Economic recovery in the Andean countries*
Lima, January 29, 2001

The Andean countries saw a revival of production in 2000, after heavy drops in Colombia, Venezuela, and Ecuador (4.3%, 6%, and 7.3%, respectively) and modest growth in Bolivia (0.61%) and Peru (1.39%) the previous year. Bolivia’s economic growth (2.5%) can be attributed mainly to investments in natural gas, growing mineral and agricultural exports, and rising activity in the telecommunications and electricity sectors. Growth of 4.5% is expected this year.

Colombia registered an increase of 3% in real GDP. The sectors contributing most heavily to this result were manufacturing (10%) and agriculture and trade, which expanded over 4% each. Economic growth of 3.8% is foreseen in 2001.

Ecuador’s economy experienced moderate growth starting in the second quarter of 2000 due to increased oil production and, to a lesser extent, a pick-up in manufacturing and transportation. The unblocking of bank deposits and economic agents’ trust in the new dollarization scheme triggered a slight recovery of private investment. Projected growth for 2001 is estimated at 3.9%, two percentage points higher than the previous year.

In 2000, Peru reached annualized growth rates of 6.3 and 5.1% in the first and second quarters, respectively. The economy slowed starting in the third quarter because of domestic political problems, with the result that the economic growth for the year is expected to have averaged 3.5%. The primary sector (fishing and agriculture) continued to lead the growth and the program of privatizations and concessions is expected to continue over the present year, with moderate growth of 3% forecast for 2001.

In Venezuela, GDP growth is expected to have approached 3.2% for 2000. Influential in this result was the rise in oil prices, which made increased fiscal spending (a 20% hike in wages and pensions) possible, pushing up the domestic demand. Economic growth of between 4 and 5% is forecast for year-end 2001.

The per capita GDP measured in terms of GDP purchasing power parity (PPP) has declined substantially in the CAN since 1997. This variable makes it possible to compare relative prices between countries and, by doing so, to compare standards of living. The Andean average in 1999 was at a level of US$ 4.710, 3% lower than in 1998 and 17% lower than in 1997.

The MERCOSUR countries, on the other hand, maintained their decade-long position above the average for Latin America, with a significant rise of 4% as compared with 1998 (US$6.841).

Chart No.2
Per capita GDP, as GDP PPP (US$)


Source: World Bank, www.worldbank.org

The simple average rate of variation in real per capita GDP in the CAN turned negative during the five-year period of 1996-2000, after amounting to 2.1% in 1990-1995. In the later period, Colombia, Ecuador, and Venezuela showed a declining trend, while Peru and Bolivia experienced very moderate growth that, although positive, was substantially lower than in 1990-1995. In Ecuador’s case, all of the progress made in terms of per capita GDP in the first five-year period was completely cancelled out in the second.

These results are attributable to domestic social and political problems in each of the Andean countries. The situation was compounded by external shocks (abrupt capital outflows associated with international financial crises, the havoc wreaked by El Nino, and sharp variations in the prices of the principal export products), which heavily curbed production in the subregion (chart No. 1), mainly as a result of the Brazilian crisis of 1999.

(1) Comparative non-weighted country averages.
Source: IMACRO-Andean Community Macroeconomic Data Base.

Increasing trade and economic integration among a group of countries produces a progressive synchronization of their economic cycles, as reflected in the rates of variation in real GDP.

An analysis of the association among the economic cycles of the CAN countries reveals that the closest correlation exists between Ecuador, Colombia, and Venezuela (Colombia-Ecuador 0.72; Venezuela-Ecuador 0.57; and Colombia-Venezuela 0.43), while the correlation with Peru and Bolivia is far less pronounced.. An examination of the charts also shows that the rates of growth of the latter two countries have been more stable than those of Colombia, Ecuador, and Venezuela.

1. Seasonally-adjusted series.
* Preliminary estimates.
Source: IMACRO-Andean Community Macroeconomic Data Base.

1/The 2000 growth rates for the five Andean countries are preliminary figures taken from official sources.
2/The average figures given for the CAN, MERCOSUR, and Latin America are averages weighted by national population.
3/The cyclical element was extracted from the series using the Hodrick-Prescott filter.

* The statistics used in the Economic Report come from the Macroeconomic Information System of the Andean Community General Secretariat (IMACRO) and are based on official sources in the CAN Member Countries, together with supplementary data published by international institutions, such as the World Bank, the IDB, ECLAC, and the IMF.