dominica Grenada Guyana Jama~ca Saint Kitts and News Saint Vincent and the Grenadines Saint Luc~a Suriname Trinidad and Tobago

Source: Econom~cCommission for Lattn America and the Caribbean (ECLAC). on the basis of off~cialf~guresexpressed ~nconstant 2000 dollars. Preliminary figures. Based on new national accounts calculations from the National Statistical Office of Cuba.

a

Economic Commission for Latin America and the Caribbean (ECLAC)

Table A-4 LATIN AMERICA AND THE CARIBBEAN: GROSS FIXED CAPITAL FORMATION (Percentages of GDP)

Latin America and the Caribbean Argentina Bolivia Brazil Chile Colombia Costa Rica Cuba Cuba D Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua

Panama Paraguay Peru Dommican Republic Uruguay Venezuela (Bolivarian Republic of) Source: Economic Commission for Latin America and the Caribbean (ECLAC). on the bass of official figures expressed in constant 2000 dollars. a

Preliminary figures. Based on new national accounts calculations from the National Stat~st~cal Office of Cuba.

Table A-5 LATIN AMERICA AND THE CARIBBEAN: FINANCING OF GROSS DOMESTIC INVESTMENTa (Percentages of GDP)

1. Domestic saving 2. Net factor income

3. Net transfers 4. Gross national saving 5. External saving C 6. Gross domestic ~nvestment Source: Economic Comm~ssionfor Latin America and the Caribbean (ECLAC).on the basis of offcial figures. a C

Based on coefficients calculated in local currency expressed in current dollars. Preliminary figures. These figures (with the opposite sign) are the same as those given for the current account balance In table A-7.

Economic Survey of Latin America and the Caribbean

2005-2006

Table A-6 LATIN AMERICA AND THE CARIBBEAN: BALANCE OF PAYMENTS (Millions of dollars) Exports of goods, f.o.b.

Imports of goods, f.0.b

Goods balance, f.0.b

Services balance

Income balance

Current transfers balance

Current account balance

Latin America and the Caribbean Argentina Boliv~a Brazil Chile Colombia Costa R~ca Ecuador El Salvador Guatemala Haiti

Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguay Venezuela (Bohvarian Republic of/

Table A-6 (continued) Trade balance

Latin America and the Caribbean Argent~na Bolivia Brazil Ch~le Colombia Costa R~ca Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguay Venezuela (Bolivarian Republic of)

Economic Commission for Latin America and the Caribbean (ECLAC)

Table A-6 (concluded) Capital and financ~al balancea

Latin America and the Caribbean Argentina Bolivia Brazil Chile Colomb~a Costa Rca Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay . . Peru Dominican Republic Uruguay Venezuela (Bolivarian Republic of)

1937 -8974 -17019 -10230 15 -211 -451 -5 073

1459 -1 583 1092

Reserve assets (variation) h

Overall balance

Other financing C

21 652 2312 26 13 398

2 336 -596 263

498 813 884

-6 005 -1 1 932 -19 902

Source: Economic Commission for Latin America and the Caribbean (ECLAC),on the bas~sof figures from the International Monetary Fund (IMF) and nat~onalagencies. a Includes errors and omissions. A minus sign (-) indicates an increase in reserve assets. C Includes the use of IMF credit and loans and exceptional financing. Preliminary figures.

Table A-7 LATIN AMERICA AND THE CARIBBEAN: CURRENT ACCOUNT OF THE BALANCE OF PAYMENTS a (Percentages of GDP) 1997 Latin America and the Caribbean Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Hait1 Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguay Venezuela (Bolivar~anRepubllc of)

-3.3 -4.2 -7.0 -3.8 -4.4 -5.4 -3.7 -1.9 -0.9 -3.6 -1.5 -5.8 -1.9 -24.8 -5.0 -7.3 -5.7 -0.9 -1.3 4.3

1998

1999

-4.4

-3.1 -4.2 -5.9 -4.7 0.1 0.8 -4.2 5.5 -1.9 -5.6 -1.4 -4.4 -2.9 -24.8 -10.1 -2.3 -2.8 -2.0 -2.4 2.2

-4.9 -7.8

-4.3 -4.9 -4.9 -3.7 -9.0 -0.8 -5.4 -1 .O -2.8 -3.8 -19.2 -9.3 -2.0 -5.9 -1.7 -2.1 -4.9

2000

2001

2002

2003

2004

-2.4

-2.7 -1.2 -3.4 -4.6 -1 .6 -1.3 -3.7 -3.3 -1 .l -6.0 -3.8 -4.7 -2.8 -19.3 -1.4 -4.1 -2.1 -3.0 -2.7

0.8 8.5 -4.4 -1.7 -0.9 -1.7 -5.1 -5.6 -2.8 -5.3 -2.8 -3.6 -2.1 -19.1

0.5 6.2 0.8 0.8 -1.3 -1.2 -5.0 -1 -2 -4.7 -4.2 -1.6 -3.7 -1.4 -18.3 -3.9 2.3 -1.5 5.3 -0.5 13.7

1.O

1.5

2.1 3.8 1.9 1.7 -1 .O -4.3 -0.5 -4.0 -4.4 -1.5 -5.3 -1 .O -15.5 -7.9 1.2 0.0 5.3 0.3 12.6

2.9 4.9 1.8 0.6 -l .6 -4.8 -0.4 -4.6 -4.1 1.6 -0.5 -0.6 -16.3 -5.3 -1.4 1.3 -0.4 -0.5 18.1

-3.2 -5.3 -4.0 -1.2 0.9 -4.3

5.8 -3.3 -5.4 -3.0 -3.9 -3.2 -20.1 -5.8 -2.3 -2.9 -4.4 -2.8 10.1

1.6

-0.8

1.8 -1 .g

-3.2 3.1 8.2

2005b

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of figures from the International Monetary Fund (IMF) and national agencies. a These figures (with the oppos~tesgn) are the same as those given for external saving in table A-5. Preliminary figures.

