OECD Economic Outlook 69 - Biblioteca Hegoa

138 - OECD Economic Outlook 69
… notably because domestic
financial sectors are still fragile
South America has recovered,
but restoring confidence in
Argentina required a large
financial package
45 and 65 per cent of total exports, are particularly exposed in this respect. Overall,
average real GDP growth for the Dynamic Asian Economies is expected to slow
from around 7 per cent in 2000 to 4 to 5 per cent in 2001. Import growth is likely to
slow even more sharply as weaker export growth sparks inventory de-stocking. The
risks posed by the weakening of external demand are increased by the fact that the
recovery in domestic demand is not yet firmly established. The nascent revival in
capital spending faces at least a temporary cut, and perhaps a more durable period of
retrenchment. Growth in Asian non-members could rebound in 2002 if the United
States’ economy recovers and demand for computers and other electrical products
revives with the completion of adjustment in those sectors.
The possibility of a greater than projected slowdown in Europe and Japan, or a
sharp fall in the dollar, pose further downside risks to the Asian non-member outlook.
Slower growth has highlighted serious remaining private sector debt and other structural
problems that in some cases now appear worse than anticipated. Earlier optimism
about economic fundamentals in Chinese Taipei has been seriously dented by the rise
in non -performing loans in 2000. Such loans are still almost 19 per cent of total bank
loans in Thailand and nearly 10 per cent in Malaysia and could start to rise again as the
economies slow (see Box III.1). The sharp drop in equity prices in many Asian countries
since early 2000 is symptomatic of investor concerns over lingering structural
problems but is also likely to damp consumption demand where households hold a significant
amount of equity, notably in Chinese Taipei and Hong Kong, China. Despite
these risks, a re-emergence of crisis conditions remains unlikely, given the large current
account surpluses, high international reserves, and a considerably improved level and
structure of external debt compared with that prevailing before the 1997 crisis.
Although fiscal policy is constrained by the growth in expenditures and budget deficits
in the aftermath of the 1997 crisis, most countries retain significant room to sustain or
even reinforce expansionary monetary policy, and their room for manoeuvre has been
further increased by declining US interest rates.
Most South American countries have experienced a growth recovery over the
past year, although with varied strengths. While activity has been strong in Brazil
and Chile, economic expansion has been modest in most other countries partly due to
fiscal consolidation efforts. Strong growth in international trade and higher export
prices were the key factors supporting the recovery. The more rapid growth of
exports than imports in South American countries has also narrowed the current
account deficit for the region and foreign capital inflows have continued to finance
the gap, with a major role played by foreign direct investment. In Venezuela and, to a
certain extent, Colombia, oil revenues have helped balance fiscal and external
accounts, thus removing some growth constraints and smoothing social and political
problems. In Ecuador, strong oil revenues are also easing the transition towards
“dollarisation”. In Argentina, however, the overvalued exchange rate continued to erode
competitiveness and perpetuated a large external deficit. At the same time, tight macroeconomic
policies were needed to meet the constraints of the currency board. As a
result, the economy stagnated. By the end of 2000, the country was threatened by a
financial crisis, and so negotiated an exceptional financial assistance package. 1 To
1. The preventive financial package of $40 billion over a two-year period (2001-02) involved a broad set
of lenders. It included the International Monetary Fund ($13.7 billion), the World Bank ($2.5 billion),
the Inter-American Development Bank ($2.5 billion), the government of Spain ($1 billion), and institutional
investors and local market makers that agreed to purchase government securities (up to
$20 billion).