DEVELOPMENT - Bank Prescribes More Free Market for Latin America

<a href=www.oneworld.net>See Source Emad Mekay

WASHINGTON, Mar 24 (IPS) - Joining others that have predicted Latin American economies will fare better in 2003, the Inter-American Development Bank (IDB) said Monday the region will rebound this year after two years of recession and slow growth, but also warned of possible dangers ahead.

"The immediate prospect for the world economy and for our region is one of uncertainties ... exacerbated by the complex situation of the Middle East," Bank President Enrique V. Iglesias said in a statement released simultaneously in Washington and Milan, where the Bank is having its annual meeting of the board of governors.

"Nevertheless, the economies of several countries in the region have begun to improve compared to the beginning of 2002," added Iglesias.

For that improvement to continue and for Latin America to shed its poverty and under-development, the region should adopt more free-market policies, said the Bank, the region's largest public lender, echoing recent reports from the Institute of International Finance (IIF) and the International Monetary Fund (IMF).

In its economic forecast last week, the IIF went so far as to warn governments not to follow the advice of their own people. Recovery could be derailed if governments ''succumb to populist political pressure" and fail to fully implement recommended policies, it added.

The Bank said that if international conflicts do not worsen - in reference to the possibility of a prolonged U.S. war on Iraq - the economy of the region could grow between 1.5 and two percent this year.

If the upward trend continues, growth could reach as high as four percent in 2004, added Iglesias. In 2002, the region's gross national product (GNP) fell 0.5 percent.

The IDB says it approved about 4.6 billion U.S. dollars worth of projects in the region in 2002.

Earlier this month, IMF Director Hoerst Koehler said there were signs of recovery in Latin America but added that recovery would ''need to be nurtured, with the right policies and decisive leadership''.

Last week the IIF, a global association of financial firms and banks, forecast the region's economies are likely to grow modestly next year, buoyed by anticipated improvement in the world economy.

Excluding Venezuela, whose gross domestic product (GDP) would fall by 10 percent, real GDP growth in the region overall will increase 2.4 percent this year and 3.2 percent in 2004, said the IIF, which groups over 310 financial institutions from more than 60 countries.

But the IDB estimates that in order to make inroads on the poverty that affects close to one-half of the population of Latin America and the Caribbean, the region's growth must climb higher and become more consistent - an average of 2.7 percent annually over the next 15 years.

In his statement, Iglesias said some of the past reforms in the region - inspired by the IMF and the World Bank - ''contained weaknesses'', but he was quick to say that they were applied inconsistently, without the necessary legal and regulatory frameworks.

''Corruption and errors in handling privatisation in some cases resulted in a loss of public support that is a prerequisite of a reform's success,'' he said.

One observer said that such remarks give the impression that economic crises are the result of a trend in Latin America to vote for leftist governments, as in Brazil and Venezuela, rather than on policies invented in Washington and other Western capitals.

''It's trying to scapegoat the problems on left-leaning or populist governments or place problems in their hands versus the fact that policies don't work,'' said Vicki Gass of the Washington Office on Latin America. ''Trade is fine but you need it hand in hand with protectionist policies or support for incubator policies.''

The IDB's annual report, also released Monday, warned that Latin America was going through one of ''its most critical periods in several decades beset by serious downtrend indicators''.

The report said that per capita income in the area in now less than it was five years ago while consumption remained stagnant and investment has slid back to its lowest point in the past decade.

Among the factors causing the poor economic performance is the fragile recovery of growth in the United States, the main destination for exports from the region, according to the Bank.

It also said that Argentina, Latin America's second largest economy, has yet to find a way out of its lingering economic crisis, while in Brazil, fears of macroeconomic instability still loomed because of the country's heavy debt burden.

The Bank also said that in several countries, including Venezuela and El Salvador, the economic clouds are compounded by social unrest.

To boost business in the region, the IDB said it would develop new programmes, including: financing exports; providing loans for social emergencies, as in the case of Argentina; and making loans more accessible, with lower interest rates. It will also build trade capacity to prepare the region to join controversial trade agreements.

Even with the changes, the IDB continues to recommend higher doses of its usual recipes for development, including expanding foreign trade, attracting investment, promoting growth of the private sector and increasing business productivity, especially for small and medium-sized enterprises.

That business-as-usual approach has elicited frustration from development and anti-poverty campaigners.

''They are continuing with a one-policy-fits-all sort of policy in the region instead of looking at each country and figuring out what each country needs for development,'' said Gass. ''It's pretty discouraging.'' (END/2003)