CEPAL Review - Volume 2007, Issue 93, 2007

This paper argues that the recent boom in the Latin American economies can be explained by the conjunction of two external factors not found together since the 1970s: strong commodity prices (more so for hydrocarbons and mining products than for agricultural commodities) and exceptional external financing conditions. Concerning the latter, the key development was the massive influx of capital during two periods of “exuberance” in international financial markets (between mid-2004 and April 2006, and between mid-2006 and mid-2007), particularly the second. It also argues for the importance of spreading and consolidating Latin America’s two great (and complementary) macroeconomic policy innovations of recent years: countercyclical fiscal management (still confined to just a few countries) and active intervention in currency markets. Such intervention needs to be based on a growing recognition that the real exchange rate ought to be an explicit goal of macroeconomic policy.

The focus of this paper is on policies that set out simultaneously to control the exchange rate and monetary conditions (an instrument interest rate, for example) in situations where capital mobility is unrestricted, there is an excess supply of international currency and the central bank sets targets for the exchange rate and interest rate. The paper calculates how high the local interest rate can go at any time without rendering monetary sterilization policy unsustainable, defines the degree of monetary autonomy as the difference between this rate on the one hand and the sum of the international interest rate and the rate of increase in the exchange rate on the other, and analyses how the degree of autonomy evolves. Numerical examples using data from Argentina and elsewhere suggest that sterilization policy is sustainable and that a considerable degree of monetary autonomy exists in contexts that are by no means unusual in many developing economies.

This article examines trends in public spending in Latin America from the mid-1990s to 2006. It also examines key policy issues, including the cyclicality of spending, public investment, public employment and social spending, finding that primary expenditures as a share of gross domestic product have trended upward for the past ten years, driven by increases in current spending, in particular for social expenditures. Fluctuations in real spending have continued to follow a pro-cyclical pattern. The authors conclude that there is substantial scope to improve the efficiency of public investment, public employment and social spending.

This article analyses current attempts to interpret the factors underlying long-term economic growth, paying special attention to the Latin American case. It discusses both the interpretations whose advocates claim that geographic conditions have a decisive role in shaping the development process and those according to which colonization is seen as giving rise to an institutional framework ill-suited for development. The author -based on his own estimates- emphasizes the importance of market access and the effect of social fragmentation on the establishment of an efficient and credible institutional framework. The article concludes with a discussion of the impact of inequality on both the quality of institutions and the dynamics of growth.

The high growth levels projected for China and India will make these two countries the most important pole of the global economy for the next few years, creating a market of great potential for Latin American and Caribbean exports. These markets had remained largely untapped until recently, with the exception of certain South American primary products. Latin America should strengthen its ties with the two Asian countries, in order to increase production synergies with them. Free trade agreements and trade and investment partnerships should also be established, in order to increase access to both markets and facilitate insertion into Asian production and export chains.

The Agreement on Textiles and Clothing (ATC) of the World Trade Organization (WTO), and the restrictions deriving therefrom, expired on 1 January 2005. This article quantifies the expected effect of the phasing out of ATC in the context of the free trade agreement between Central America, the Dominican Republic and the United States (DR-CAFTA). We argue that, other things equal, Central America and the Dominican Republic will obtain a smaller share of the United States market, owing to stronger competition from Asian countries, the consequent market reorganization, the rise of the “full package” system, and the lesser competitive advantage afforded by low wages in the value chain of the textile and clothing sectors. In the post-ATC era, other factors, such as just-in-time production and specialization, are the keys to competing advantageously on the international market, given the trend of integration in the links of that chain.

The gains from trade argument is based on the principle of comparative advantage. However, this principle is predicated on “tacit” axioms, presenting an argument which supports a proposition different to the one it purports to prove. This paper presents an alternative treatment, using a leader-follower model to show that free trade can in fact accentuate differences and growth disparities between countries. More importantly, it argues that the follower economy can catch up with the leader economy only if the ratio between the income-elasticity of the follower country’s exports to the rest of the world and the income-elasticity of its imports is greater than the ratio between the induced productivity of the leader and that of the follower country. This is our rule for convergence.

One part of Peru’s population failed to benefit from the economic boom in 2002-2006, among other reasons because of the deep- rooted productive heterogeneity present in the Peruvian economy. In 2006, microenterprises and self-employed persons with family workers accounted for 53.4 % of total employment, but productivity and average labour incomes were very low in that segment. As the corresponding incomes grew very slowly between 2002 and 2006, the gain in well-being was very slight despite the boom that was being experienced elsewhere in the economy. Looking to the future, it will be essential to develop policies targeted on microenterprises with competitive potential, to achieve rapid productivity growth that raises the well-being of their employees. It will also be necessary to recognize that the impacts of economic policy differ between microenterprises and larger firms, so that specifically targeted measures can be designed to improve microenterprise competitiveness.

This article analyses the phenomenon of pluriactivity in family farming in the south of Brazil, based on a research project funded by the Brazilian National Council for Research and Development. The methodology used compares farms whose families live exclusively from agriculture, with those whose social reproduction depends also on non-farm activities or who practise “pluriactivity”. On the question of ownership succession, we found that the phenomenon studied here does not alter traditional mechanisms of succession and inheritance on the family farm. The farms that are most under threat are those with the lowest incomes, whatever their situation in terms of pluriactivity; but the latter is not necessarily a feature of the economically weakest farms.