Caribbean, Latin America weathered recession better than other regions - report

The World Bank says Latin America and the Caribbean region "decisively outperformed" many others during the recent recession with a decline in growth smaller than that of the middle-income country average and with a rebound that was "swifter and stronger".

In a new report, titled Latin America and the Caribbean's Success Put to the Test, the Washington-based financial institution said that the region's growth of about six per cent last year exceeded the growth rate of Eastern Europe and Central Asia and the rate of high-income countries by more than three percentage points.

It said several South American countries have registered a "remarkably vigorous recovery," with growth rates that exceeded 7.5 per cent last year.

In contrast, the bank said economic activity in many countries in Central America and the Caribbean, particularly the English-speaking nations of the Caribbean, expanded at rates in the one to three per cent range.

It, however, said that negative growth rates were registered for very few countries in the region, notably Jamaica (-0.1 per cent), Venezuela (-1.4 per cent), and Haiti (-8.5 per cent).

As a whole, the World Bank forecast the region's gross domestic product (GDP) to be in the four to five per cent range in 2011, a rate similar to that expected of the East Asian Tigers.

It said inflation rates this year are also expected to remain below two digits at around six to seven per cent.

The report, prepared for the World Bank and International Monetary Fund meeting later this year, also explored in greater detail the nature of the recovery in regional countries in contrast with past performance and that of other middle-income countries.

It said top among those differences are a strong public and private consumption, noting that aggregate domestic demand has outpaced GDP in the post-crisis, just as net exports have been declining.

But the bank warned that the region's "vigorous and exemplary" recovery does not necessarily mean smooth sailing ahead, stating that external and internal risks "loom large, and those countries recovering more robustly face conflicting policy challenges."

Externally, it said the region's prospects are dependent on the pace of recovery in advanced economies and the surge in commodity prices.

The bank said the recent natural and nuclear disaster in Japan and the implications from the political turmoil in the Middle East and North Africa "portend less favorable economic conditions".

"Internally, faced with the combined challenges of inflation, local currency appreciation, and the prospects of economic overheating, central bankers struggle to find the right balance to keep, for instance, interest rates high enough to check inflation but not too high to attract speculative foreign capital," it said.

Augusto de la Torre, the World Bank's chief economist for Latin America and the Caribbean, said "these complexities raise the premium on skilful policy.

"Contrary to popular perception, the quality of macro-financial policy is being more subtly and perhaps more severely tested in the midst of the current buoyant juncture," he said.

De la Torre said the current policy mix seems to be "unduly burdening monetary policy, with insufficient help from the fiscal side".

Particularly in countries experiencing a major commodity windfall, he said stepping up fiscal savings, without endangering social programs, will be "essential to rebuild the buffers that helped the region successfully manage the crisis".

The report said that achieving the right balance of policies is essential, although not sufficient, to improving long-term growth prospects.

"For countries in the region, such prospects remain elusive and, in fact, would be unthinkable had the region not achieved the macroeconomic stability that now seems a given, as well as important inroads against second-to-none inequality," it said.

- CMC