|Agricultural and rural development policy in Latin America. New directions and new challenges. (FAO Agricultural Policy and Economic Development Series - 2) (1997)|
|II. Economic and Agricultural Performance and the Changing Policy Environment|
Table 1 lists the gross domestic product per capita growth rates of 20 Latin America and Caribbean countries from 1970 to 1994.1 Of the 20 countries, 5 did not fit into the 3-period trichotomy used for our analysis: Brazil2, Haiti, and Nicaragua did not have a late growth period; Jamaica never suffered a significant recession; and Chile was excluded because it had only a very short (though severe) recessionary period 1981-83, and because its macro-economic policies did not conform to the general three-period classification as it began adopting neoliberal policies early in the early growth period. Figure 1 graphically illustrates the GDP per capita growth rate and the associated periods for each country.
1 Data was only available to 1993 for the 6 countries indicated in the table.
2 Interestingly, although Brazil has failed to enter a strong recovery, it rapid early growth performance was such that its performance over all three periods (1.61%) is among the best in Latin America.
The early growth period terminated for 12 of the 15 countries between 1979 and 1981, corresponding with the debt crisis, a world wide recession, and the onset of structural adjustment policies. GDP growth began again for 12 of the 15 countries between 1985 and 1990. Most rapid growth countries have had a sufficiently strong recovery to achieve positive growth rates since the onset of the recession, that is for periods 2 and 3. The slow growth countries still have not recovered, on average, their pre-recession GDP per capita levels. Despite significant inter-period differences in performance, both groups performed on average almost exactly identically over the whole 24 year period.
Another perspective on past economic performance is derived from an examination of policy-sensitive economic indicators such as the real exchange rate, inflation, and government expenditures. We use the same country and period groupings derived from the GDP per capita growth rates to observe correspondences between economic performance, growth epochs, and policy instruments.
Table 2 indicates the average annual growth rates of the real exchange rates for the three periods for each country and both groups. The real exchange rates of both groups of countries depreciated during the recession period. In contrast during the late period, the average real exchange rate appreciated in the rapid growth countries while it continued to depreciate in the slow growth countries. This result is, however, somewhat deceptive in part because it reflects the policies of the statistical outliers (Peru, Argentina, and Honduras). In fact, in six of the eight slow growth countries, the real exchange rate appreciated, indicating that almost all countries in the region (except Honduras) reversed the exchange rate depreciations that had occurred in the recessionary period. The impact of the real exchange rate on imports and exports is shown in figure 2.
Table 3 lists the annual inflation rate for the same periods and groupings. Inflation was higher during the recessionary period than it was in either the early growth or recovery periods. Average inflation for all three groups was relatively low in the late growth period, appearing to indicate that countries have maintained into the final period the fiscal and monetary policies necessary to control inflation. While there is a correlation over time between growth and inflation, there does not appear to be a correlation between performance in any one period and inflation.
The estimated annual growth rate of government expenditures is listed in table 4. The rapid growth countries appear to have pursued significantly tighter fiscal policies during the recessionary period than did the slow growth countries. Government expenditures rebounded vigorously during the recovery period, especially for the rapid growth countries.
In sum, the late growth period can be characterized by appreciating exchange rates, moderate inflation, and rebounding government expenditures. The policy instruments/economic indicators examined here both affect and reflect economic performance, making it difficult to draw causal relationships between the policies and the performance. High GDP growth rates and low inflation permit a benign expansion of fiscal expenditures. On the other hand, the recent appreciation of exchange rates is more ominous as it portends future devaluations and with inflationary implications, as revealed in the case of Mexico.3 In terms of the agricultural sector, we would expect much of the positive impact that may have resulted from the increases in government expenditures that were directed to the sector to be counterbalanced by the exchange rate appreciations. In the following section, we use the same country and time groupings to see how agriculture fared in the last two and a half decades.
3 The December 1994 Mexican devaluation post-dates the data.