The renewed growth in the region was due to several internal and external factors including real exchange rate depreciation, increased demand for the region’s goods, particularly basic goods, fiscal restraint, and increased liquidity in the global financial system.

Compared to 12.1% in 2002, the regional inflation rate in 2003 declined to 8.5%. This decline reflected the trend for most countries, but a handful of countries experienced higher rates of inflation in 2003. Haiti and the Dominican Republic were notable in this regard, with respective inflation rates of 40.4% (versus 14.8% in 2002) and 42.7% (compared to 10.5% in 2002).

Remaining quite high, urban unemployment in the region fell marginally from 10.6% to 10.5% in 2003 while employment rose from 51.6% to 52%.

With just a handful of countries counteracting the regional trend, the region’s overall exchange rate with the US dollar depreciated when accounting for trade volume and inflation (real effective exchange rate). In addition, the region’s largest trade partners, the United States and Japan, demanded more of the region’s exports as their own economies rebounded. Adding to the demand for the region’s exports was China’s continued robust economic growth. The increase in export volume and value outpaced that of the region’s imports for the second year in a row, leading to a wider trade surplus than the year before. Compared to growth of 1% in 2002, regional exports grew by 8.2% in 2003 and saw marked increases in shipments of basic products including coffee, wool, oil, and soya from Central and South America.

Import growth reflected the reinvigorated growth of the region overall. Though the region saw the average unit price of its imports drop in 2002, that year’s decline in imports was predominantly due to a fall in volume. In 2003, however, import demand picked up and so volume increased by 0.7%. The region also faced increasing import prices in 2003, leading to an overall increase in import value by 3.2% compared to the prior year’s decline of 6.9%. As such, the region’s trade surplus grew from $23.4 billion in 2002 to $41.6 billion in 2003.

The growth of the trade surplus combined with other international transactions to bring about the region’s first Balance of Payments surplus in fifty years. The Balance of Payments surplus included a build-up of foreign exchange reserves that helped the region’s nations to stabilize foreign exchange markets. As countries exercised monetary policy to keep pace with changing financial conditions, they also continued to reduce fiscal deficits. Additionally, in mid-2003, the global economy became more liquid as the money supply expanded in the U.S., Europe, and Japan. The augmented money supply combined with economic stability, fiscal and monetary soundness in the region, and economic recovery in other parts of the world led the region to see reduced interest rate spreads on sovereign debt and larger capital flows.

The favorable credit environment and fiscal and monetary discipline helped the region’s countries keep their external debt from growing at exorbitant rates in 2003. However, the region’s total debt stock still remains sizeable.

In addition to growth outside Latin America and the Caribbean, there was also a slightly higher level of private consumption within the region compared to previous years. However, meeting higher levels of both internal and external demand did not lead to an increase net Foreign Direct Investment in the region due chiefly to the large amounts of idle or under utilized production capacity already installed in the region. Thus, it was the region’s internal economic slack that met the increased demand of the growing external and internal economies.

Looking forward, the global recovery is expected to continue and include Latin America and the Caribbean as demand for the region’s exports increases. The UN Economic Commission for Latin America and the Caribbean expects the region’s aggregate GDP growth to increase to 4.5%, with Argentina’s own recovery continuing at about 7%. Regional per capita GDP is expected to rise by 3%, the unemployment rate is expected to fall very slowly, and the inflation rate is also expected to fall. Additionally, the Balance of Payments surplus is expected to increase to 0.8% of GDP as export growth once again outpaces imports.