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.




The normalization of petroleum extraction activities after the destruction of the main pipeline by an earthquake at the beginning of the preceding year was the only dynamic factor of the Ecuadorian economy during 1988. Thanks to this normalization, the product rose and the balance of payments improved despite the slump in petroleum prices. Because of the large and growing public sector imbalance, however, inflation speeded up markedly. The economic policy fell into two separate periods, the dividing-point being the change of government. Thus, during the January-July period, the fiscal deficit got worse and the rate of variation of prices and of the exchange rate accelerated: thus, the annualized inflation rate for the first seven months reached 76%, while the free-market exchange rate in July was double the figure of the previous December. As the public sector imbalance was chiefly financed by money issue, the latter showed rapid growth.


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