Preliminary Overview of the Economies of Latin America and the Caribbean 2008 Perspectives from ECLAS

From 2003 – 2007 Latin America Enjoys Steady Economic Growth 1994 – Mexican Peso Crisis 1997 – Brazil Real Crisis & International Contagion 2001 – US Sept. 11 Crisis

LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH, 2008 (Percentages) ) The Latin American and Caribbean region’s per capita GDP grew by more than 3% for the fifth year in a row. Regional GDP increased by 4.6% in Completing a sixth consecutive year of economic growth

Growth has been associated with improvements in Labor Market conditions Highergrowthrateslowerunemploymentandbetterqualityjobshave Higher growth rates, lower unemployment and better-quality jobs have helpedimprovepovertyindicators helped improve poverty indicators.

Significant Reductions in poverty and indigence between

Countries with the most significant reductions in poverty are not those customarily associated with Washington Consensus Policies Left Governments in Argentina, Bolivia, Ecuador, Honduras, Nicaragua, Venezuela…

The economic experience of the region over recent decades leaves countries to view today's crisis from a different perspective: “The crisis came from abroad, not just from the subprime situation, but also from a market-oriented economic model. Now we have to discuss whether the role being assigned to the State is temporary or permanent and if we should open new spaces for public policies, and in this context, assess the capabilities the region has lost." Alicia Bárcena, Executive Secretary, ECLAC “Financial meltdown will not cause the U.S. to abandon democratic capitalism, but the outcome is less clear for countries deciding whether capitalism is the best system. In many of these countries the choice is not between light and heavy financial regulation, but between relying on creative individuals or government planners to escape poverty.” William Easterly

The Developed Countries are in Recession Globally Latin America’s continued external dependence will couple its fate with the decline of the DC’s as the engines for growth fail across seven dimensions

1. Developed Country Recession will negatively impact trade flows and foreign exchange earnings

2. Commodity Price Booms are now Bust

…And Latin America reverts once again to falling terms of trade.

3. Remittance flows will fall, hitting some Caribbean and Central American nations hard

4. Revenues from Tourism will drop with adverse consequences for the Caribbean and Central America

5. Foreign Direct Investment (FDI) Flows will fall with differential impact from country to country

6. Higher cost of capital and credit rationing for emerging economies with increased financial volatility in the Center

Reversals on Internal and External Balance

Exchange Rate Volatility

Precarious Capital Account Dependence on Portfolio Flows

Large Private Sector External Debt Exposure