With economic activity falling by almost 1% in 2002, Latin America willcomplete half a lost decade in terms of economic growth. Per capita output for this yearwill be almost 2% less than in 1997. Although the strong contraction in Argentina explainspart of this result, slow growth is a much more widespread phenomenon. In the past fiveyears, half the region's countries have seen their per capita output decline and allof the countries enjoying fast growth in the 1990s have seen it grind to a halt.
The causes of such a widespread trend can only be found in a commonsource, the international economy. Among the possible explanations, one stands out: thebehaviour of international financial markets. The recovery in economic growth from 1990 to1997 was associated with the return of the capital whose flight generated what ECLACreferred to as the "lost decade" of the 1980s. The 1997 Asian crisis once againtriggered capital flight.
The volatility of financial markets has been devastating. Inherent totheir functioning are alternating periods during which risk is under- or over-estimated,that is, periods of "irrational exuberance", as Alan Greenspan, the chairman ofthe Federal Reserve, called them, followed by "irrational panic"."Irrational panic" has been all too evident in the cases of Brazil and Uruguayin recent months. Debt levels that until recently - and correctly -were consideredmanageable have suddenly been reinterpreted as unsustainable. The change is seriousbecause, as the financier George Soros has pointed out, the market can sometimes imposeits expectations, even when they are irrational.
Given markets' obvious failings, a profound reform to theinternational financial system is required. In recent years, only superficial measureshave been applied in this area, and there have been some major strides backward too.
"The idea that it was possible to isolate the Argentine crisis, without generating 'contagion' collapsed like a house of cards." The delay in the International Monetary Fund's support for Argentinafurther worsened financial markets' hyper-sensitivity to Latin America. The idea thatit was possible to isolate the Argentine crisis, without generating 'contagion',collapsed like a house of cards.
Faced with current tension regarding the recovery of the real economy inthe United States and financial uncertainty, the hope is that the first of these optionswill prevail. Speculative pressures affecting the region's economies must also bedefeated. But recovery from the current moment's specific ills is not enough. Anoffensive on the part of the developing world in general and our region is required,pushing toward an international economic order that provides more guarantees againstfinancial turbulence, real openness to trade in the industrialized world, more rapidtechnological transfer, and international agreements on migration.
In our region, it is high time we learned the lessons of the past decadeof economic reforms. This would help us to consolidate achievements in terms of pricestability and dynamic exports and overcome the hardships involved in volatile,insufficient economic growth and this new development pattern's inability toguarantee equitable development. Countries should implement national strategies based onthree elements: macroeconomic policies whose timeframe is the overall economic cycle,which seek to reduce vulnerability to external financial cycles; an approach to developingproduction suitable to open economies, which strives to improve their internationalcompetitiveness and offer greater opportunities to small and very small firms; and moreactive social development policies that help to ensure that the benefits of growth reachthe entire population. This also requires political leadership to launch a profoundprocess of regional integration. This is the essence of ECLAC's proposals in recentyears and most recently, in its paper, Globalization and Development.