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uncertainty generated by the crisis in the advanced economies
and signs of a slowdown in the emerging economies,
including China.
Other variables, such as the appreciation of the dollar
against the euro and escalating risks in international markets,
also had a dampening effect on commodity prices,
which had been buoyant in the preceding years.
The International Monetary Fund (imf) forecasts an overall
reduction of close to 10% in commodity prices (except
for petroleum) compared with 2011, when they had soared
by 18%. A further fall of 2% has been predicted for 2013.
Petroleum prices, on the other hand, are expected to close
the year (2012) 10% higher and to decline by 4% in 2013
(imf, 2012).
These trends are taken into account by eclac (2012) in
its forecasts for the countries of Latin America, which is
expected to face a worsening of its terms of trade overall
but especially in mercosur and in hydrocarbon-exporting
countries.
If the predictions for flat growth in the euro zone economies
and tepid growth in the United States prove to be
accurate, international commodity prices will be volatile,
trending downward in 2012 and 2013. This volatility will
be due to uncertainty over global supplies of crude oil and
the outcome of the elections in the United States (above
all its impact on fiscal consolidation) and to negotiations
on rescue programmes and institutional reforms in the
euro zone countries.
In those Latin American and Caribbean countries whose
fiscal position depends largely on movements in commodity
prices (Bolivarian Republic of Venezuela, Ecuador,
Mexico and the Plurinational State of Bolivia), failure
to adopt anticyclical mechanisms will make their public
policies less effective and sustainable in the face of volatile
international prices.
Further impacts of such volatility on domestic markets include
a variation in price indices and in the real exchange
rate, with repercussions on the competitiveness of other
export sectors (eclac/fao/iica, 2011).
External debt levels as a percentage of gdp are another
indicator of these countries’ vulnerability to any worsening
of the crisis. The overall external debt of the region
fell steadily over the past decade, but with significant differences
at the subregional level. Whereas the countries
of South America, Mexico, Central America, along with
the Dominican Republic and Haiti, cut their external
debt from around 40% of gdp at the beginning of the
century to close to 20% in 2011, average debt levels in the
Caribbean subregion increased in the post-crisis period
from 40% in 2008 to 50% in 2011 (eclac, 2011).
Figure 5 shows other major differences between the countries.
In terms of South America, Argentina, the Bolivarian
Republic of Venezuela, Chile and Uruguay continue to
record external debt levels above the subregional average
and the same is true of El Salvador, Nicaragua and Panama
in Central America.
Some authors associate high public debt levels with a slowdown
in economic growth. Reinhart and others (2012)
show that high debt episodes since 1800 are linked to a
growth rate more than one percentage point below the
typical rate for periods marked by lower debt levels. This
is because governments with high debt levels need to raise
taxes and cut back on investment in order to keep up with
interest payments.
Since long-term debt is normally financed with consecutive,
short-maturity loans, the possibility that a rise in
interest rates may rapidly push up costs is a real risk for
countries whose debt burden is already high. The current
uncertainties and the volatility in international markets
are particularly risky for those countries that constantly
need to reschedule their debt financing arrangements with
external creditors.
External accounts have benefited from strong inflows of
foreign direct investment (fdi), which were the leading
source of external financing in the region in 2011, accounting
for 2.4% of gdp (eclac, 2012). Nevertheless, these
flows are also likely to be constrained by the slowdown
in the main countries of origin, although the crisis in the
central economies could, just as well, turn the region into
a more attractive destination for investments.
Policy recommendations
With the cooling of the world economy, the region
should turn its attention to strengthening
domestic markets and boosting intraregional
trade
In the next few months, the economies of Latin America
and the Caribbean will have to contend with sluggish
growth in some of their principal markets (Europe and
26 The Outlook for Agriculture and Rural Development in the Americas –eclac fao iica–