Economic Survey of Latin America and the Caribbean 2005-2006

Table A-8 LATIN AMERICA AND THE CARIBBEAN: EXPORTS AND IMPORTS OF GOODS, F.O.B.

(Annual growth rates) Exports Value

Imports

Volume

Unit value

Value

Volume

Unit value

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and data from the International Monetary Fund (IMF). a Preliminary figures.

Table A-9 LATIN AMERICA AND f HE CARIBBEAN: EXPORTS OF GOODS, F.O.B.

(Indices: 2000 = 100) Value

Latin America and the Caribbean Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguay Venezuela (Bolivanan Republ~cof)

Volume

Unit value

2003

2004

2005"

2003

2004

2005a

2003

2004

2005a

105.5 113.7 128.2 132.7

129.7 131.2 172.2 175.1

156.0 151.9 214.3 214.8

107.5 112.6 127.8

118.0 118.1 151.9 163.8

127.1 134.8 164.4 178.5

98.1

101.0 100.4 96.3

109.9 111.0 113.4 106.9

122.7 112.7 130.4 120.3

137.7

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of figures from the International Monetary Fund (IMF) and national agencies. a Prel~mmaryfigures.

Economic Commission for Latin America a n d the Caribbean (ECLAC)

Table A-1 0 LATIN AMERICA AND THE CARIBBEAN: IMPORTS OF GOODS, F.O.B. (Indices: 2000 = 100) Value 2003

Latin America and the Caribbean Argentina Bolivia Braz~l Chile Colombia Costa Rica Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Dornin~canRepublic Uruguay Venezuela (Bolivarian Republ~cof)

2004

Volume 2005'

2003

2004

Unit value 2005a

2003

2004

2005"

99.4 94.2 101.9 99.3 93.4 98.3 97.2 101.2 97.5 98.7 101.7 88.6 100.8 101.4 100.7 96.7 100.5 101.4 91.4 101.1

105.7

112.5

101.7 109.0 109.3 99.9 105.1 103.1 106.3 102.4 107.6 109.8 95.7 105.9 109.5 105.7 103.5 108.6 106.5 97.8 108.2

105.5 116.6 121.3 108.9 111.5 107.2 115.9 107.5 117.3 118.6 104.3 111.2 120.4 111.0 109.7 119.4 111.8 107.5 112.5

Source: Economic Commisson for Latin America and the Caribbean (ECLAC), on the basis of f~guresfrom the International Monetary Fund (IMF) and a

national agencies. Prelimmary figures.

Table A-l l LATIN AMERICA AND THE CARIBBEAN: TERMS OF TRADE FOR GOODS, F.O.B.1F.O.B. (Indices: 2000 = 100)

Latin America and the Caribbean Argentina Bolivia Brazil Chile Colombla Costa Rlca Ecuador El Salvador Guatemala Haiti Honduras Mex~co Nicaragua Panama Paraguay Peru Dominican Republic Uruguay Venezuela (Eol~varianRepublic of)

Source: Economic Comm~ssionfor Latm Amer~caand the Caribbean (ECLAC), on the basis of figures from the International Monetary Fund (IMF) and a

national agencies. Preliminary figures.

Economic Survey of Latin America and the Caribbean 2005-2006

Table A-12 LATIN AMERICA AND THE CARIBBEAN: NET RESOURCE TRANSFERS a (MiIIions of dollars) 1997

Latin America and the Caribbean Argentina Boiiv~a Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Haiti Honduras Mexico Nrcaragua Panama Paraguay Peru Dominmn Republic Uruguay Venezuela (Boiivarian Republic of)

1998

1999

2000

2001

2002

2003

2004

2005h

-3 606

Source: Economic Commlssron for Lattn America and the Caribbean (ECLAC), on the basis of f~guresfrom the International Monetary Fund (IMF) and national agencies. The net transfer of resources is equal to total net capital inflows minus the Income balance (net payments of profrts and ~nterest).Total net capital inflows correspond to the capital and financial accounts, plus errors and omissions, and the use of IMF credit and loans and exceptional financing. Negative f~guresindicate net outward resource transfers. Prehminary figures.

