LATIN AMERICA: RISE IN GDP, BUT ALSO IN UNEMPLOYMENT

10:10 AM Dec 20, 1996

LATIN AMERICA: RISE IN GDP, BUT ALSO IN UNEMPLOYMENT
Geneva 19 (TWN) -- The year-end preliminary overview of the Latin American and Caribbean Region by the UN's regional commission in Santiago has some words of encouragement, but also of worries and concerns.

The UN Economic Commission for Latin America and the Caribbean (ECLAC) preliminary overview showed that the region as a whole had returned to a path of moderate growth (interrupted by the 1994 Mexican peso crisis), with inflation continuing to fall, but with unemployment continuing to rise as also inequality, according to an ECLAC press release received here.

Average GDP growth in the region as a whole reached some 3.5%, and in per capita terms 1.5 percent. Average inflation fell to 20%, with more than half the countries of the region registering single-digit price increases or a little more. Capital inflows are estimated at $50 billion, showing that foreign capital was coming back after the Mexican crisis and its aftermath.

The GDP growth was due to sustained expansion of exports and to grater access to external finance. The increase in volume of exports almost tripled that of the GDP, with regional exports of goods reaching a figure of $248 billion or eleven percent more than in 1995.

Exports were the principal factor contributing to recovery of the Mexican economy, and made up for low internal demand in several countries -- Colombia, Peru, Venezuela and those of Central America.

The current account deficit of two percent of regional GDP was compensated by capital inflows of some $50 billion, which led to a considerable accumulation of international monetary reserves. The region was experiencing a growing positive evolution in its ability to attract external finance, in volume and type, which though still was going to the larger economies.

But the GDP recovery was taking place in a less favourable international context than that of recent years. Commodity prices, important for the region, have evolved unevenly. Prices of many metals fell, as also of coffee, while grain prices rose. Oil prices were higher than in previous years, benefitting exporters but increasing the difficulties for importers.

Inflation continued to fall. The average regional inflation rate was decreasing constantly -- from a 888% in 1993 to 337% in 1994, 26% in 1995 and 20% in the 12 months ending November 1996. This is the lowest figure since the beginning of the 1970s.

While 1995 saw great variations in the region's economic performance -- with Mexico and Argentina contracting while others continued to expand -- in 1996 there was greater homogeneity.

Mexico and Argentina once again registered positive growth - but not enough to counteract the fall in the previous year. But the other economies expanded more slowly in 1996, due to adoption of policies to reduce inflation -- such as in Brazil, Chile, Costa Rica, Colombia, among others, or avoiding a balance of payments problem as in Peru.

As a result, growth fluctuated between three and five percent in most countries. But this was surpassed in Barbados, Chile, Guyana, Nicaragua and the Dominican Republic. In Chile and Guayana this represented a continuation of the pattern of sustained growth. In Costa Rica, Jamaica and Venezuela, the growth rate was less than two percent.

But this more favourable evolution of growth, ECLAC says, has not been translated into increased employment. On the contrary, unemployment continued to rise, after a considerable increase in 1995, and is becoming a serious problem. Urban unemployment in 1996 was at its highest this decade.

Thus, says ECLAC, the patterns of growth in 1996 continued to be characterized by inequality, as has been happening since the beginning of the decade: only in a few cases did the unemployment rate continue to fall as in Chile and Peru.

If the modest rates of per capita growth, 1.5 percent, are added to this, the minimal contribution of current expansion to overcoming the great social backwardness evident in the countries of the region becomes a cause of for concern.

The Executive Secretary of ECLAC, Mr. Gert Rosenthal, who released the preliminary overview at a press conference in Santiago, said the encouraging signs were that, overcoming the adverse effects in 1995 of the Mexican financial crisis, the regional economy has returned to the path of moderate growth and stable prices that characterized the period 1991-1994.

The pattern of 3-4 percent annual growth, Rosenthal said, seemed to be consolidating: a significant achievement compared with the results in the past decade. But this was insufficient to meet the challenges of equity and modernization of production that faces the region, the Guatemalan economist added.

Rosenthal also drew attention to another positive factor -- the dynamism of exports, in which intra-regional trade was playing an important role. The region in general had also achieved improved access to external medium and long-term financing, including a growing proportion of FDI.

On the worrying side, Rosenthal commented, were two inter-related and significant factors.

The region has still not been able to overcome the dilemma between faster growth and macro-economic equilibrium. The priority given to price stabilization required limits to be placed on the expansive effects of accumulation of reserves as far as expenditure is concerned.

This, together with the austere fiscal policies, demands restrictive monetary policies and high interest rates which, in turn, hold back investment.

There is also a tendency becoming evident towards inelasticity of employment in relation to GDP, a phenomenon which is one of the causes of unequal distribution of the benefits of growth -- and one of the most evident features of the region's economic revolution in recent years.

Rosenthal noted that ECLAC has repeatedly insisted that overcoming these negative factors is the greatest challenge facing the economies of the region, and that to meet it priority must be given to improving competitiveness, stimulating production, reforming institutions and mobilizing internal savings.

The greater macroeconomic discipline now apparent, together with the relative consolidation of inflows of external finance at close to 2% of GDP, a payment schedule more compatible with the stimulation of growth, and the virtual end of the foreign debt renegotiating process with commercial banks, create conditions which can ease the achievement of these objectives, Rosenthal suggested.