Caribbean, Latin America To Suffer Record Trade Slump

by Mike Godfrey, Tax-News.com, Washington

01 September 2009

The volume of trade in Latin America and the Caribbean is expected to drop 13% in 2009, surpassing the 10% decline projected globally this year, according to the Economic Commission for Latin America and the Caribbean (ECLAC) in its most recent report. This confirms that the sector most affected by the global economic crisis in the region is trade, which is suffering an unprecedented contraction.

The volume of exports from the region will decrease 11%, the worst figure in 72 years (since 1937), while imports will diminish 14%, the steepest drop in 27 years (since 1982), according to the report, titled 'Latin America and the Caribbean in the World Economy 2008-2009: Crisis and opportunities for regional cooperation', which was launched on August 25 by ECLAC Executive Secretary Alicia Bárcena.

"Policies to reactivate trade are urgently needed, because the post-crisis future will continue to reward economies with a greater focus on exports and advances in terms of competitiveness and technological innovation," Bárcena commented.

According to the report, the decline in trade has been caused by a strong contraction in world demand, lower prices of some basic commodities, difficulties in financing for trade, and the pro-cyclical performance of intra-regional trade flows, particularly in South America.

In spite of the strong contraction in trade, the report underscores that the region has addressed the effects of the current crisis better than during prior crises, due especially to the strong macroeconomic scenario that resulted from the favorable economic cycle in 2003-2007.

ECLAC has estimated that after a two to three-year slowdown, international trade should once again become a source of opportunity, and that the region should be prepared for that.

According to ECLAC, the world crisis has been transmitted to the economies of the region through four main channels: foreign direct investment, emigrant remittances, commodity prices, and trade. Services and tourism also suffered the effects of the crisis.

Practically every major trading partner of Latin American and Caribbean countries has experienced a fall in trade flows. Only China has sustained its demand for commodities, which has allowed the region to partially counteract the general decline in international trade.

Commodity-export countries, especially exporters of oil and minerals, have been the most affected by the deterioration in terms of trade, which is expected to fall 32.6% this year for Venezuela, Ecuador (oil), Colombia (oil and coal) and Bolivia (natural gas), according to ECLAC figures.

The report highlighted actions in seven areas that concentrate the best opportunities for regional integration in a post-crisis context, namely: investment in infrastructure, encouraging intra-regional trade, fomenting regional cooperation in innovation and competitiveness, reducing asymmetries, strengthening social cohesion, making the most of ties with Asia-Pacific, and addressing the challenges of the environment and climate change.

With regard to trade, the ECLAC report advocated the creation of a programme for cooperation to stimulate intra-regional trade, to coordinate the participation of countries and multilateral and regional bodies to make the most of their advantages, and to strengthen the mobilization of financial resources.

ECLAC went on to underscore the importance of diversifying the productive and export base, and of incorporating greater value and know-how in exports of goods and services.

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