Economic Commission for Latin America and the Caribbean (ECLAC)

Table A-13 LATIN AMERICA AND THE CARIBBEAN: TOTAL NET CAPITAL INFLOWS AND NET RESOURCE f RANSFERS a (Billions of dollars and percentages) Total net capital inflows

Autonomous C

Non-autonomous

Balance on income account

Net resources transfers

Exports of goods and services

Total

Net resource transfer as a percentage of exports of goods and services

(1)

(2)

(3)

(4)

(5) = (3) + (4) (5)

('3

(7) = (5)/P3 (7)

29.2 38.4 3.3 -22.3 -10.9 -16.4 -12.4 -13.2 -1 9.8 -18.8 -5.5 23.3 48.6 68.5 41.5 29.3 63.9 89.2 63.4 42.5 61 .B 34.0 -12.1 1.9 -7.0 21.7

1.7 1.8 17.2 30.1 23.9 20.3 21.9

30.9 40.1 20.5 7.9 13.0 3.9 9.4 12.4 3.0 10.2 16.1 35.1 56.1 66.6 47.3 61 .O 64.8 80.2 79.1 48.6 53.9 50.4 10.5 20.6 1.4 -0.1

-18.9 -29.1 -38.9 34.5 -37.5 -35.5 -32.7 -31 -0 -34.6 -39.0 -34.2 -31.4 -30.1 -34.5 -36.1 -40.8 -42.7 -47.7 -51.3 -51 .l -53.7 -53.8 -52.0 -57.6 -66.4 -75.5

12.0 11.l -18.4 42.4 -24.5 -31.6 -23.3 -18.6 -31 -6 -28.8 -18.1 3.7 26.1 32.1 11.2 20.2 22.0 32.6 27.8 -2.5 0.2 -3.4 -41.4 -36.9 -65.0 -75.5

106.9 115.6 105.2 105.4 117.5 112.8 99.2 113.4 130.6 145.8 162.0 164.2 177.5 194.1 223.0 265.9 295.0 327.3 327.1 342.9 408.2 391-7 394.0 428.6 523.2 628.0

11.3 9.6 -1 7.5 40.2 -20.8 -28.1 -23.4 -1 6.4 -24.2 -19.7 -1 1.2 2.3 14.7 16.5 5.0 7.6 7.5 9.9 8.5 -0.7 0.0 -0.9 -10.5 -8.6 -12.4 -12.0

25.6 22.8 29.0 21.6 11.8 7.5 -1 -9 5.8 31.6 0.9 -9.0 15.7 6.1 -7.9 16.4 22.6 18.7 8.4 -21.7

Source: Economic Commission for Latin Amenca and the Caribbean (ECLAC), on the basis of figures from the International Monetary Fund (IMF) and

nat~onalagencies. Includes information from 19 Latr American and Caribbean countries: Argentina. Bolivarian Republic of Venezuela, Bolivia, Brazil, Chile. Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras. Mexico. Nicaragua. Panama, Paraguay, Peru, and Uruguay. h Corresponds to net payments of profits and ~nterest. Vncludes errors and omissions. Vncludes the use of IMF credit and loans and exceptional financmg, which includes transactions such as external debt forgweness and accumulation of arrears. Preliminary f~gures.

Economic Survey of Latin America and the Caribbean

2005-2006

Table A-1 4 LATIN AMERICA AND THE CARIBBEAN: RATIO OF TOTAL ACCRUED INTEREST TO EXPORTS OF GOODS AND SERVICES a (Percentages)

Latin America and the Caribbean Argentina Bolivia Braz~l Chile Colombia Costa Rica Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguay Venezuela (Bolivarian Republic of)

12.9

14.7

12.6

8.6

9.7

8.5

7.9

54

6.7

8.2

4.6

Source: Economic Commission for Latin Amerlca and the Caribbean (ECMC), on the basis of official figures. A Includes interest paid (w~thout deducting interest received) and Interest due but not paid. h Prel~minaryfigures.

Table A-15 LATIN AMERICA AND THE CARIBBEAN: RATIO OF PROFIT PAYMENTS TO EXPORTS OF GOODS AND SERVICES a (Percentages)

Latin America and the Caribbean Argentina Ballvia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguay ~enezuela(Bolivar~anRepublic of)

6.6

11.4

3.9

4.1

6.7

7.0

Source: Economic Commission for Latm America and the Caribbean (ECLAC), on the basls of figures from the International Monetary Fund (IMF) and national agencies. a Includes re~nvestment of proflts. Preliminary figures.

Economic Commission for Latin America and the Caribbean (ECLAC)

Table A-16 LATIN AMERICA AND THE CARIBBEAN: NET FOREIGN DIRECT INVESTMENT a (Millions of dollars) 1997

1998

1999

2000

2001

2002

2003

2004

2005"

Latin America and the Caribbean Argentina c Bolivia Brazil Chtle Colombia Costa Rica Ecuador El Salvador a Guatemala Haiti Honduras Mexico F: Nicaragua Panama Paraguay Peru Dominican Republtc Uruguay Venezuela (Bolivarian Republic of)

Source: Economic Commission for Latln America and the Caribbean (ECLAC),on the basis of ftgures from the Internattonal Monetary Fund (IMF) and national agencies. Refers to direct investment tn the reporting economy, minus direct investment abroad by reporting-economy residents (both excluding disinvestment). Includes reinvested profits. Wreltmmary figures. For 1999, includes the value of the investment by REPSOL in Yacimlentos Petroliferos Flscales. Part of thls amount corresponds to the purchase of shares in the company held by non-residents. In the balance of payments, the value of those shares is reflected as a debit under the portfolio investment item. From 1998 onward the figures are not comparable, since up to 1997 no offic~alrecords were kept. For 2001, includes the value of the investment by Citigroup in BANAMEX; for 2004, includes tnvestment in Bancomer. a

Table A-1 7 LATIN AMERICA AND THE CARIBBEAN: lNf ERNATIONAL BOND ISSUES a (Mill~onsof dollars)

Latin America and the Caribbean Argentina Barbados Belize Bolivia Brazil Chile Colombia Costa Rica Ecuador El Salvador Grenada Guatemala Jamaica Mexico Panama Paraguay Peru Domtntcan Republic Trinidad and Tobago Uruguay Venezuela (Bolivarian Republic of)

Source: lnternatlonal Monetary Fund Research Department, Emerging Markets Studies Division and Merrill Lynch. a

Includes sovereign, bank and corporate bonds. Does not include US$ 784 millton issued jointly by the Andean Development Corporation (ADC) and the Central American Bank for Economic Integration (CABEI).

