constraint. Yet, financial exuberance also caused an appreciation of
the nominal exchange rate in the majority of countries from May
2006 to September 2008 (Ocampo 2009). Such trends penalized the
labor-intensive traded sector and, with it, the distribution of income
(Taylor 2004). As for the direct effect, increased availability of
finance benefitted mainly large capital- and skill-intensive
companies and banks while it did not ease the problems of access
to credit by labor-intensive small and medium enterprises, possibly
inducing in this way adverse distributional effects.
2.B. Business cycle effects
From the end of 2002, the region recorded a strong recovery
thanks to favorable external conditions, better policies (see later)
and improved domestic conditions. G rowth of GDP/c doubled
in the 1990s and from 2002 to 2007 in South America, and rose
by half a point in Central America. Only a few countries (such as
Chile, which enjoyed Tiger-like growth in the 1990s) did not
improve their performance. While all countries recorded positive
performance, growth was on average 2 percentage points h i g h e r
in LOC countries t han in NO LOC ones (Figure 3).
Figure 3. Macroeconomic and growth performance of LOC versus NO-LOC
governments, 2003-7
Source: Authors’ elaboration based on ECLAC’s Badecon for the growth of GDP/c and overall
fiscal balance/GDP, and IMF’s World Economic Outlook 2008 Database for inflation. Note: The
inflation rate of LOC countries would be 6.6% (i.e. lower than the NO-LOC countries’ average) if
Venezuela (which recorded an average inflation of 21% during this period) is excluded.