Economic Survey of Latin America and the Caribbean 1988

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In 1988, the economic crisis of Latin America and the Caribbean took a dramatic turn. For the first time since the 1981-1983 recession, the per capita product declined to a level equivalent to that of 1978; inflation almost quadrupled to an unprecedented average of 760%, and real incomes declined in most of the countries.




After recovering in 1987 the level which it had reached before the crisis, the Venezuelan economy grew by more than 4% in 1988. However, the bases of this dynamism showed themselves to be more and more fragile, as the imbalances in both the domestic and the external accounts got worse. Thus, the promising recovery of public investment was accompanied by a bigger fiscal deficit which reached 3% of the product and was largely due to a drop in the value of oil exports. Ultimately, it was financed by a marked draw-down of the international reserves. Consumption increased considerable, although in good part it went to accumulate stocks, since tighter external constraints and the deterioration of the fiscal position made the maintenance of the economic poney uncertain and suggested there might be an imminent major devaluation. At the same time, inflation (which had reached the unprecedented level of 40% the previous year) went down only slightly, with the result that its rate was double that of the average for the previous decade, and it tended to speed up again during the second half of the year. In the external sector, the balance on merchandise trade was negative for the first time since 1978, while the deficit on current account increased to US$5 billion: a figure equivalent to almost 10% of the product. The international reserves, for their part, shrank by more than 30%, and by the end of the year they were at such a low level that the authorities prepared to suspend amortization payments on the debt and reopened negotiations with the creditor banks.


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