Economic Survey of Latin America and the Caribbean + 2005-2006

Table A-1 8 LATIN AMERICA AND THE CARIBBEAN: TOTAL GROSS EXTERNAL DEBT a (Millions of dollars)

Latin America and the Caribbean Latin America Argentina Bolivia Brazil Chile Colombia Costa Rica Cuba Ecuador El Salvador Guatemala Haiti a Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguayf Venezuela (Bolivarian Republic of)

"

"

"

"

Caribbean Antigua and Barbuda Bahamas a Barbados Belize Dominlca Grenada a Guyana " Jamaica Sarnt Kitts and Nevis Sarnt Vincent and the Grenadines Samt Lucia Suriname Trinidad and Tobago Source: Econornc Commission for Latin America and the Caribbean (ECLAC),on the basis of figures from the lnternational Monetary Fund (IMF) and national agencies. a Total gross external debt includes debt owed to the International Monetary Fund. Preliminary figures. ': Does not include Cuba. Publ~cexternal debt. U For 2005. includes prlvate external debt up to September. For 1997 and 1998, figwes refer to public external debt. From 1999 onwards, figures refer to total external debt (includmg the private sector but not memorandum items).

Economic Commission for Latin America and the Caribbean (ECLAC)

Table A-1 9 LATIN AMERICA AND THE CARIBBEAN: RATIO OF TOTAL GROSS EXTERNAL DEBT a TO EXPORTS OF GOODS AND SERVICES (Percentages)

Latin America and the Caribbean Latin America Argentina Bol~via d Brazil Chile Colombia Costa Rica Cuba Ecuador' El Salvador Guatemala Haiti Honduras Mextco Nicaragua Panama Paraguay Peru Dominican Republic Uruguayf Venezuela (Bolivarian Republic of)

"

"

Caribbean Antigua and Barbuda a Bahamas Barbados Belize Dominica Grenada U Guyana Jamaica Saint Kitts and Nevis Saint Vincent and the Grenadines Sa~ntLucia" Suriname Trinidad and Tobago

"

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of figures from the International Monetary Fund (IMF) and national agencies. a Total gross external debt includes debt owed to the International Monetary Fund. Preliminary figures. C Does not include Cuba. V u b l i c external debt. For 2005, includes private external debt up to September. For 1997 and 1998, figures refer to public external debt. From 1999 onwards, figures refer to total external debt (tncluding the private sector but not memorandum items).

Economic Survey of Latin America and the Caribbean 2005-2006

Table A-20 LATIN AMERICA AND THE CARIBBEAN: STOCK EXCHANGE INDICES IN DOLLARSa (Indices: December 2000 = 100)

Latin America and the Caribbean Argentina Brazil Chile Colombia Mexico Peru Venezuela (Bolivarian Republic of)

121.5 139.7 113.9 122.9 402.3 114.2 189.9

118.0 133.3 109.2 116.4 181.5 125.6 138.5

100.0 100.0 100.0 100.0 100.0 100.0 100.0

93.9 69.1 77.7 94.8 125.1 112.2 112.3

72.6

122.5

168.6

100.0 65.4 86.0 227.0 69.9 114.5

34.8 51.9 80.7 137.3 93.6 146.9

79.4 105.9 145.9 174.7 123.5 263.1

97.4 141.8 176.9 376.4 182.8 294.9

242.7 140.3 212.7 202.4 783.0 262.7 366.1

177.7 248.9 202.1 580.6 269.2 497.2

187.8

90.5

79.0

100.0

79.9

51.8

59.2

88.9

69.4

98.7

75.1

267.5

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the bass of figures from the lntsrnatlonal Finance Corporation (IFC). a

Year-end values; overall index. Figures up to June.

Table A-21 LATIN AMERICA AND THE CARIBBEAN: REAL EFFECTIVE EXCHANGE RATES a (Index: 2000 = 100, deflated by CPI)

Latin America and the Caribbean

"

Argentina Bohvia Brazil Chile Colombia Costa Rica Ecuador El Salvador Guatemala Honduras Jamaica Mexico Nicaraqua Panama Paraguay Peru Uruguay Venezuela (Bolivarian Republic of)

141.4

116.5

102.6

100.0

95.2

123.7

136.8

143.2

143.4

140.6

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures and data from the International Monetary Fund (IMF). Wnnual averages. A country's real effective exchange rate index is calculated by weighting its real bilateral exchange rate indices with each of its trading partners by their shares in the country's total trade flows in terms of exports and imports. A currency depreciates in effective real terms when this index rises and appreciates when it falls. b Prel~minaryf~gures,provisionally weighted by trade in 2003. L January-June average. "Simple average.

