LATIN AMERICA: SLOWING GROWTH, STAGNANT PER CAPITA

1:00 AM Sep 15, 1995

LATIN AMERICA: SLOWING GROWTH, STAGNANT PER CAPITA
Geneva 14 Sep (TWN) -- The Latin American and Caribbean region will grow less than in 1994, with GDP at less than 2% -- substantially less than the 3.6% average during 1991-1994 -- while per capita GDP will be virtually stagnant, says the UN's Economic Commission for Latin America and the Caribbean.

In a statement releasing ECLAC's annual Economic Panorama, ECLAC's Executive Secretary, Gert Rosenthal, said that this economic panorama in the region was determined largely by the effects of the financial crisis in Mexico with major impact on Argentina -- with the immediate negative consequence of considerable deterioration in performance of both economies.

He noted however that the crisis did not spread to other countries of the region, whose performance did not change significantly.

"If the warnings implicit in the financial crisis had been sufficiently heeded, especially with respect to the size of the external deficit, the trend towards moderate growth with price stability seen in the region since 1990, will be consolidated", Rosenthal said.

On the useful lessons of the recent crisis in Mexico and Argentina, the ECLAC head said that given the need for large scale investment in physical and human capital, economies that don't generate sufficient internal savings have to rely excessively on foreign capital, which can be volatile.

The macroeconomic stability that has been achieved could not be taken for granted, since it could be disrupted by external shocks.

Also, the external disturbances and resulting macro-economic problems could frustrate efforts to create unemployment and reduce poverty.

These three problems would occupy a prominent place on the Latin American and Caribbean agenda during the rest of 1995 and in the years to come, Rosenthal added.

According to ECLAC's preliminary estimates, Chile and Peru would have a growth rate of 7% or above; Argentina, Uruguay and Mexico will have zero or very low growth rates, while Mexico is in a severe recession. Other countries are expected to have a 3-5 percent growth rate.

The regional UN body projects dramatic fall in inflation rates in the region -- Argentina, Bolivia, Chile, Guatemala, Nicaragua and Panama have single digit inflation; El Salvador, Paraguay, the Dominican Republic and Peru have inflation between 10 to 13 percent; Brazil. Colombia, Costa Rica, Ecuador and Honduras have a 20-30 percent rate. But in Mexico and Venezuela the inflation is above 40%.

The employment situation in the region as a whole deteriorated -- with considerable increases in unemployment and fall in real wages. While this was so in Argentina, Mexico, Uruguay and Venezuela, in Brazil, Chile and Colombia high growth rates enabled them to reduce level of unemployment. But with higher growth based mainly on productivity improvements - that in some cases allowed for salary increases - this limited generation of productive employment.

But in 1995, the external balances of the region improved and the region as a whole will have a positive trade balance -- with exports jumping to 20% by value, due primarily to improved value for primary products, while imports will grow only by 8% as opposed to an average 17% growth between 1991-1994. The lower import growth is particularly pronounced in Argentina and Mexico.

In the first eight months of 1995, there was an appreciable decline in foreign capital flows, as well as change in their composition. On present trends, ECLAC projects net inflows this year will be about $30 billion -- about half the average during 1992-1994.

This volume will be through direct investment and official loans, mainly to support the BOP in Mexico and Argentina. Portfolio investments and short-term deposits fell sharply in the first months of the year.

The regions total foreign debt will reach $545 billion - a four percent nominal increase over 1994. The ratio of foreign debt to exports of goods and services is expected to decline from 276% in 1994 to 235% in 1995 -- the lowest figure since 1980. The ratio between interest payments and exports of goods and services is also slated to fall for the ninth consecutive year -- to 17%.