THE ECONOMIES OF LATIN AMERICA AND THE

CARIBBEAN: SITUATION AND PROSPECTS

Inés BustilloDirector, Washington Office

Economic Commission for Latin America and the Caribbean

Washington DC – 20 May 2009

The developed countries have entered a recession

DEVELOPED COUNTRIES: “GDP GROWTH” (Percentages)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

United States Euro Zone Japan

2006 20082007 2009

Real GDP 2009 2010 Date of Forecast A. What Government Agencies Say

FED* -1.3 to -0.5% 2.5 to 3.3% Jan-09 CBO -3.0% 2.9% Mar-09

B. What Markets Say Goldman Sachs -3.2% 1.2% Mar-09

National Association of Realtors -2.9% 1.4% May-09 Bank of America/Merrill Lynch -3.0% 2.0% May-09

Moody's Economy.com -3.0% 1.4% May-09 The Economist Intelligence Unit -3.1% 0.7% Mar-09

JPMorgan -2.5% 2.7% May-09 Wachovia -2.9% 0.9% May-09

Mortgage Bankers Association* -1.1% 2.8% Apr-09 Market Average** -2.9%

C. What International Organizations Say United Nations DESA (Baseline) -3.5% 1.0% May-09

World Bank -2.4% 2.0% Mar-09 OECD -4.0% 0.0% Mar-09

IMF -2.8% 0.0% Apr-09

* Forecast on a Q4 to Q4 basis. ** Average does not include the Mortgage Bankers Association.Note: the CBO, IMF, and OECD forecasts on a Q4 to Q4 basis are -1.5%, -2.2%, and -3.5%, respectively, for 2009.

Projections on US economic growth

Economic situationprior to crisis

Regional GDP was up by 4.6% in 2008, completing sixth consecutive years of economic

growth

1.51.8

3.03.0

3.33.3

3.8

4.85.8

6.56.8

7.09.2

9.411.5

4.4

2.4

5.9

4.6

4.3

3.0

4.5

3.8

5.9

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0

HaitiMexico

CaribbeanColombia

El SalvadorNicaragua

Costa RicaGuatemala

ChileHonduras

CubaCentral America

Dominican RepublicLatin America and the Caribbean

Venezuela (Bol. Rep. of)Bolivia

South AmericaBrazil

EcuadorArgentinaParaguayPanama

PeruUruguay

LATIN AMERICA AND THE CARIBBEAN: GDP GROWTH, 2008(Percentages)

The per capita GDP of the Latin American and Caribbean region grew by more than 3% for the fifth year in a row

Higher growth rates, lower unemployment and better-quality jobs have helped improving poverty indicators.

LATIN AMERICA AND THE CARIBBEAN: EMPLOYMENT AND UNEMPLOYMENT

Growth has been coupled with improvements in labour-market

indicators

50.0

51.0

52.0

53.0

54.0

55.0

56.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

6.00

7.00

8.00

9.00

10.00

11.00

12.00

Employment rate (left axis) Unemployment rate (right axis)

LATIN AMERICA: EVOLUTION OF POVERTY AND INDIGENCE LEVELS, 1980 – 2008 a

(In percentages and millions of people)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted in relevant countries.a Estimate for 19 countries of the region, including Haiti. The figures appearing above the bars in each chart represent the percentage of the population and the total number of poor persons (indigents plus non-indigent poor).b Projections.

In 2008, poverty levels decreased slightly, but no reduction was seen in

indigence

18,622,5

19,0 18,5 19,413,3 12,6 12,9

40,5

48,343,5 43,8 44,0

36,3 34,1 33,2

0

10

20

30

40

50

60

1980 1990 1997 1999 2002 2006 2007 2008b/

Indigents Non-indigent poor

6293 89 89 97

71 68 71

136

200 204 211 221193 184 182

0

50

100

150

200

250

300

1980 1990 1997 1999 2002 2006 2007 2008b/

Indigents Non-indigent poor

Transmission channels and

impact

One by one, the engines of growthare shutting down

The real economy Slowdown in exports Falling commodity prices Lower remittances Reduced revenues from tourism Smaller inflows of foreign direct investment (FDI)

The financial sector Higher cost of external credit Reduced availability of international financing

The international crisis is being transmitted to the region through various channels, though not to the same extent in all the

countries

Commodity prices are falling but they may remain relatively high

COMMODITY PRICE INDICES(2000=100)