Economic Commission for Latin America and the Caribbean (ECLAC)

Table A-22 LATIN AMERICA AND THE CARIBBEAN: URBAN UNEMPLOYMENT (Average annual rates)

Latin America and the Caribbean 9.3 Argentina c: Urban areas 14.9 Barbados Nationwidetotal 14.5 Belize Nationwidetotal 12.7 Bolivia Urban total 4.4 Brazil SIX metropolitanareass 5.7 Chile Nationw~detotal 6.1 Colombia 13 metropolitanareas 9 12.4 Costa R~ca Urban total 5.9 Cuba Nationwide total 7.0 Ecuadord Cuenca. Guayaquil and Quito h 9.3 El Salvador Urban total 7.5 Guatemala Urban total ' 5.1 Honduras Urban total 5.8 Jamaica Nationwide total 16.5 Mexico Urban areas 5.4 Nicaragua Urban total 14.3 Panama Urban total l 15.4 Paraguay Urban total 7.1 Peru Metropolitana Lima 9.2 Dominican Republ~c Nationwidetotal 16.0 Trinidad and Tobago Nationwide total 15.0 Uruguay Urban total 11.5 Venezuela (Bolivarian Republic of) Nat~onwidetotal 11.4

'

"

J

Source:Economic Commission for Latin Amer~caand the Caribbean (ECLAC),on the basis of offlc~alfigures. a C

I 9 h l

1 K I

Preliminary flgures. The data for Argentina. Brazil and Mexico have been adjusted to allow for changes in methodology In 2003, 2002 and 2005, respectively. New measurements have been used from 2003 on; these data are not comparable with the preceding series. Includes h~ddenunemployment. Up to 1999, the figures refer to departmental cap~tals. New measurements have been used from 2002 on; these data are not comparable with the preceding series. Up to 1999, the figures refer to seven metropolltan areas. Up to 1999, the figures refer to the total for urban areas. Up to 1998, the figures are offcial estimates of nationwide totals. Data based on new methodology and are therefore not comparable with data in previous editions of the Economic Survey. Up to 1999, the figures refer to nationwide totals. Up to 1999, the figures refer to the metropolitan region.

Economic Survey of Latin America and the Caribbean

2005-2006

Table A-23 LATIN AMERICA AND THE CARIBBEAN: CONSUMER PRICES (Percentage variations, December-December)

Latin America and the Caribbean Antigua and Barbuda Argentina Bahamas Barbados Bolivia Brazil Chile Colombia Costa Rica Cuba Dominica Ecuador El Salvador Grenada Guatemala Guyana Ha~ti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Dominican Republic Saint Kitts and News Salnt Vincent and the Grenadines Sa~ntLuc~a Suriname Trinidad and Tobago Uruguay Venezuela (Bol~varian Republic of)

10.7

29.9

-

-

31.2

L . .

.

Source: Economic Comrn~ssionfor Latin America and the Caribbean (ECLAC), on the basis of offic~alf~gures. a 12-month var~ationup to June 2006. h The only English-speaking Caribbean countries included under this heading are Barbados. Jarnalca and Tr~nidadand Tobago. In addition, the figure for 2005 does not ~ncludeCuba. L 12-month variation up to March 2006. 12-month var~ationup to May 2006. 12-month variation up to April 2006.

Economic Commission for Latin America and the Caribbean (ECLAC)

Table A-24 LATIN AMERICA AND THE CARIBBEAN: AVERAGE REAL WAGES (Average annual indices: 2000 = 100)

Argentinab Brazil C Chiled Colombla h Costa Rica Mexico Nicaragua Paraguay Peru Uruguay Venezuela (Bolivarian Republic of) g

93.3 99.7 69.3 76.3 81.5 88.9 75.8 87.8 93.7 89.1

95.0 105.7 93.8 92.1 89.7 90.4 92.5 102.7 103.5 98.0

95.0 105.8 96.3 92.2 94.7 92.9 96.2 100.8 101.4 99.7

140.5

98.0

103.3

97.8 101.1 98.6 96.3 99.2 94.3 100.0 98.7 101.3

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

99.2 95.1 101.7 99.7 101.0 106.7 101.0 101.4 99.1 99.7

85.4 93.1 103.7 102.5 105.1 108.7 104.5 94.9 103.7 89.0

98.5

100.0

102.4

92.1

99.3

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. Preliminary figures. "anufacturing. C Workers covered by social and labour legislation. Private sector only from 2003 onwards. General index of hourly wages. H Average wages declared by workers covered by soc~alsecurity. Private-sector manual workers in the Lima metropolitan area. g Private sector

'

Economic Survey of Latin America and the Caribbean

2005-2006

Table A-25 LATIN AMERICA AND THE CARIBBEAN: PUBLIC-SECTOR DEFICIT (-) OR SURPLUS a (Percentages of GDP) Coverage D Latin America and the Caribbean Argentina Bolivia Brazil Chile Colombia Costa Rca Ecuador El Salvador Guatemala Haitl Honduras Mexico Nicaragua Panama Paraguay Peru Dominican Republic Uruguay Venezuela (Bolivarian Reaublic of)

CG NA NFPS CG NFPS CGef CPS CG NFPS GNC Q NFPS

CG NFPS CG " NFPStl CG NFPS CA CG CG NFPS CG' PS CG NFPS CG NFPS CA NFPS CG NFPS

CG CG NFPS l CG RPS

Source: Economlc Commission for Lat~nAmerica and the Caribbean (ECLAC), on the basis of official figures. a Total income minus total expenditure, expressed in local currency. "Abbreviations used: CA = Central administration: CG = Central government; CNG = Central national government; CPS = Consolidated public sector; NA = Natlonal admmistration; NFPS = Non-financial public Sector: PS = Publ~csector; RPS = Narrowly defined public sector. ' Prelim~naryfigures. "irnple average. Includes the federal government and the central bank. Nommal balance. q These results do not include adjustments for accruals, floating debt or the cost of financ~alrestructuring. In 2003. does not include US$130 million that the Office of the Under-Secretary of the National Treasury %-earmarked from central government accounts. l Includes the federal government and social security. I Does not include departmental governments.

