SUNS  4339 Monday 7 December 1998



LATIN AMERICA: FINANCIAL TREMORS GROW INTO EARTHQUAKES

Havana, Dec 3 (IPS) - The 26th Council of the Latin American Economic System (SELA) closed Thursday here, saying the region needs greater integration in order to ride out "financial tremors" like the four which have struck since October 1997.

In Latin America "financial and real effects have been greater than could have been expected," stated executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Jose Antonio Ocampo, during the ministerial phase of the SELA meeting.

The Council closed Thursday in Havana following four days of sessions analysing the international crisis.

Ocampo said that the first and last of the four "financial tremors" - in October last year, January and February of this year, May, and finally August and September - were actually "earthquakes" for Latin America, according to Ocampo.

The Asian crash in October 1997 and Russia's stock exchange collapse in August, had repercussions on all countries of the sub-region to the point of shrinking estimated economic growth to only one percent for the last quarter of the year.

According to ECLAC, the true magnitude of the deceleration was seen when comparing the phases of growth in the Gross Domestic Product during the first six months of this year and forecasts for the close of the second half year.

Economic growth in Latin America in 1998 stood at barely two percent of GDP as a result of the impact of the four "financial tremors," forecast ECLAC.

Ocampo recalled that, according to ECLAC, the GDP of the region should grow 4.5% this year, but this forecast shrank more than 2% as a consequence of the world crisis.

The countries of the Southern Cone could go from growth of 6.6 percent in the first six months of the year to 2.1% in the last two, while in Mexico, the difference will be from more than five percent to less than three.

"Average growth in Latin America and the Caribbean in the nineties - of slightly above three percent per year - is still lower than levels reached before the lost decade," said the ECLAC expert.

Latin American economies grew by more than five percent on average throughout the fifties, sixties and seventies, until the eighties, when levels dropped to only one percent. Figures of 3.5 percent are estimated for the time between 1990 and 1998.

As a professional economist and former Finance and Credit minister of Colombia, Ocampo stated the current crisis demonstrate the vulnerability and instability of the international financial market.

"Today we are aware we do not have the institutions necessary to confront financial globalisation," he said.

In his opinion, the crisis taught the region about the inability of the international financial entities and private sector to predict future crises.

Ocampo added that the world is facing "a systemic crisis associated to the enormous asymmetry existing between an increasingly sophisticated and dynamic international financial world and the absence of a suitable institutional framework to regulate this."

For the ECLAC executive secretary, in the short-term, expansionist policies are needed from the industrialised economies along with contingency funds to handle the effects of "contagion."

In the longer term there is a need for "far-reaching reform of the international financial establishment" increasing the subregional capacity for handling financial volatility with its own fiscal,
financial and exchange instruments.

The reform proposed by Ocampo will include greater macroeconomic co-ordination, a reordering of international monitoring to make this more preventive, and the strengthening of regional mechanisms.

Information systems will also need to be improved, homogenising rules of banking supervision, presenting a more stable context to offer contingency resources with less conditions and manage the over-indebtedness of some countries.

"Management of the economic bonanzas is no more important than the forecasting of crises," said Ocampo.