The Greater Caribbean This Week...

The Group of 3 comprises Colombia, Mexico and Venezuela. Their combined population is 170 million, which is 70 percent that of the Greater Caribbean region. Venezuela, which has the smallest population of the three, has twice the population and land area of Caricom, including Haiti.

The economic contraction reported by ECLAC for the Latin American and Caribbean region for 2002 was reflected in the economies of the Group of 3 (see accompanying table). But the degree of contraction, and its origins, varied widely among the three countries.

In Mexico and Colombia there was a marginal increase in GDP, which represented a slight improvement in the 2001 performance. In Venezuela the moderate growth of 2001 was followed by a year of steep decline.

Mexico’s economy was negatively impacted by adverse developments in the U.S. economy, which accounts for over 90 percent of Mexico’s trade and most of its tourism. Foreign investment plunged by 46 percent and domestic investment stagnated. Foreign trade (goods and services) was unchanged from 2001 and 4 percent lower than in 2000. The capital and financing account of the balance of payments recorded a deficit of US$19.6 billion, a deterioration of $45 billion compared to 2001. The public sector deficit was kept at 0.7 percent of the GDP at the cost of significant expenditure reduction, which also dampened economic performance.

In Colombia the domestic conflict is a major factor affecting the economy, ECLAC notes. Foreign investment continued to fall, domestic investment stagnated, and foreign trade was unchanged from 2001. A major problem is the decline in government revenue, which pushed the public sector deficit to 4 percent of the GDP. The new administration has instituted a fiscal austerity package with a special levy and a tax reform programme. Expenditure cuts have resulted in the closure of several foreign embassies.

Venezuela’s steep economic decline in 2002 reflects the impact of the internal political situation. Foreign and domestic investment fell, the capital account deficit on the balance of payments inflation widened, urban unemployment grew, and real wages declined. Venezuela’s imports shrank by 24 percent in the year, due to steep devaluations and the contraction of the domestic economy.

Looking forward to 2003, the recovery of the U.S. economy and the resolution of internal political problems will be the chief factors determining economic recovery in the Group of 3.