"

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Publicaciones de la CEPAL I ECLAC publications Comision Econ6m1capara America Latina y el Caribe I Economic Commission for Latin America and the Caribbean Casilla 179-D, Santiago de Chile. E-mail:[email protected] Vealas en: www.cepal.orglpublicaciones Publications may be accessed at: www.eclac.org

Revista de la CEPAL I CEPAL Review La Revista se inicio en 1976 corno parte del Programa de Publicaciones de la Comision Econornica para America Latina y el Caribe, con el proposito de contribuir al examen de 10s problemas del desarrollo socioeconomico de la region. Las opiniones expresadas en 10s articulos firrnados, incluidas las colaboraciones de 10s funcionarios de la Secretaria, son las de 10s autores y, por lo tanto, no reflejan necesariarnente 10s puntos de vista de la Organization. La Revista de la CEPAL se publica en espaliol e inglb tres veces por aAo. Los precios de suscripcion anual vigentes para 2006 son de US$ 30 para la version en espafiol y de US$35 para la version en ingles. El precio por ejemplar suelto es de US$ 15 para arnbas versiones. Los precios de suscripcion por dos ailos (2006-2007) son de US$ 50 para la version espaAol y de US$60 para la version ingles. CEPAL Review first appeared in 1976 as part of the Publications Programme of the Economic Commission for Latin America and the Caribbean, its aim being to make a contribution to the study of the economic and social development problems of the region. The views expressed in signed articles, including those by Secretariat staff members, are those of the authors and therefore do not necessarily reflect the point of view of the Organization. CEPAL Review is published in Spanish and English versions three times a year. Annual subscription costs for 2006 are US$ 30 for the Spanish version and US$ 35 for the English version. The price of single issues is US$15 in both cases. The cost of a two-year subscription (2006-2007) is US$50 for Spanish-language version and US$60 for English.

lnformes periodicos institucionales I Annual reports Todos disponibles para aiios anteriores I Issues for previous years also available

+

Estudio economico de America Latina y el Caribe 2005-2006, 148 p. Economic Survey of Latin America and the Caribbean 2004-2005, 362 p Panorama de la insertion international de America Latina y el Caribe, 2004. Tendencias 2005, 212 p. Latin America and the Caribbean in the World Economy, 2004. 2005 trends, 204 p. Panorama social de America Latina, 2005,442 p. Social Panorama of Latin America, 2005, 440 p. Balance preliminar de /as economias de America Latina y el Caribe, 2005, 196 p. Preliminary Overview of the Economies of Latin America and the Caribbean, 2005, 788 p. La inversion extranjera en America Latina y el Caribe, 2005, 172 p. Foreign Investment of Latin America and the Caribbean, 2005, f90 p. Anuario estadistico de America Latina y el Caribe /Statistical Yearbook for Latin America and the Caribbean (bilinguelbilingual), 2005,442 p.

Libros de la CEPAL Financiamiento para el desarrollo. America Latina desde una perspectiva comparada, Barbara Stallings con la colaboracion de Rogerio Studart, 2006, 396 p. Politicas municipales de microcredito. Un instrumento para la dinamizacion de 10s sistemas productivos locales. Estudios de caso en America Latina, Paola Foschiatto y Giovanni Stumpo (comps.),2006,244 p. Aglomemciones en tomo a 10swcursos naturales en America Latina y el Caribe: Politicas de adiculaciony articulacih de politicas, 2006,266 pp. Pobreza, desertificacion y degradacion de 10s recursos naturales, Cesar Morales y Soledad Parada (eds.),2006,274 p. Aprender de la experiencia. El capital social en la superacion de la pobreza, lrma Arriagada (ed.),2005, 250 p.

