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In the aftermath of the
attacks against the U.S. "This decline in the regional growth rate is associated with the slowdown that the U.S. economy has been suffering, a situation that was aggravated after the fatal attacks against civil and military facilities in that country on September 11," said the Permanent Secretary of SELA, Ambassador Otto Boye, at a press conference held in the headquarters of the organization in Caracas. This new context, characterized by a very war-like atmosphere, also has its repercussions on the political field where a new alignment axis is expected to be imposed in which countries will have to take position on the issue of terrorism, and this "will weight heavily on the economic scene and the governments' decision-making processes," he said. According to the report "Latin America and the Caribbean: Economic trends in the aftermath of the attack against the U.S. on 11 September, 2001," which was prepared by the Permanent Secretariat of SELA, the U.S. economy was expected to grow around 2.8 percent this year despite of the slowdown it has experienced. However, in the wake of the terror incidents of 11 September, these prospects have changed and estimates indicate that the U.S. economy will register a 1.4 percent growth by the end of the year, said Boye. The Chilean-born diplomat explained that with a growth rate of only one percent "it will not be possible to curb down the trend towards a rise in poverty in our region, because demand in domestic markets will tend to shrink. This, along with a climate of insecurity and a lack of confidence, could fuel capital flight and weaken the countries' foreign exchange rates and cash reserves." "After the 3.8 percent economic growth rate registered in the year 2000, our region is practically back to the levels seen in 1999, when the gross regional product grew by only 0.2 percent", he added. The SELA document points out that the slowdown of the U.S. economy is evidenced, among other things, by a drop in industrial production levels, which in August grew less than four percent, down from the annual growth rate of six percent reached during the same period last year. The document notes that wholesales, for their part, are growing at an annual rate of 3.7 percent compared with 11 percent last summer, which also points to a low consumer confidence rate in the U.S. - where domestic consumption accounts for about two-thirds of production growth - and a relative contraction in domestic demand. At the same time, the economies of other developed countries are also showing a declining trend. Europe's growth is expected to stand at a scarce 1.9 percent instead of the three percent originally forecast for this year, whereas in Japan hopes for an increase in the gross domestic product have completely vanished and newly released projections indicate that there might be an economic contraction of about 0.3 percent. "These conditions in the most developed economies heighten the prospects for declines in prices of the main exports from Latin America and the Caribbean", said the Permanent Secretary of SELA, an organization grouping 28 countries in Latin America and the Caribbean. "The effects of the economic slowdown in Mexico, which was directly influenced by the economic conditions in the U.S., the continued macroeconomic problems in Argentina, and Brazil's vulnerability" are the factors of "greatest weight", contributing to the lowered expectations for regional growth, Boye said. By 20 September, the latter country's currency, the real, had depreciated by 27 percent compared with the value it had in early January. Furthermore, although oil prices show a general trend towards stability, they are expected to move higher, in principle, within a range from US$ 28 to US$ 32 per barrel. Such initial oil price increment would be due to an increased demand from consumer countries, mainly the U.S., because of the beginning of winter season and the conflictive international state of affairs. "An increase in oil prices would benefit some of the economies of our region, such as Venezuela, Mexico and Ecuador, but it would also create greater pressures on the balance of payments of consumer countries, many of which are in Latin America and the Caribbean," he said. This new economic situation would also have an impact on the labour sector where, according to preliminary estimations, the regional, open unemployment rate would end up within an unweighhed average range between 13 and 16 percent, which in turn would encourage the so-called "informal economy." As to regional inflation rates, they appear to be quite under control at an average estimate of 6.2 percent. However, this situation could change if it is affected by pressures on the balance of payments and the trend towards currency devaluation. There will be a decline in foreign investment which will mainly affect those countries that are most deeply involved in international financial flows. This vulnerability has already been demonstrated by the impact that the 1997 international financial crisis in Southeast Asia had on our region. As far as development assistance for the region, it is expected to "diminish within the new trend of alignment and military reinforcement," the document adds.
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