One of the most critical years in the history of Latin America'seconomies has ended. The decline in regional output, estimated at 0.5%, forms part ofadverse economic conditions that have lasted now for five years. This "lost halfdecade", as ECLAC has called it, means that this year per capitaoutput will be two percent lower than in 1997. Half of the region's countries haveseen their per capita GDP contract in the past five years while the rapid growth onceexperienced by some individual economies has ground to a halt. In social terms, openunemployment has reached 9.1%, the highest point in Latin American history, and evenhigher than it was during the "lost decade". During these five years, the poorpopulation has swollen by 20 million Latin Americans.

As has occurred in the past, external factors have hit Latin America hard,but their effect has been multiplied by the weaknesses inherent in the region's owneconomies. The strongest impact has been observed in the capital account. 2002 marks apoint at which interest payments have exceeded net external borrowing for five straightyears. This means that US$39 billion, that is, 2.4% of regional GDP, has flowed out ofLatin America and into the rest of the world. The drought on capital markets has beennotorious this year, as has the magnitude of speculation against some of the region'seconomies. These factors combine with weak economic recovery in the United States and thesteady fall in the terms of trade of non-oil economies.

The region's own weaknesses have to do with the slim margins formanoeuvring that Latin American economies accumulated during times of abundance to dealwith future crises. As a result, almost all countries have seen their economic authoritiesforced to adopt measures on the fiscal and monetary fronts that reinforce external shocks,instead of weakening them. One weakness is the persistent tendency to overvalue ourcurrencies at times when capital is abundant, an approach that leaves these economiesdefenceless during later periods of drought. The collapse of convertibility in Argentina,moreover, has an important lesson to teach: "automatic pilots" do not work ineconomics. Economic authorities' "credibility" is not built by tying themto rigid rules, but rather through good management of the discretionary powers availableto them.

The past five years have, moreover, demonstrated economies' unevenadjustment to processes of regional integration. The trials and tribulations of Mercosurand the Andean Community over the past five years contrast with the success that oneprocess or another experienced between 1990 and 1997.

"Open unemployment has reached 9.1%, the highest point in Latin America history". This is why, as the European Community (now Union) learned several decadesago, the consolidation of integration processes inevitably requires greater macroeconomicpolicy coordination among members, with the adoption of common currencies perhapsoccurring when the process is more advanced.

There has, however, been some good news. The main one is that this yearwill close on rising growth, unlike 2001, which ended with several of the region'seconomies amidst deepening recession. The increasingly general use of a floating exchangerate in the region's medium and large economies also represents a step forward, sincethis will ensure the timely adjustment of the exchange rate during crises and, correctlymanaged, greater autonomy in the handling of monetary policy. The year's adjustmentsto exchange rates also demonstrate that these corrections can be made withoutdestabilizing inflation.

This is particularly important, because amidst a scenario involvingrestricted external resources such as the current one, a competitive exchange rate is anessential part of a good macroeconomic programme. In broader terms, the combination ofcompetitive exchange rates, moderate real interest rates and a sustainable fiscal positionis, in today's conditions in Latin America, the best approach to achieve renewedeconomic growth.

But perhaps the best news is that the economic debate has opened up. Thedogmatisms of a decade ago have started to fade. The debate now includes the need fornational and international mechanisms to expand the limits on how macroeconomic policiescan reduce the vulnerability of developing economies when faced with volatileinternational capital. Awareness that active policies for productive and technologicaldevelopment are also essential to achieve the full benefits of the opportunities offeredby international markets has also increased. There is much greater awareness of theimportance of solid public institutions. And, above all, there is growing awareness of theneed for integrated policy frameworks in which social objectives really stand at thecentre of economic policy.

In branches of knowledge as imprecise as economics, pluralism in debate isessential to evaluate the strengths and weaknesses of different alternatives. The idea,put forward a decade ago by the Washington Consensus that "we already know what todo" turned out to be a mirage. Pluralism in the economic debate and its reflection inpolitical debate are, as a result, enormous opportunities opening before us.