MercoPress. South Atlantic News Agency

Latinamerica expanding but?must do better

Latin America posted solid economic growth in 2005 for the third straight year, but its economies lagged behind other nations struggling with poverty, a UN agency reported yesterday.

Regional economic growth was 4.3% in 2005 and is expected to be 4.1% next year, aided by favourable international conditions and strong internal demand, according to the Santiago-based Economic Commission for Latin American and the Caribbean, CEPAL.

Unemployment decreased from 10.3% to 9.3% in 2005 and poverty from 44% in 2004 to 40.6%, and growth is expected to continue at a similar rate through 2006, the commission said in an annual report.

??While this is a positive fact, one must note that the region is still growing at a lower pace than the rest of the developing countries, which are expected to post a growth of 5.7% during the 2003-2006 period,'' the report said.

Venezuela reported 9% growth, Argentina had 8.6% and the Dominican Republic had 7%. The economies of Uruguay, Chile, Panama and Peru all grew by about 6%. The lowest country growth rates were in Haiti with 1.5%, Brazil and El Salvador with 2.5%, and Paraguay and Mexico with 3%.

Cuba declared 11.8% growth, in spite of heavy hurricane damage, said José Luis Machinea, executive secretary of the commission and former Argentine economy minister.

But the data for Cuba were not included because the communist-run island was late in presenting them to the UN agency, Machinea added at a news conference.

Most countries registered good current accounts figures, with remittances home by nationals living abroad helping balance imports and exports.

High oil prices were good news for some countries, such as Venezuela, and bad news for others, including Brazil.

A weak point was the low level of investments, which ??remains below the level it had in 1998,'' Machinea said.

??In order to increase investments, not only a better macro-economy is needed, but also the establishment of clear rules for the economy, legal security, and avoiding sudden changes in the rules.''

CEPAL also points out that one of the characteristics of this surge period is the growing surplus of the balance of payments current account, an extraordinary fact not seen in the region's half century economic history.

The overall 2005 current account will be positive, equivalent to 1.3% of GDP, compared to 0.9% in 2004 and 0.5% in 2003. However it differs according to sub-regions: in South America it's positive and represents 3% of GDP in 2005 (2.5% in 2004 and 2.1% in 2003), while in Mexico and Central America, negative equivalent to 1.8% of GDP, following 1.4% in 2004 and 1.6% in 2003. In the oil starved Caribbean the balance of payments current account in definitively 10% negative.

World expansion plus the growing participation of countries such as China, India and other Asian economies have helped improve trade exchange terms for South America (31% increase between the nineties and 2005) and to a lesser extent for Mexico, 22%.

Finally the report indicated that many governments are taking advantage of the current situation to improve the fiscal situation. With expanding budget income, surpluses are being used to reduce public debt, which is considered "very positive".

Although the GDP/debt ratio remains high in many countries, the drop in the ratio between public debt and GDP, and between debt and exports, with the exception of some Caribbean countries, makes the region less vulnerable externally.