Published: Friday October 31, 2008
The repercussions of the global financial crisis are taking its toll throughout the world, and Latin America and the Caribbean are no exception. However, in spite of the unfavourable prospects, exports from the region will continue to increase during 2008 at an estimated 23 per cent, according to the Economic Commission for Latin America and the Caribbean (ECLAC).
This is one of the conclusions of the report Latin America and the Caribbean in the World Economy. 2007 Edition: 2008 Trends, released Monday in Mexico City by ECLAC Executive Secretary Alicia Bárcena. The report estimates export volumes to rise two per cent this year, while the volume of imports will increase nine per cent. The value of imports will go up 22 per cent.
Higher commodity prices during the first semester of 2008, particularly of metals and fuel, led to a 25.5 per cent increase in export value, much higher than the 10 per cent rise during the same period last year. With this, the trade surplus is expected to reach US$51 billion.
However, the global slowdown will have negative effects on the region. The drop in commodity prices during the third quarter this year and falling demand for Latin American products, primarily from the United States, and to a lesser extent, from Japan and the European Union, have already impacted the region's economies during the second semester this year, and will lead to lower growth rates and less favourable trade balances in 2009.
According to ECLAC, the world scenario is forcing Latin America and the Caribbean to face short and long-term challenges. In the short run, and as a result of international financial and economic turbulence, governments will have to deal with less access to external financing, higher interest rates, hard-hit stock exchanges and a shift of capital to safer destinations and into less risky assets, as well as lower remittances and foreign direct investment. As a result, credit lines for exports and investment plans will be restricted, limiting growth.
To avoid contagion from industrialised economies, governments must ensure liquidity in the financial system and reinforce prudent supervision of the soundness of the banks and financial institutions with the most links to international financing and risky operations.
In order to deal with external shocks, says ECLAC, governments should strengthen their countercyclical macroeconomic policies, maintain sound fiscal accounts and monitor external account trends. In the medium term, governments of countries that maintain favourable terms of trade should improve the management and use of additional income from higher commodity prices by promoting activities that boost competitiveness, human resource development and export diversification.
The world economic slowdown may ease inflationary pressures, which will tend to decrease during the rest of 2008 and 2009. However, the aim of curbing inflation should not be neglected.
The report underscores that the current financial crisis and the menace of recession for 2009 pose an enormous challenge to the soundness of the economic reforms the region has implemented in recent decades. Thanks to these reforms, the region is relatively better prepared to face this adverse scenario.
These reforms must be maintained, particularly those contributing to fiscal responsibility and control of inflation, trade openness - especially intraregional trade - and market diversification, debt reduction and accumulation of international reserves. These assets will allow Latin America and the Caribbean to deal with a potential recession in the United States and the European Union on more solid ground.
It is difficult to fathom that the world economy could remain the same after 2008, says the report. Changes need to be made in terms of financial regulation, energy efficiency, the search for renewable energy sources and the provision of international funds to reduce hunger and increase food supply in the poorest countries. Moreover, if the world were to fall into recession next year, efforts to achieve the Millennium Goals could be seriously compromised.
The ECLAC report also analyses the failure of the last "mini-ministerial meeting" of the WTO Doha Round in July 2008. The uncertainty about the capacity of the protagonists of the negotiations to make the multilateral trade system more governable may serve as justification for regional policies and bilateral negotiations, weakening the positive complementarity between multilateralism and regionalism.
Once again, questions are being raised about the ability of WTO to handle the international agenda of the future. With this, the Doha Round and its pro-development agenda will be delayed until late 2009 or 2010 at the earliest.
It is in times of international crisis when the stabilising and orderly trade rules provided by the WTO - which have been seriously questioned in recent years - are most needed to prevent the real effects of the financial crisis from worsening and spreading. In this regard, reactivating the Doha Round negotiations and concluding them soon would be a very good sign to a world economy craving good news.
ECLAC assures that Latin America and the Caribbean could strengthen their internal consensus in order to play a more prominent role in the Doha Round, which could facilitate the negotiation of other trade talks, such as those with the European Union.
Source: Jamaica Observer