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Economic Survey of Latin America and the Caribbean 1999-2000

image of Economic Survey of Latin America and the Caribbean 1999-2000

This summary provides an assessment of the Latin America and the Caribbean region's economy during 1999 and the first half of 2000. It presents an overview of each country's external sector, macroeconomic policy, activity levels, inflation, employment, saving and investment. The publication contains thirteen statistical tables.

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Brazil

The Brazilian economy had been quite fragile since late 1997, and in early 1999 this situation deteriorated into a full-blown crisis. The country’s balance-of-payments position, which was already highly vulnerable to external shocks because of the country’s large fiscal deficit and overvalued currency, was further complicated by a downturn in the terms of trade and a sharp reduction in capital flows to emerging economies, when it became impossible to continue defending the currency within the framework of the crawling peg system then in use, the exchange-rate band had to be abandoned and the currency was allowed to float freely. The result was an abrupt devaluation. The Central Bank responded to the instability of the exchange rate with a steep interest-rate hike. Interest rates were later reduced, however, and by the end of the year they had settled back to rates near their pre-crisis levels. These measures were accompanied by a policy of fiscal austerity directed at reducing the high public-sector deficit. An agreement with the International Monetary Fund (IMF) provided access to an ample supply of external financial resources, and this helped to stabilize the volatile exchange market. In order to provide guidelines as to its future decisions, the Central Bank chose to set specific inflation targets. Meanwhile, although the pace of privatizations slowed, progress was made on reforms in the social security system.

English

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