A preliminary overview of the Latin American economy during 1983

TL;DR: In this article, the Executive Secretary of ecla gives an overview of the evolution of the region's economy during the past year, looking at production, employment, inflation, and especially the external sector.

Abstract: In this article, the Executive Secretary of ecla gives an overview of the evolution of the region’s economy during the past year, looking at production, employment, inflation, and especially the external sector.

Summary

I Introduction

• The economic evolution of Latin America in 1983 was characterized by two main features.
• The second was the remarkable effort made by most of the countries of the region to reduce the serious imbalances that had been building up in the external sector over the last few years.
• In 1983, as in 1982, the crisis affected almost every country of the region and was evidenced in the deterioration of the main economic indicators.
• This surplus was exclusively due, however, to a new and spectacular drop in the value of imports of goods, which went down by close to 29% after having fallen by 20% in 1982.

2. Inflation

• Among the countries that have traditionally had moderate rates of inflation and in which the variations in the domestic level of prices have usually tended to follow those of international inflation, the rate of increase of consumer prices rose slightly in El Salvador and at a higher rate in Jamaica, Trinidad and Tobago and, especially, Paraguay.
• The rate continued to decline, on the other hand, in Barbados, Panama, the Dominican Republic and Venezuela.

a) External trade and the terms of trade

• The 1983 surplus of over US$ 31 billion was only achieved through a drastic reduction of imports, which dropped by almost 29%, after having fallen by 20% in 1982.
• The large-scale reduction in both the value and the volume of external purchases was, moreover, a widespread phenomenon.
• In countries such a Venezuela, Uruguay, Mexico, Peru, Argentina and Chile, the contraction of the volume of imports was so spectacular as to reveal clearly the enormous magnitude of the adjustment effort that had been made.

Index

• As in 1982, the decrease in the terms of trade was more pronounced in the oil-exporting countries than in the other economies of the region.
• Nevertheless, since the terms of trade of the latter had already deteriorated sharply over the last five years, not only was the relevant index around 30% lower in than in 1978, but it reached the lowest level of the last half-century.
• Among the oil-exporting countries, on the other hand, the deterioration in the terms of trade during the last two years did not offset the remarkable advance that had been made during the biennium 1979-1980.
• Their volume grew even more (9%) in the non-oil-exporting countries, thus marking the resumption of the vigorous growth which had taken place since the beginning of the 1970s and which had been interrupted in 1982 .

) The balance of payments

• Because the value of imports decreased, much more than that of exports, the merchandise trade balance underwent another significant change in 1983.
• In Venezuela, the trade surplus of over US$ 9.3 billion almost tri-pled that of 1982, despite the fact that, as in 1982, the value of exports fell significantly.
• In 1983, the net inflow of capital was also smaller than the deficit on current account, a situation which had already occurred in both 1981 and 1982.

c) The external debt

• According to very provisional estimates, by the end of 1983 the total external debt of Latin America amounted to approximately US$ 310 billion.
• In 1983, these banks granted virtually no new autonomous loans to the region, channelling their credit through the renegotiations of the external debt initiated by several Latin American countries.
• This was partly due to the pressure brought to bear by the International Monetary Fund to induce the banks to refinance part (usually around 50%) of the interest earned, as a contribution to dor, Guatemala, Haiti, Panama and Paraguay, requested a rescheduling of their external debt payments.

Ill External financing and the real transfer of resources

• The abrupt adjustment of the balance-ofpayments current account which took place in 1983 was enforced, to a large extent, by the no less violent contraction of the net inflow of capital.
• The negative impact of this sharp drop in the net inflow of capital becomes even more obvious when one compares the amount of capital received with the value represented by net payments of interest and profits, which in 1983 exceeded, for the second year in a row, that of net loans and investments received.
• This attitude was clearly evidenced for the first time in 1982 and persisted in 1983.
• Thus, according to figures provided by the Bank for International Settlements, new loans granted by private banks to Latin America (excluding Venezuela and Ecuador) fell from US$ 21 billion during the second half of 1981 to US$ 12 billion during the first half and barely US$ 300 million during the second half of 1982.

Final conclusions

• The unique profile of the Latin American economic crisis.
• For most of the countries, the reduction of income during the period 1982-1983 has meant going back to the standard of living of several years ago.
• It is no less true, however, that the serious balance-of-payments crisis with which Latin America has been faced in recent years may be attributed, to a large extent, to external causes which by their very nature are beyond the control of the countries of the region.
• The combination of these factors had another serious consequence: investment slumped, and in some countries a significant proportion of installed capital deteriorated or was destroyed, as many enterprises went out of business.
• Some countries which had already followed cautious policies with respect to foreign debt were better able to cope with the adverse effects of the international situation.

