Geneva, 2 April 2008 —To date, Latin American and Caribbean countries appear to be withstanding the effects of the financial crisis shaking the world economy since the summer of 2007. The region´s positive economic climate is based on the recent boom in commodity prices and increased foreign investment. Moreover, a number of countries are pursuing economic policies that are more expansionary than in the past.
Nonetheless, the risk of contagion cannot be ruled out, according to UNCTAD economists. To reduce the chances of such a development, greater coherence is needed at international level regarding financial issues through the establishment of a framework similar to that applied to international trade relations.
It is also necessary to reinforce national and regional markets through regional integration, currently showing a renewed dynamism in Latin America and the Caribbean. The creation of the Bank of the South, the revival of trade agreements and burgeoning joint initiatives, particularly in the field of energy, illustrate the region´s vigour. In addition, reinforced regional cooperation in trade and finance have widened countries´ margin of manoeuvre in economic policymaking and reduced their exposure to external shocks.
Coherence between economic development goals and international trade and finance policies is expected to figure prominently in discussions at the 12th session of the United Nations Conference on Trade and Development (UNCTAD XII), being held in Accra, Ghana from 20 to 25 April. The subject will be treated from a number of perspectives, including investment for development, the expansion of South-South cooperation and the surge in commodity prices. The wider aim is to contribute to achievement of the international community´s Millennium Development Goals.
In UNCTAD´s 2007 Trade and Development Report, the organization´s economists pointed out that regional cooperation need not conflict with the building of multilateral institutions. On the contrary, it can contribute to the development or reform of such institutions by making them more responsive to the needs and interests of developing countries, particularly the least developed.
Latin America and the Caribbean are recording their strongest economic performance since the end of the 1970s, with the region´s growth rate averaging about 4.7% a year between 2003 and 2007. But in contrast with other periods of economic recovery, current growth seems to have solid underpinnings. It is characterized by a balance of payments surplus – measured on a regional basis – moderate inflation rates and a more favourable budgetary situation, which facilitates the upgrading of infrastructure.
Moreover, trade volumes have increased and terms of trade improved considerably for certain countries. Trade surpluses are allowing countries to reduce their dependence on foreign capital, resulting in lower finance costs and greater room for manoeuvre in economic policymaking. With less need to borrow, countries are able to disengage from the conditions that often accompany external financing. In addition, a number of governments have renegotiated their contracts in extractive industries with transnational companies, allowing a bigger share of profits to go to the countries themselves.
The current financial turmoil appears to be contributing to high prices for certain primary products, such as gold, copper and oil, which are viewed as safe havens for investors. However, UNCTAD warns that this situation may not necessarily continue. A sharp global economic downturn would have a serious impact on the region, especially if growth slows in Asian countries, where demand for commodities has been very strong in recent years. It is therefore necessary for Latin American and Caribbean countries to take advantage of the current climate to develop their productive capacities and reduce dependence on unprocessed commodity exports and labour-intensive manufactured goods, including assembly industries.
In addition, their development must be based on a multilateral approach. This is the only way to meet national and global challenges, such as the necessity of meeting growing energy needs at a time of rising prices while at the same time facing the problems posed by climate change.
Also essential for the region are progress in international trade negotiations as well as efforts to restructure the international financial system.