ECONOMY-LATIN AMERICA:
From Optimism to Concern
By Daniela Estrada
SANTIAGO (IPS) -
The Economic Commission
for Latin America and
the Caribbean (ECLAC)
called on countries in
the region Tuesday to
take urgent measures to
deal with the rising
cost of food, which
threatens to tip an
additional 15 million
people into extreme
poverty.
ECLAC projected 4.7
percent Gross Domestic
Product (GDP) growth for
Latin America and the
Caribbean this year, one
percentage point down
from last year’s rate.
The executive secretary
of the regional United
Nations body, José Luis
Machinea, said in a
press conference that
the recession that the
United States is
"entering" will have an
impact on the region,
although not as sharp an
impact as in past
crises, because Latin
America is better
prepared this time
around.
The effects of the
current downturn, he
said, will differ
depending on the
country.
The region’s poorest
countries will be hit
the hardest, because of
the rising food prices,
as well as countries
that export manufactured
products to the United
States and the
recipients of huge
inflows of expatriate
remittances, like Mexico
and the nations of
Central America.
Mexico receives the
largest amount of
remittances, nearly 24
billion dollars in 2007,
or 2.7 percent of GDP,
while the more than
eight billion dollars a
year sent home by
Haitians abroad amounts
to 30.4 percent of GDP.
According to Machinea,
it is hard to say
whether the prices of
commodities, which are
the region’s main export
products, will begin to
come down.
The sharp slowdown of
the global economy,
which will likely have a
mild effect on China,
should tend to bring
down prices of
commodities as a result
of reduced demand,
although there is also a
speculative bubble in
commodities that makes
projections difficult,
said the head of ECLAC.
But the U.N. agency
warned of a possible
rise in poverty as a
result of climbing food
costs.
An ECLAC communiqué
released on Apr. 18 says
that since early 2006
and especially 2007,
consumer price indexes
for food have increased
in most countries in the
region, by between six
and 20 percent a year,
and around 15 percent on
average.
Because this situation
mainly affects the
poorest families, ECLAC
urged countries in the
region to adopt urgent
measures, adapted to the
reality of each country.
Some of the
recommendations are to
reduce import tariffs
and/or sales taxes,
provide targeted
subsidies to the most
vulnerable sectors, or
increase already
existing assistance.
"In countries where 15,
20 or 30 percent of the
population lives in
extreme poverty, action
must be taken now,"
Machinea told IPS. "But
there are several
countries in the region
that do not have the
fiscal resources to act,
and in these cases,
international aid is
crucial."
ECLAC considers it
necessary for
industrialised and
middle-income countries
that are net exporters
of food to make a
special contribution to
agencies that can
deliver emergency aid to
at-risk populations,
like the World Food
Programme (WFP).
A 15 percent increase in
food prices would drive
up extreme poverty in
the region from 12.7 to
15.9 percent, says ECLAC.
This means that if steps
are not immediately
taken, 15.7 million
Latin Americans could
fall into extreme
poverty and a similar
number into poverty.
In the worst-case
scenario, the number of
people living in poverty
and absolute poverty in
Latin America and the
Caribbean could climb to
204 million and 84
million, respectively.
A less drastic estimate,
based on a five percent
rise in household
income, in keeping with
regional inflation,
indicates that 10
million people would
fall into extreme
poverty, not to mention
the worsening of
conditions for those
already living in
poverty and absolute
poverty.
Asked about the social
and political conflicts
that could break out in
the region as a result
of the deteriorating
conditions, Machinea
said the main risk
factor today is the
increasing cost of food,
and not slower GDP
growth, given that many
Latin American economies
will continue expanding
at rates of five to
seven percent in 2008.
ECLAC predicts that the
highest growth rates
will be seen this year
in Panama (eight
percent), followed by
Argentina and Peru
(seven percent), Uruguay
(6.5 percent), Colombia
and Venezuela (six
percent), and Bolivia,
Paraguay and the
Dominican Republic (five
percent).
The list continues with
Brazil (4.8 percent
growth), Chile, Costa
Rica, Guatemala and
Honduras (4.5 percent),
El Salvador (four
percent), Haiti and
Nicaragua (3.5 percent),
Ecuador (three percent)
and Mexico (2.7
percent).
The U.N. regional agency
also referred to the
"dilemma" of monetary
policy in the region.
Machinea said that if
central banks decide to
raise interest rates to
curb inflation, the
measure should be
accompanied by exchange
rate intervention and
restrictions on the
influx of short-term
capital, to keep the
local currency from
appreciating.
The only countries
currently following
these guidelines to any
extent, he said, are
Colombia, Brazil and
Argentina.
The Central Bank in
Chile, one of the
countries where the
dollar has depreciated
the most in the last few
months, plans to buy
eight billion dollars in
currency markets this
year. But it has not yet
considered the
possibility of setting
restrictions on the
inflow of capital, as
ECLAC suggests. |