Full text

CEPAL
Review
Director
RAUL PREBISCH
Technical Secretary
ADOLFO GURRIERI
Deputy Secretary
GREGORIO WEINBERG
UNITED NATIONS
ECONOMIC COMMISSION FOR LATIN AMERICA
SANTIAGO, CHILE/APRIL 1984

CEPAL
Review
Number 22 Santiago, Chile April 1984
CONTENTS
A preliminary overview of the Latin American economy during 1983.
Enrique V.
Iglesias,
Executive Secretary, ECLA. 7
Latin American Economic Conference. 39
The crisis in Central America: its origins, scope and consequences. 53
Past, present and future of the international economic crisis.
Osvaldo
Sunkel 81
The burden of debt and the crisis: is it time for a unilateral solution?
Robert Devlin
107
Energy and the prevailing model of agricultural technology in Latin America.
NicoloGligo 121
Latin American commodity exports. The case of cotton fibre.
Alberto
Orlandi.
137
The global crisis of capitalism and its theoretical background.
Raúl
Prebisch.
159
Recent ECLA publications. 179

CEPAL REVIEW
No. 22
A preliminary
overview
of the
Latin American
economy
during
1983
Enrique
V.
Iglesias
Executive Secretary, ECLA
In this article,
the
Executive Secretary
of
ECLA
gives
an
overview
of the
evolution
of the
region's economy
during
the
past year, looking
at
production, employ-
ment, inflation,
and
especially
the
external sector.
In his 'Final Conclusions', the author notes that
the
profound crisis through which
the
countries
of
Latin
America
are
passing
has
forced them
to
apply adjust-
ment policies aimed
at
bringing
the
external sector
back into balance.
The
economic
and
social conse-
quences
of
these policies have been exaggerated,
however,
by the
fact that they have
had to be
carried
out
at a
time
of
worldwide recession, they have been
accompanied by
a
massive contraction
in the
net inflow
of capital,
and
they
are
based
on
instruments which
reduce demand
and
fail
to
take advantage
of
national
production capacity.
In order
to
reverse these trends,
the
countries
should orient their policies towards
an
'expansive
adjustment' based
on a
solid process
of
reactivation.
Among the main factors conditioning the achievement
of this objective,
the
author mentions
the
refinancing
of
the
external debt,
the
evolution
of
external trade
(both within
the
region
and
with
the
rest
of
the world),
the reduction
of
inflationary pressures,
and the re-
structuring
of
growth patterns
to
strengthen produc-
tion
and
export capacity
(in
this respect, see
the
Quito
Declaration
and
Plan
of
Action reproduced elsewhere
in this issue
of
C;EPAI.
Review).
The author stresses that
in
tackling these condi-
tions
it is
necessary
to
review both
old
ideas
and
some
newer ones. With regard
to the
latter,
he
reminds
readers
of
the serious consequences brought about
by
strategies based
on
extensive financial
and
trade links
with
the
exterior when
the
international parameters
underwent
a
sudden
and
prolonged change.
I
Introduction
The economic evolution
of
Latin America
in
1983
was
characterized
by two
main features.
The first was
the
aggravation
of
the crisis which
began
in 1981 and
which
by 1982 had
become
the most serious one experienced since the Great
Depression
of the
1930s.
The
second
was the
remarkable effort made by most
of
the countries
of
the
region
to
reduce
the
serious imbalances
that
had
been building
up in the
external sector
over
the
last
few
years.
In
1983,
as in 1982, the crisis affected almost
every country of the region
and
was evidenced
in
the deterioration
of the
main economic indica-
tors. Thus, according
to the
preliminary esti-
mates available to ECLA, which are shown
in
table
1,
the
gross domestic product
of
Latin America
as
a
whole dropped by
3.3%,
after having already
decreased by 1%
in
1982; as
a
result of this drop
and of population growth, the per capita product
fell by 5.6%
in
the region as a whole
and
declined
in
17 of the 19
countries
for
which comparable
information
is
available.
Inconsequence of this downward movement
and
of
the fact that
it had
also fallen during
the
two preceding years,
the per
capita product
of
Latin America
was
almost
10%
lower
in 1983
than
in
1980
and
was back
at the
level
the
region
had reached
in
1977. National
per
capita income
dropped even more sharply (-5.9%),
as 1983
brought
a
further deterioration,
for the
third
year in a row, of the terms of trade
for
the region
as
a
whole, and,
for
the sixth year
in a
row, of the
terms
of
trade
of the
non-oil-exporting Latin
American countries.
The
terms
of
trade
for the
latter showed
a
total decline
of
38%
by
compari-
son with 1977
and, for the
second year
in a row,
sank even below
the
level reached during
the
worst times
of the
Great Depression.
The slowdown
of
economic activity
was
accompanied
by a new
rise
in
urban unemploy-
ment rates
in
almost every country
for
which
relatively reliable data
are
available.
In
spite
of
this, inflation accelerated spectacularly, as
it had
over
the
last three years, reaching record highs.
The simple average rate of increase of consumer
prices climbed from 47%
in
1982
to
68%
in 1983
and the rate weighted by population soared even
more sharply, from
86% in 1982 to 130% in
1983.

