March 14, 1999
Latin America faces continued slowdown in 1999, lending agency warns

                  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 by
                  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," IADB
                  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 a
                  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 a
                  reasonable level," Iglesias said.

                  Slower growth, expansionary monetary policies and low interest rates in the
                  industrialised nations should prompt a recovery of capital flows to emerging
                  markets, auguring a more benign financial environment for Latin America, the
                  bank said.

                  But it warned that "the possibility of new eruptions of instability cannot be
                  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 by
                  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
                  fiscal reform.

                  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, with
                  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 $79
                  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 sector
                  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.