PARIS (Reuters) -- Latin America will face further economic slowdown and
may be hit by new outbreaks of financial turmoil this year, the
Inter-American Development Bank warned on Monday.
Financial crises originating in Asia and Russia cut Latin America's growth
half to 2.5 percent in 1998 from 5.3 percent in 1997, and the outlook for
1999 is grim, the bank said in its annual report.
"It is going to be a difficult year, with less growth than last year,"
president Enrique Iglesias told reporters before the start of the board of
governors' meeting here.
Brazil, the region's powerhouse, faces severe recession as it battles with
currency crisis since devaluing in January, but Iglesias said the government
was taking the right steps to deal with its massive deficit.
"I am very confident that these measures will stabilise the currency at
reasonable level," Iglesias said.
Slower growth, expansionary monetary policies and low interest rates in
industrialised nations should prompt a recovery of capital flows to emerging
markets, auguring a more benign financial environment for Latin America, the
But it warned that "the possibility of new eruptions of instability cannot
dismissed," including sharp declines in the U.S. equity markets.
Reduced world economic growth will also keep commodity prices
depressed, posing a big challenge for several Latin American countries as
they strive to hold on to hard-gained economic stability, the bank said.
Still, Latin America is better equipped to defend itself now, Iglesias said.
Despite world financial turmoil, compounded by natural disasters caused
the El Nino current and Hurricane Mitch, the region grew faster than the
world average in 1998, and stuck to its commitment to open markets and
Governments kept inflation under control at less than 10 percent on average,
with the exceptions of Venezuela (37 percent) and Ecuador (40 percent)
both of which were badly hit by falling oil prices.
Export revenues in Chile, once Latin America's showcase economy, fell 14
percent, or nearly three percent of output, due mainly to lower copper
Chile was still the fastest growing major economy in the region last year,
five percent growth in GDP, followed by Mexico (4.6 percent) and
Argentina (4.5 percent). Brazil grew only 0.5 percent and Venezuela 0.3
percent, the IADB said.
With massive liquidations of positions in emerging markets after Russia's
default shook investor confidence, capital flows to Latin America fell off and
the cost of money doubled, with spreads hitting 900 basis points.
Total capital inflows in Latin America fell to $64 billion in 1998 from
billion the year before, the IADB said.
International reserves fell in the region by $19 billion, and several countries
lost 10 percent or more of their end-1997 stock of foreign exchange
reserves, including Brazil, Chile, Colombia, Ecuador and Venezuela.
Other repercussions were higher domestic interest rates, rising public
deficits, tighter fiscal policies, and falling stock indexes, which typically fell
between 30 and 50 percent at the peak of the turbulence, the 1998 report
Unemployment rose in Brazil, Colombia, Ecuador and Venezuela, but not in
The IADB responded to the crisis last year by increasing lending to the
region to a record $10 billion, including emergency loans granted to
countries facing particular financial difficulties at a higher than normal interest
Copyright 1999 Reuters.