CEPAL REVIEW No. 22 / April 1984
In its turn, the extraordinary effort made by
the region to adjust tp these problems was re-
flected in radical changes in the external sector.
Thus,
in 1983 Latin America achieved an unpre-
cedented merchandise trade surplus. Merchan-
dise trade, which up to 1981 had regularly shown
a negative balance, but which by 1982 had re-
corded a surplus of over US$ 9.7 billion, gener-
ated a surplus of almost US$ 31.2 billion in 1983
(see figure 1). This surplus was exclusively due,
however, to a new and spectacular drop in the
value of imports of goods, which went down by
Table 1
LATIN AMERICA: MAIN ECONOMIC INDICATORS"
Gross domestic product at market
prices (billions of 1970 dollars)
Population (millions of inhabitants)
Per capita gross domestic product
(1970 dollars)
Per capita gross national income
(1970 dollars)
Gross domestic product
Per capita gross domestic product
Per capita gross national income
Consumer prices
1
Terms of trade (goods)
Current value of exports of goods
Current value of imports of goods
Exports of goods
Imports of goods
Trade balance (goods)
Net profit and interest payments
Balance on currents account*
1
Net capital movement
Global balance
f
Global gross external debt
8
1975
263
303
868
867
3.7
1.2
-0.3
57.8
-14.0
-7.1
7.0
35.0
40.4
-5.4
5.8
-13.7
14.5
0.8
89.4
1977
292
318
916
918
1978
305
326
936
929
Growth rates
5.0
2.4
2.5
40.0
6.0
18.9
14.8
4.7
2.2
1.3
39.0
-10.9
7.5
13.8
Billion» of dollars
48.2
48.3
-0.1
8.6
-11.7
17.3
5.6
107.3
51.8
55.0
-3.2
10.5
-18.3
26.4
8.1
133.0
1979
326
334
974
972
6.6
4.0
4.6
54.1
4.4
34.3
25.8
69.6
69.1
0.5
14.2
-19.6
29.0
9.4
166.4
1980
345
343
1007
1009
5.9
3.4
3.8
52.8
4.2
30.1
32.3
90.5
91.5
-1.0
19.0
-27.7
29.9
2.2
205.2
1981
350
351
997
985
1.5
-0.9
-2.4
60.8
-7.3
7.0
7.6
96.8
98.4
-1.6
29.1
-40.4
38.0
-2.3
257,9
1982
347
359
965
938
-1.0
-3.3
-4.8
85.6
-7.0
-8.5
-19.9
88.6
78.9
9.7
36.8
-36.4
16.6
-19.8
289.4
1983
h
335
369
911
883
-3.3
-5.6
-5.9
130.4
-7.2
-1.3
-28.7
87,5
56.3
31.2
34.0
-8.5
4.5
-4.0
309.8
Source:
ECLA,
on the basis of official figures.
a
Product, population and income figures refer to the group formed by the countries included in table 2, except Cuba.
Consumer price figures refer to those 19 countries plus Barbados, Guyana, Jamaica and Trinidad and Tobago,
except in the year 1982, when Guyana is excluded, and in 1983, when Guayana and Haiti are excluded. The figures
for the external sector relate to those 19 countries plus Barbados, Guyana and Trinidad and Tobago, except for the
figures on the external debt, which relate to the original 19 countries plus Guyana.
b
Provisional estimates subject to revision.
c
Variation from December to December.
d
Includes net unrequited private transfer payments.
e
Includes long- and short-term capital, unrequited official transfer payments, and errors and omissions.
' Variation in international reserves (with inverted sign) plus counterpart entries.
« 1975 to 1980: includes officially guaranteed public and private external debt, plus non-guaranteed long- and
short-term debt with financial institutions reporting to the Bank for International Settlements. Does not include
guaranteed and non-guaranteed debt with other commercial banks nor non-guaranteed supplier loans. 1981 to
1983:
includes official estimates of the total external debt, which means that the figures have a wider coverage and
are not strictly comparable with those of the previous period.

A PRELIMINARY OVERVIEW OF THE LATIN AMERICAN ECONOMY DURING 1983 /
Enrique
V.
Iglesias
9
Figure 1
LATIN AMERICA: MAIN ECONOMIC INDICATORS
—¿7^
1
^
Gross
domestic
product
3
i 1 I 1 1
Gross
domestic
income
3
V
1
J^^J^0^^ ~"\
1 1 1 1 1
\v
X
1 1
^v
1
-
-
-
Net movement of capital
cd
\
10
8
6
4
2
0
-2
-4
Balance on current /
account'
Net factor payments
X
J L J L
X
J
L
40
20
0
-20
-40
1970 71 72 73 74 75 76 77 78 79 80 81 82 83
Source:
ECLA,
on the basis of official information.
3
Annual growth rate.
b
Weighted percentage variation from December to December.
c
Includes short-, medium- and long-term capital, unrequited official transfer payments and errors and
omissions.
d
Billions of dollars.