85 Politica fiscal y medio ambiente. Basespara una agenda comun, Jean Acquatella y Alicia Barcena (eds.),2005,272 p. 84 Globalizaciony desamllo: desafios de Puerto Rico frente a1 siglo XXI, Jorge Mario Martiner, Jorge Mattar y Pedro Rivera (coords.),2005,342 p. 83 Elmedio ambiente y la maquila en Mexico: un problema ineludible, Jorge Carrillo y Claudia Schatan (comps.),2005, 304 p. 82 Fomentar la coordination de /as politicas economicas en America Latina. El metodo REDIMA para salir del dilema del prisionero, Christian Ghymers, 2005, 190 p. 82 Fostering economic policy coordination in Latin America. The REDIMA approach to escaping the prisoner's dilemma, Christian Ghymers, 2005,170 p. 81 Mondialisation et d8doppement. Un regard de I'Amkrique lathe et des Caraibes,J o g Antonio Ocampo et Juan Martin (ds.),2005,236 p. 80 Gobernabilidad e integration financiera: ambito global y regional, Jose Antonio Ocampo, Andras Uthoff (comps.),2004, 278 p. 79 Etnicidad y ciudadania en America Latina. La accion colectiva de 10s pueblos indigenas, Alvaro Bello, 2004,222 p. 78 Los transgenicos en America Latina y el Caribe: un debate abielto, Alicia Barcena, Jorge Katz, CBsar Morales, Marianne Schaper (eds.) 2004,416 p. 77 Una dbcada de desarrollo social en America Latina 1990-1999,2004,300 p. 77 A decade of social development in Latin America 1990-1999,2004,308 p. 77 One decennie de d6veloppement social en Amerique latine 1990-1999,2004,300 p. 76 A decade of light and shadow. Latin America and the Caribbean in the 1990s, 2003,366 p. 76 Une decennie d'ombres et de lumieres. L'AmBrique latine et les Cara~besdans les annbes 90,2003,401 p. 75 Gestion urbana para el desarrollo sostenible en America Latina y el Caribe, Ricardo JordAn y Daniela Simioni (comps.),2003, 264 p. 74 Mercados de tierras agricolas en America Latina y el Caribe: una realidad incompleta, Pedro Tejo (cornp.),2003,416 p. 73 Contaminacibn afmosferica y conciencia ciudadana, Daniela Simioni (comp.),2003, 260 p. 72 Los caminos hacia una sociedad de la informacion en America Latina y el Caribe, 2003, 139 p. 72 Road maps towards an information society in Latin America and the Caribbean, 2003, 130 p. 71 Capital social y reduccidn de la pobreza en America Latina y el Caribe. En busca de un nuevo paradigma, Rad Atria y Marcelo Sites (comps.), CEPALlMichigan State University, 2003, 590 p.

Copublicaciones recientes I Recent co~publications Politica y politicas p~iblicasen 10s procesos de reforma de America Latina, Rolando Franco y Jorge Lanzaro (coords.), CEPALIFlacsoMexicolMiAo y Davila, Mexico, 2006. Finance for Development. Latin America in Comparative Perspective, Barbara Stallings with Rogerio Studart, ECLAClBrookings Institution Press, USA, 2006. Los jovenes y el empleo en America Latina. Desafios y perspectivas ante el nuevo escenario laboral, Jurgen Weller (ed.), CEPALlMayol Ediciones, Colombia, 2006. Condiciones y politicas de competencia en economias pequeiias de Centroamerica y el Caribe, Claudia Schatan y Marcos ~ v a l o s(coords.), CEPALlFondo de Cultura Economics, Mexico, 2006. Aglomeraciones pesqueras en America Latina. Ventajas asociadas a1 enfoque de cluster, Massiel Guerra (comp.)CEPALlAlfaornega,Colombia,2006. Reformas para America Latina despues del fundamentalismo neoliberal, Ricardo Ffrench-Davis, CEPALlSiglo XXI, Argentina, 2006. Crecimiento esquivo y volatilidad financiera, Ricardo Ffrench-Davis (ed.), Mayo! Ediciones, Colombia, 2005. Seeking growth under financial volatility, Ricardo Ffrench-Davis (ed.), ECLAClPalgrave Macmillan, United Kingdom, 2005. Macroeconomia, comercio y finanzas para reformar las reformas en America Latina, Ricardo Ffrench-Davis (ed.),CEPALlMayol Ediciones, Colombia, 2005. Beyond Reforms. Structural Dynamics and Macroeconomic Theory. Jose Antonio Ocampo (ed.), ECLACllnter-American Development BanklThe World BanklStanford University Press, USA, 2003. Mas alla de las reformas. Dinhmica estnlcturaly vulnerabilidadmacroecon6mica,Jose Antonio Ocampo (ed.),CEPAUAlfaomega, Colombia,2005. Gestion social. Como lograr eficiencia e impact0 en las politicas sociales, Ernesto Cohen y Rolando Franco, CEPALlSiglo XXI, Crecimiento esquivo y volatilidad financiera, Ricardo Ffrench-Davis (ed.),CEPALlMayol Ediciones, Mexico, 2005. Pequefias y medianas empresas y eficiencia colectiva. Estudios de caso en America Latina, Marco Dini y Giovanni Sturnpo (coords.), CEPALlSiglo XXI, Mexico, 2005. En bljsqueda de efectividad, eficiencia y equidad: /as politicas del mercado de trabajo y 10s instrumentos de su evaluacibn, Jiirgen Weller (comp.),CEPAULOM, Chile, 2004. America Latina en la era global, Jose Antonio Ocampo y Juan Martin (coords.),CEPALIAlfaomega. El desarrollo economico en 10s albores del siglo XXI, Jose Antonio Ocampo (ed.), CEPAUAlfaomega, Colombia, 2004. Los recursos del desarrollo. Lecciones de seis aglomeraciones agroindustriales en America Latina, Carlos Guaipatin (comp.), CEPALIAlfaomega, Colombia, 2004. Medir la economia de 10s paises segun el sistema de cuentas nacionales, Michel Seruzier, CEPALIAlfaomega, 2003, Colombia, 2003. Globalization and Development. A Latin American and Caribbean Perspective, Jose Antonio Ocampo and Juan Martin (eds.), ECLACllnter-American Development BanklThe World BanklStanford University Press, USA, 2003. Globalizaci6n y desarrollo. Una reflexion desde America Latina y el Caribe, Jose Antonio Ocarnpo y Juan Martin (eds.),CEPALIAlfaomega, Colombia, 2003.

