Chile -- 19 Dec. 2006 --- The prognosis concerning the current stage of economic growth in Latin America and the Caribbean can be summed up in two words: "cautious optimism." This, according to ECLAC's new Preliminary Overview of the Economies of Latin America and the Caribbean 2006, presented last week by José Luis Machinea, Executive Secretary of this UN regional commission.

Optimism because the region's economies are experiencing both increased and improved growth. Caution because the favourable international context in which regional economic growth has occurred could deteriorate in the future, and because many Latin American and Caribbean countries have important issues pending in their quest for sustained growth.

The current period of positive growth has allowed the region to recuperate levels of per capita GDP -virtually stagnant over two decades - for a cumulative gain of some 16% between 2003 and 2007 (see chart 1).

In comparison with other periods of growth, one trait of the current expansion is that it is based more on investment than consumption. The rate of growth in consumption, though rising, lags behind growth in income, suggesting that regional saving has been on the rise and is financing the increase in investment.

The increase in fiscal revenues, generally linked to improved terms of trade for national exports and greater caution in areas of public spending, allows countries to keep their public accounts in order, and even to generate surpluses which have been used to reduce their levels of debt (see chart 2).

This reduced debt, restructured for greater participation of local-currency instruments at longer-term, fixed interest rates, contributes to lessening the region's external vulnerability and is one of the positive aspects of the current panorama (see chart 3).

The call for caution, on the other hand, is linked to greater uncertainty concerning the evolution of the international economy, given the probable slowdown in the US economy and its importance for economic activity on a global scale.

To the degree that the transition toward lower growth is gradual - and there are reasons to believe that this will be the case - it is likely that the process of growth currently underway in the region will not undergo significant changes, at least in the short term. As a result, the region is better prepared to face a global economic slowdown.

The domestic policies of the countries in the region also give cause for caution.

In some countries, the combination of high interest rates and appreciated exchange rates may undercut growth. In others, the rate of investment, while growing, is insufficient to sustain growth rates that would allow for greater productivity and job creation and reduce as rapidly as possible the region's persistently high unemployment rates.

But this is what Latin America and the Caribbean countries need to reduce poverty and improve the well-being of their populations.