Latin American Reforms Begin to Pay Off : Economics: Region gets a handle on runaway inflation and achieves moderate growth. What’s remarkable is that it comes amid a general global recession.
SANTIAGO, Chile — After a decade in the dumps, with withering bouts of inflation, Latin America has made an economic turnaround in 1991, achieving moderate but promising growth while other regions of the world languish in recession.
The U.N. Economic Commission for Latin America and the Caribbean said in a report issued Wednesday that the regional economy expanded by 3%, while average annual inflation plummeted from nearly 1,200% to about 200%. And for the first time in 10 years, more financial resources flowed into Latin America than drained out.
“The region is moving in the right direction,†Gert Rosenthal, the commission’s executive secretary, said.
Although Latin America managed a mild spurt of expansion in the mid-1980s, overall economic progress during the decade was so meager that it failed to keep up with population growth. The period was dubbed the Lost Decade.
Rosenthal, a Guatemalan economist, said Wednesday that the ‘80s was also the Learning Decade. Most Latin American governments began major reform programs emphasizing fiscal austerity, trade liberalization, export expansion and private enterprise.
“These changes are substantive,†Rosenthal said. “We are operating on new foundations.â€
In some countries, the belt-tightening has been painful, but the reforms have begun to pay off in economic growth. The turnaround is especially remarkable in what Rosenthal called a “world context of generalized recession.â€
Venezuela led the region in 1991 with an estimated 8.5% increase in its gross national product. The economies of Mexico, Argentina and Chile grew by 4% to 5%.
The regional average would have been even greater in 1991 if Brazil were not having a difficult year, with economic expansion calculated at about 1%. Latin America’s biggest country, Brazil accounts for about one-third of the regional average.
Nevertheless, the commission report notes that economic expansion in the region exceeded population growth for the first time in four years. The 3% increase in the regional economy was 10 times greater than the 0.3% for 1990.
Contributing to the 1991 growth was a net inflow of financial resources for the first time since 1981. The return of “flight capital,†proceeds from the sale of state enterprises and lower rates of interest on Latin American foreign debt helped reverse the capital flows from $16 billion in the red last year to $6.7 billion in the the region’s favor this year. Mexico, Venezuela and Argentina accounted for the bulk of that net inflow.
One of the most notable achievements for many Latin American countries in 1991 was a sharp reduction of inflation--from 1,344% to 91% a year in Argentina, 1,585% to 466% in Brazil, 13,491% to 1,183% in Nicaragua and 7,658% to 185% in Peru.
“Apparently, the recession with inflation of the ‘80s is receding,†Rosenthal said. “It gives a basis for thinking the ‘90s will be better.â€
Still, many of Latin America’s problems from the 1980s remain unresolved. Depressed salary levels rose during 1991 only in Chile and Uruguay. Twelve countries in the region are behind by a total of $26 billion in payments on their foreign debts. And except for two or three countries, high unemployment rates have not come down.
Rosenthal cautioned that future Latin American progress will be jeopardized if recession persists in the United States and other countries that buy this region’s products; if Eastern European economic recovery falters, and if the world fails to reach consensus on fair practices under the General Agreement on Tariffs and Trade.
“This is going to have very adverse effects on Latin America,†he said.
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