Latin America in a Global Context - Economic Briefing January 2002

First Signs of Hope for the Global Economy on the Horizon - No Argentina Spill-overs

Argentina defaults and devalues

In Latin America, the Argentina crisis dominated the news.  On 21 December, President De la Rúa resigned from office amid severe social unrest, which included nationwide violence and looting.  After a brief period with changing governments – technically the country had five Presidents within two weeks – the former governor of Buenos Aires, vice president and representative of the populist wing of the Peronist party assumed the Presidency on 2 January 2002.  Duhalde quickly put an end to the 3D guessing game (default, devaluation, dollarisation) and abolished the dollar peg that was in place since 1991.  The new administration also announced the country’s official bankruptcy and intention to default on its debt service payments on the US$ 132 billion in outstanding public debt. 

Regional growth outlook deteriorates amid Argentina recession

Since the breakdown was largely expected, the final announcement caused very limited contagion within the region.  In fact, Brazil and Mexico both issued new debt in the international bond markets following the Argentine devaluation and default announcement and both, the Brazilian Real and the Chilean Peso continued their recovery from the Argentina-induced weakness earlier in 2001, unperturbed by the events in the neighbouring economy.  The absence of contagion notwithstanding, the forecast for 2002 GDP growth in Latin America was lowered half a percentage point since last month.  However, rather than spillover effects from Argentina to other economies in the region, the downward revision is mainly due to adjustments in that country itself as forecasts were slashed in an unprecedented manner.  The Argentine GDP growth forecast for this year was lowered from the 0.2% decline expected last month to a full blown 5.3% contraction, which will mark the fourth year of recession in Argentina.  The only other country to experience a significant downward revision was Venezuela, where growth forecasts were lowered by 0.9 percentage points from last month to 1.1% growth.

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing for Latin America.  For more details please click here.

For five-year forecasts, please click here.

Country briefings: Argentina    Brazil    Chile    Colombia    Mexico    Peru    Venezuela

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