As a result of the efforts to balance budgets and keep monetary policy tight growth, which was a modest 3.3 per cent in 1995, will remain stable at 3.4 per cent this year before picking up to 4 per cent in 1997, according to forecasts from the Paris-based OECD. But even at these relatively calm levels, after the 6 per cent expansion seen in 1994, Latin America promises to be one of the most robust developing regions of the world in the mid-1990s.
Its success story has been built on a series of market oriented reforms aimed at increasing economic efficiency at all levels and reversing the enlarged role for the state, which followed the debt problem of the mid 1980s. The major economies led by Chile, Mexico, Argentina and Brazil, have fought to remove controls over exchange rates, interest rates and prices, moved to deregulate markets, liberalised trade and trade finance, and privatised public enterprises.
In most cases the reforms were implemented in a 'big bang' way, particularly in Argentina, Mexico and Peru. However other countries, such as Chile, have been moving towards a more market oriented economy last seen in the 1970s. In Brazil reforms are advancing - but slowly - because of the difficulty in securing political consensus in a large and diverse country.
An important part of the re-emergence of Latin America - which during the 1994-5 Mexican problem made the region less vulnerable to external shocks - has been the rising significance of intra-regional trade. Plainly for Mexico and several of the smaller Central American and Caribbean countries, the key relationship is with the large neighbour to the North - the United States.
However, despite the interest expressed by several Latin American countries in becoming part of the North American Free Trade Area (NAFTA), Washington is not in a hurry to broaden this arrangement. Thus intra-regional trade, of the kind which has become of increased worth in regions as different as Europe and East Asia, has become a serious alternative. This also offers opportunities for further integration of payment systems and transport infrastructure across the region. And potentially the most lucrative air routes could be intra-regional in the future, rather that the traditional long-haul connections to North America.
A new study, Regionalism and the Global Economy by Roberto Bouzas and others, points to landmark changes in the reciprocal trade within Latin America in the 1990s. Since the emergence of more liberalised markets at the turn of the decade, the total intra-regional exports of the continent have doubled. By the end of 1994 reciprocal trade among the Latin America nations covered some 22 per cent of total exports of goods, capturing nearly two-thirds of the increase in exports of the region in 1990-4. For most Latin American economies intra-regional trade has become the main external engine of economic growth.
What is really encouraging is that this growth has been based upon manufacturing exports, rather than the more traditional agricultural business of the continent. In this way regional trade integration has contributed to a dynamic transformation of the manufacturing sectors of the regional economies.
In contrast with East Asia, the main instrument of trade reform has been the rapid liberalisation of imports. As part of the transformation from centralised controlled economies, which took place in the early 1990s, the quantitive restrictions on trade were swept away and tariffs lowered significantly.
Although no country has yet adopted a zero tariff rate, as would be required in a free trade area, Chile has brought its tariffs down to a relatively modest 11 per cent as has Bolivia, and a number of other countries now have average tariff rates in the 10 to 18 per cent range.
The drive towards lower tariffs and greater intra-regional trade has been partly politically led. There has been an extraordinary proliferation of trade agreements including an ever widening and overlapping group of countries. The main sub-regional integration agreements are the Central American Common Market, the Caribbean Community (CARICOM), the Cartagena Agreement and the Southern Common Market (Mercosur). Of these Mercosur is the most recent, incorporating Argentina, Brazil, Paraguay and Uruguay. In addition to the main intra-regional accords, there are some 300 other limited agreements, each of which has moved Latin America along the road to greater integration.
Of the trade blocs, Mercosur is the most promising with its ambitious commitment to extend free trade to all goods produced in member countries. This agreement, forming an integrated market of more than 200 million people with a gross domestic product of $700 billion (49 per cent of the continent's total), is pivotal to Latin America's future. It has already demonstrated its ability to act as a force for stability when external confidence is threatened, as it was at the start of last year.
As Mercosur becomes the pole for Latin American trade integration, it will form the basis of a genuine Latin American common market which will spread from trade in physical goods to financial services and infrastructure. As such, it could become a genuine counterweight to North-South trade with the US and Canada, always Latin America's most promising avenue.
Alex Brummer
Source: Airline Business
