Even without the terrorist attack on 11 September, 2001 would have gone down in historyas the end of one of the most notorious speculative booms in the worlds economy.
We learned, yet again and in contrast with the odd theory that some years ago predictedthe end of economic cycles, that economic fluctuations are the very essence of oureconomic system. The terrorist attack deepened this tendency and turned the most profoundslowdown in the past two years into an open worldwide recession. Moreover, it generatednew uncertainties. We can guess, but in the end don't really know what the truelong-term implications of this event will be.
The most positive aspect of the world's economic situation has been the rapid andsolid response of the US' economic authorities. Following Keynesian recommendations(which some analysts had also buried) they responded to slowing demand by slashinginterest rates and fiscal spending. The European authorities have been more reluctant totake some of these measures. The cost has been a deceleration much stronger than forecast,and a possible recession. The Japanese authorities, for their part, started arestructuring process whose short-term impact has been adverse.
In Latin America and the Caribbean, the size and speed of this slowdown took mostanalysts by surprise. Unlike the two previous crises (1995 and 1998-1999), this one isgeneralized and the decisive element is the decline in export growth, by volume, from 12%in 2000 to 2% in 2001. This has combined with a rather general reduction in commodityprices. The drastic fall in tourism, which has hit the countries of the Caribbean basinvery hard, was one immediate consequence of the terrorist attacks: its effects continue,although they have weakened lately.
Private capital flows have played a much less important role as a crisis transmissionmechanism toward Latin America. Since the Asian crisis, however, these flows have becomeerratic and financial conditions (maturities and costs) unfavourable. The positive effectsof the recent decline in international interest rates will be felt eventually, but to datethey have been offset by the scarce availability of financing and rising risk margins.
In any case, the abrupt turnaround in the capital account hit Argentina particularlyhard, although contagion has been much more limited than in previous episodes, affectingprimarily Mercosur countries and tending to disappear in the last months of the year. Themost important new element was the decline in foreign direct investment, although thecorresponding amounts remain high.
The vulnerability of our economies has been revealed yet again. The slow growthsequence in 2001 (0.5%) and 2002 (1.1%) is the worst for two consecutive years since thelate 1980s.
Almost all countries, however, have managed to avoid allowing these adverse conditionsto translate into a financial or balance of payments crisis. This is the most positiveelement and reflects the greater credibility enjoyed by macroeconomic authorities. Somecountries have made moderate use of the state as a cushion for these kinds of shocks. Mosthave flexible exchange rates that improved their competitiveness in this sense, and inseveral cases they used the margin available to their central banks to reduce nationalinterest rates.
Nonetheless, reflecting the generalized climate of uncertainty, credit has notsignificantly reactivated in any country.
The succession of crises that have affected the region and the whole world in the pastten years have made clear the need to adopt a broader view of macroeconomic stabilitythat, aside from achievements in reducing inflation and fiscal control, must advancetoward reducing these enormously volatile growth rates, recovering opportunities formacroeconomic policies that can counteract, instead of deepening, economic cycles.
It is also clear that the time has come to attack the weaknesses in our financial andproductive systems much more thoroughly. These are reflected in trade deficits and theneed for high and ongoing financing, even during periods of powerful economicdeceleration. To do so, countries must adopt the kind of open economy oriented policiesfor systemic competitiveness that ECLAC has been proposing for the past decade. Solidregional integration is an essential part of this proposal and in the long-term wouldconstitute our best mechanism for joint defence, but to do so requires bringingcountries' different macroeconomic regimes more into line with each other.
It is quite evident that our development is critically dependent on a favourableinternational environment, composed of dynamic, open industrialized economies and amuch-improved international financial architecture that corrects the strong, pro-cyclicbias typical of developing countries' macroeconomic management.