Latin Inflation Hits 470%; Economic Growth Slows to 0.7%

In an alarming symptom of regional economic sickness, Latin American inflation more than doubled in 1988, rising to an average annual rate of 470%, a United Nations agency reported Tuesday.

“Inflation increased sharply for the second consecutive year, reaching a new historical high in the region,” said an annual report by the U.N. Economic Commission for Latin America and the Caribbean. The agency, known as ECLA, is based in Santiago.

The report also said that regional economic growth slowed to an estimated 0.7% for the year. And economic expansion was less than population growth for the first time since a regional recession in 1982 and 1983.

Nicaragua Hard Hit

Despite their generally poor performance, Latin American economies exported goods worth $102 billion during the year, up from $90 billion in 1987. “They broke the $100-billion barrier for the first time,” said Gert Rosenthal, ECLA executive secretary.

But in most countries, export growth did not keep inflation from eroding standards of living. Rosenthal said the purchasing power of minimum wages declined in nine of the 11 countries where statistics were available.

The worst inflation was in Nicaragua, with an estimated annual rate of 7,800%. Peru had 1,300%; Brazil, 800%, and Argentina, 370%. The regional average has climbed from 64% in 1986 to 199% in 1987 to 470% in 1988.

The region’s combined gross domestic product declined from 3.9% in 1986 to 2.5% in 1987 to 0.7% in 1988. The lowest rate this decade was a minus 2.6% in 1983.

The only countries with economic growth of 5% or more in 1988 were Ecuador, Venezuela, Chile and Paraguay. Panama’s economy shrank by an estimated 25% this year, Peru’s by 7.5% and Haiti’s by 5%.

Latin America’s combined growth rate was most heavily influenced by virtual stagnation in Brazil, Mexico and Argentina, which together account for nearly three-quarters of the regional economy.

Hope From Bush

Rosenthal said Latin America’s bigger export earnings in 1988 did not increase economic growth because the added revenue went mainly to make payments on the region’s $401-billion foreign debt. Those payments fueled inflation, he said, because most of the debt is public debt, and governments often run up inflationary fiscal deficits to make payments.

Without major debt relief, inflation and recession probably will continue to plague Latin American countries in coming years, Rosenthal said.

However, he said, a statement by President-elect George Bush “offers some hope” for debt relief. Bush, recognizing the difficulties of developing countries in meeting debt payments, said Monday that his Administration will conduct a major review of U.S. policy on foreign debt.

The statement “undoubtedly signifies an advancement,” Rosenthal said. But he cautioned that industrialized and developing countries are still far from agreeing on any major course of action for debt relief.