Autonomia o ciudadania incompleta. El Pueblo Mapuche en Chile y Argentina, lsabel Hernandez, CEPALlPehuen, Chile, 2003. El desarrollo de complejos forestales en America Latina, Nestor Bercovich y Jorge Katz (eds.),CEPALIAlfaomega, Colombia, 2003.

Cuadernos de la CEPAL 91 Elementos conceptuales para la prevencibn y reduction de dafios originados por amenazas naturales, Eduardo Chaparro y Matias Renard (eds.), 2005, 144 p. 90 Los sistemas de pensiones en America Latina: un analisis de genero, Flavia Marco (coord.),2004,270 p. 89 Energia y desarrollo sustentable en America Latina y el Caribe. Guia para la formulaci6n de politicas energeticas, 2003, 240 p. 88 La ciudad inclusiva, Marcello Balbo, Ricardo Jordan y Daniela Simioni (comps.),CEPAUCooperazione Italiana, 2003, 322 p. 87 Traffic congestion. The problem and how to deal with it, Alberto Bull (cornp.), 2004, 198 p. 87 Congestibn de transito. El problema y como enfrentarlo, Alberto Bull (cornp.),2003, 114 p.

Cuadernos Estadisticos de la CEPAL 31 Comercio exterior. Exportaciones e imporlaciones segun destino y origen por principales zonas economicas. 1980, 1985, 1990, 19952002. Solo disponible en CD. 30 Clasificaciones estadisticas internacionales incorpomdas en el banco de datos del comercio exterior de America Latina y el Caribe de la CEPAL, 2004,308 p. 29 America Latina y el Caribe: series estadisticas sobre comercio de servicios 1980-2001, 2003, 150 p.

0bservatorio demografico ex Boletin demografico I Demographic Observatory formerly Demographic Bulletin (bilinguelbilingual) Edicion bilingiie (espaiiol e ingles) que proporciona informacion estadistica actualizada, referente a estimaciones y proyecciones de poblaci6n de 10s paises de America Latina y el Caribe. lncluye tambien indicadores demograficos de interes, tales como tasas de natalidad, mortaiidad, esperanza de vida al nacer, distribution de la poblacion, etc. El Observatorio aparece dos veces al aRo, en 10s meses de enero y julio. Suscripcion anual: US$20.00. Valor por cada ejemplar: US$15.00. Bilingual publication (Spanish and English) proving up-to-date estimates and projections of the populations of the Latin American and Caribbean countries. Also includes various demographic indicators of interest such as fertility and mortality rates, life expectancy, measures of population distribution, etc. The Observatory appears twice a year in January and July. Annual subscription: US$20.00. Per issue: US$15.00.

Notas de poblacion Revista especializada que publica articulos e infones acerca de las investigaciones mas recientes sobre la dinamica demogkfica en la region, er1 espailol, con resumenes en espailol e ingles. Tambien incluye informacion sobre actividades cientificas y profesionales en el campo de poblacion. La revista se publica desde 1973 y aparece dos veces al aAo, en junio y diciembre. Suscripcion anual: US$20.00. Valor por cada ejemplar: US$ 12.00. Specialized journal which publishes articles and reports on recent studies of demographic dynamics in the region, in Spanish with abstracts in Spanish and English. Also includes information on scientific and professional activities in the field of population. Published since 1973, the journal appears twice a year in June and December. Annual subscription: US$20.00. Per issue: US$12.00.

Series de la CEPAL Comercio internacional 1 Desarrollo productivo I Estudios estadisticos y prospectivos I Estudios y perspectivas (Bogota, Brasilia, Buenos Aires, Mexico, Montevideo) I Financiamiento del desarrollo l Gestion publica I Informacion y desarroilo l lnformes y estudios especiales I Macroeconomia del desarrollo I Manuales I Medio ambiente y desarrollo I Poblacion y desarrollo I Politicas sociales I Recursos naturales e infraestructura I Seminarios y conferencias.

Vease el listado completo en: www.cepal.org1publicaciones A complete listing is available at: www.cepal.org/publicaciones

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Las publicaciones de la Corn~s~bn Econbmica para Arner~caLatina y el Car~be(CEPAL) y las del lnst~tuto Latinoarner~canoy del Canbe de Planificacion Economics y Socral (ILPES) ss pueden adquinr a los distrrbuidores locales o d~rectamentea traves de: Publicaciones de las Naciones Unidas Seccion de Ventas - DC-2-0853 Fax (212)963-3489 E-mall: [email protected] Nueva York. NY. 10017 Estados Unrdos

Publicaciones de las Nacrones Un~das Secclon de Ventas. Fax (22)917-0027 Palais des Nations 1211 Gmebra 10 Suiza Un~dadde Distnbucion CEPAL Cas~lla179-D Fax (562)208-1946 E-mall: [email protected] Santiago de Chile

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Publ~catfonsof the Economic Commissron for Lath America and the Caribbean (ECMC) and those of the Lafrn American and the Caribbean Institute for Economrc and Socral Plannrng (ILPESJ can be ordered from your local distnbutor or drrectly through: UnitedNatrons Publrcations Sales Sections, DC-2-0853 Fax (212)963-3489 E-mail: [email protected] New York, NY, 10017 USA

Unrted Nat~onsPublicatrons Sales Sectfons, Fax (22)917-0027 Palais des Nat~ons 1211 Gsneve 10 Swrtzerland

Dfstnbutfon Unrf ECLAC Casrlla 179-0 FSX (562)208-7946 E-mar1 publ~catrons@eclacorg Santrago, Chrle

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