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Countries Eligible for World Bank Borrowing:
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Latin America and the CaribbeanRegional Context The economic slowdown in Latin America and the Caribbean (LAC) that began in 1998 continued throughout most of 1999, although by 2000 recovery was underway in most LAC countries. Regional growth was flat in 1999, down from about 2 percent in 1998. The contributing factors were external shocks to terms of trade and reduced access to capital markets; natural disasters–an earthquake in Colombia and devastating floods in the Republica Bolivariana de Venezuela–compounded problems for those countries. The regional current account deficit declined, due mainly to reduced imports. While fiscal balances deteriorated, they are expected to improve. Also promising was foreign direct investment (FDI), which surged to a record $89 billion in 1999 and bodes well for the future, especially in Brazil and Mexico. Overall, prospects have brightened, due to the receding impact of shocks to terms of trade and renewed access to international capital markets.The magnitude of slowdown and the pace of recovery have varied among countries. Three small nations, Costa Rica, the Dominican Republic, and Trinidad and Tobago, led in economic growth. Certain large nations also performed well. Brazil’s swift policy response to the currency crisis stopped speculative capital outflows and enabled rapid economic recovery. Mexico’s tight fiscal policy and a flexible foreign exchange regime (helped by a booming u.s. economy) reassured external creditors and spurred growth of about 3.5 percent. Peru’s growth also approached 4 percent, as exchange rate movements helped the economy adjust to shocks and recover from El Niño problems. Other large countries fared poorly, however. Argentina was affected by declining commodity prices, by trade shocks triggered by Brazil’s currency crisis, and by reduced access to (more costly) private financing. In Colombia, Ecuador, and the Republica Bolivariana de Venezuela, internal political difficulties and financial system weaknesses intensified the slump, prompting authorities to raise interest rates to avoid currency runs in the face of external shocks. Regional growth is expected to average 3—4 percent in 2000, likely led by Chile, Mexico, and Peru. Argentina could achieve similar growth with improved access to international capital markets on more favorable terms. Even with growth, however, deep inequalities of wealth persist in most LAC countries, with 35 percent of the region’s people, or about 177 million, living in poverty. This high level of poverty is partly due to the macroeconomic shocks, which resulted in increased unemployment and cuts in social programs aimed at poor people. |
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