The frequency and intensity of economic cycles has become one of the most worrisomeelements within the world economic order. In 2001-2002, Latin America experienced itsthird sharp slowdown in productive activity in less than a decade. This time it is aworldwide crisis, the worst in 20 years. Its epicentre has been the US economy, the enginedriving the world economy during the 1990s. Its effects were already strongly felt before11 September, but this terrorist event will end up delaying reactivation in the UnitedStates by three quarters and, above all, has added a heavy load of uncertainty. The mostimportant compensatory element has been the prompt response of US economicauthorities': they have slashed interest rates and adopted fiscal programs thatshould help to reactivate expenditure

The most important transmission channel of the crisis has been trade. World trade wentfrom 12% real growth in 2000 to stagnation in 2001. This deceleration, of 12% in one year,is unprecedented. Its impact on Latin America has been profound. In real terms, exportswent from 12% growth to a thin 2%. Commodity prices also plunged, pushing exports by valueeven lower.

In financial terms, Argentina has experienced a sizeable shock, worth some US$23billion, just over 8% of its Gross Domestic Product. Brazil has also been shaken, whilethe impact in the rest of the region was more moderate. In fact, financial markets neverrecovered after the Asian crisis, with regard to developing countries. Since then,external financing for this region has been volatile and its conditions (maturities andcosts) unfavourable. Direct foreign investment, the most dynamic financing source duringthe 1990s has gone through its second year of contraction, although it remains high.

"No Latin American economy has escaped the effects of thecrisis."

The margins for action open to the economic authorities of our countries to cushion theinternational crisis have been limited. In fact, the current crisis has made patentlyclear the enormous asymmetry in the world's economy, in which industrializedcountries enjoy rather considerable room to manoeuvre in terms of anti-cyclical policies,while developing countries not only face more severe shocks, but also lack thispossibility, and in some cases are forced to adopt macroeconomic policies that accentuate,instead of weakening, the economic cycle. This shows beyond a doubt that one of the mostimportant reforms to the international economic system must be to expand the opportunitiesfor applying anti-cyclical macroeconomic policies, which on one hand avoid a situationwhere external booms translate into unsustainable expansion and on the other, provide moreroom for reactivation policies when a crisis hits.

Although the impacts have varied, no Latin American economy has escaped from theeffects of the international crisis. Amidst hopes that the still-incipient reactivation ofearly 2000 could last, the magnitude of the slowdown that hit the region's economiestook analysts by surprise. Moreover, throughout the year, the crisis has tended to spread.Because of this, Latin America grew modestly during the first half, only to facecontraction in the second. The adverse effects will continue to be felt during the firsthalf of 2002. Because of this, even with reactivation in the United States from the middleof next year on, slow growth in 2001 (0.5%, according to ECLAC estimates) will be followedby equally modest growth in 2002 (1.1%).