50

100

150

200

250

300

350

400

450

500

Jan-

00

Apr

-00

Jul-0

0

Oct

-00

Jan-

01

Apr

-01

Jul-0

1

Oct

-01

Jan-

02

Apr

-02

Jul-0

2

Oct

-02

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Food Minerals Petroleum

The region’s terms of trade continued to improve in 2008 but are expected to

worsen in 2009LATIN AMERICA (19 COUNTRIES): TERMS OF TRADE, 2008-2009

(Percentages)

4.65.9 4.9

7.9

-7.5

20.9

2.8

-12.8

-18.6

-7.5

-29.4

2.1

-5.3-3.4

-30.5

-27.2-32.0

-28.0

-24.0

-20.0

-16.0

-12.0

-8.0

-4.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

Latin Am (19) South Am (10) Mercosur (4) Rest South Am (6) Chi+Per Bol+Col+Ecu+Ven Central Am (8) Mexico2008 2009

Not all the economies are exposed in the same way

Latin America: degree of exposure of the demand components (% of GDP)

0 10 20 30 40 50 60 70 80

Brazil

Colombia

Argentina

Uruguay

Peru

Guatemala

Haiti

R. Dominicana

Mexico

Bolivia

El Salvador

Venezuela

Costa Rica

Chile

Ecuador

Paraguay

Nicaragua

Honduras

Panama

Exports Private consumption Public consumption Investment

Amidst increased volatility, the perceived risk associated with emerging economies is

on the riseLatin America: EMBI+ spread, 1996-2009

(In basis points, end of period; for 2009, end of January)

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1500

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Risk has increased less than in other crises

Preparedness to face crisis:

Reserves Public debt

LATIN AMERICA AND THE CARIBBEAN: ESTIMATED GROWTH FOR 2009 (%)

-2.0-1.0

-0.5-0.5

-0.30.00.00.1

0.50.50.5

1.01.0

1.51.51.51.5

2.53.03.0

3.54.0

-3 -2 -1 0 1 2 3 4 5

M éxicoBrasil

Costa RicaParaguay

América Latina y el CaribeChile

EcuadorCaribe

El SalvadorHaití

ColombiaVenezuelaNicaraguaArgentina

GuatemalaHonduras

República DominicanaUruguay

BoliviaCubaPerú

Panamá

In 2009, the region’s growth is expected to slow dramatically

Evolution in the level of activity will have a negative impact on labor-market

indicators

50,0

51,0

52,0

53,0

54,0

55,0

56,0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

6,0

7,0

8,0

9,0

10,0

11,0

12,0

Employment rate (left axis) Unemployment rate (right axis)

LATIN AMERICA AND THE CARIBBEAN: OCCUPATION AND UNEMPLOYMENT

Economic policy responses

The response capacity to the crisis is also different

Scope of measures to tackle the crisis

f

Monetary and Financial Policy

ab

c

a

c

e

gh

ij

k

lm

a

cd

Reduction or relaxation of reserve requirements

Exchange-rate and external trade policy

Financing of exportersTariff cuts

Obtaining credit from international financial bodies

Sectoral Policies

HousingSmall and medium-sized enterprisesSectoral policies

Employment and social policiesPromoting job creationSocial programmes

Increased tariff or import restrictions

Provision of liquidity in national currency

Fiscal Policy

Tax cuts or increased subsidiesSpending increased or brought forward (infrastructure)

The impact of the announced measures is different

COUNTRIES THAT ANNOUNCED QUANTIFIABLE INCREMENTS IN 2009 PUBLIC EXPENDITURE Estimated impact as % of GDP

0,6%

0,6%

0,7%

0,8%

1,0%

1,4%

1,9%

2,2%

2,4%

4,2%

5,7%

0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 6,0%

Honduras

México

Costa Rica

Guatemala

Brasil

América Latina

Bolivia

Chile

Perú

Colombia

Argentina

Beyond thecurrent cycle

Lessons learned

Avoiding protectionism Preventing the crisis from increasing inequity

as a result of biased measures Protecting the countries’ capacity to maintain

social spending, especially spending aimed at building human capital

Continuing to invest in infrastructure “Green deal”

THE ECONOMIES OF LATIN AMERICA AND THE

CARIBBEAN: SITUATION AND PROSPECTS

Inés BustilloDirector, Washington Office

Economic Commission for Latin America and the Caribbean

Washington DC – 20 May 2009