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Group Title: Latin American business environment.
Title: The ... Latin American business environment
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 Material Information
Title: The ... Latin American business environment
Physical Description: v. : ; 29 cm.
Language: English
Creator: University of Florida -- Center for Latin American Studies
Publisher: Center for Latin American Studies, University of Florida,
Center for Latin American Studies, University of Florida
Place of Publication: Gainesville Fla
Publication Date: 2009
Frequency: annual
regular
 Subjects
Subject: Business enterprises -- Latin America   ( lcsh )
Economic conditions -- Latin America -- 1982-   ( lcsh )
Economic policy -- Latin America   ( lcsh )
Spatial Coverage: Mexico
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
Dominican Republic
Uruguay
Jamaica
Trinidad and Tobago
Bolivia
Colombia
Ecuador
Peru
Venezuela
Brazil
Argentina
Chile
Paraguay
 Notes
Dates or Sequential Designation: 1999-
General Note: Latest issue consulted: 2002.
 Record Information
Bibliographic ID: UF00080531
Volume ID: VID00011
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: ltuf - AEW7530
oclc - 48447906
alephbibnum - 000990589
lccn - 2004233277

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Table of Contents
    Front Cover
        Front Cover
    Preface
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    Table of Contents
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    Main
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Full Text

r0
=I


2009 LATIN AMERICAN BUSINESS ENVIRONMENT
REPORT

Terry L. McCoy
With Timothy McLendon










WINIV[RSITY af
UFIFLORIDA


October 2009









October 2009


Preface


This is the eleventh edition of the Latin American Business Environment Report (LABER). The
goal of the report is the same today as it was at its inception in 1999 -- to present in a single
document a straightforward, balanced appraisal of the economic, social, and political events in
the past year that have shaped the business and investment climate in Latin America as a region
and in its most important economies.*

The LABER is a publication of the Latin American Business Environment Program in the Center
for Latin American Studies at the University of Florida. The program draws on the expertise and
resources of the University to prepare students for careers related to Latin American business
through degree programs, courses and study abroad opportunities. It also organizes conferences,
promotes the publication of scholarly research and provides professional consulting services for
the business community and public.

Additional support for the LABER and related activities is generously provided by the Center for
International Business Education and Research (CIBER) in the Warrington College of Business
Administration. Special thanks go to Timothy McLendon, Staff Attorney at the Center for
Governmental Responsibility of the Levin College of Law, who contributed the materials that
strengthened treatment of the legal environment and to Kyle Doherty and William Hummel, who
worked with him. David Harmel helped me prepare the final report. Charles Wood edited the
2009 LABER. I alone am responsible for the content and analysis.


Terry L. McCoy, Director
Latin American Business Environment Program
Center for Latin American Studies
University of Florida
tlmccoy@latam.ufl.edu
www.latam.ufl.edu/labep.html









* Electronic versions of all 10 previous reports can be accessed at http://www.latam.ufl.edu/labe/publications.stm.
The report may be cited without permission, but users are asked to acknowledge the source.


































































2









CONTENTS


Preface............... ................................................................................ 1

EXECUTIVE SUMMARY......................................................................... 5


INTRODUCTION ....................................................................................... 7

I. REGIONAL OVERVIEW............................................................ 11

EXTERNAL ENVIRONMENT................................................... 11

Global Developments
Regional Developments

DOMESTIC ENVIRONMENT................................................... 14

Economic and Financial Performance
Social Environment
Political Environment
Policy Environment
Legal Environment


II. COUNTRYPROFILES...................................................................... 23

NAFTA REGION...................................................................... 23

Mexico

DR-CAFTA COUNTRIES........................................................... 25

Dominican Republic
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama









ANDEAN SOUTH AMERICA........................................................... 31

Bolivia
Colombia
Ecuador
Peru
Venezuela

MERCOSUR REGION..................................................................... 38

Argentina
Brazil
Chile
Paraguay
Uruguay


II. OUTLOOK .............................................. .................................... 44

OUTLOOK FOR THE REGION.................................................... 44

External Environment
Domestic Environment


COUNTRY OUTLOOKS.......................................................... 46

Attractive Environments
Problematic Environments
Mixed Environments

TABLES.................................................. ...................................... 53

SELECTED SOURCES..................................................................... 67









2009 LA TIN AMERICAN BUSINESS ENVIRONMENT REPORT


Terry L. McCoy

EXECUTIVE SUMMARY

Buoyed by six years of sustained economic growth, the business environment in Latin
America was quite positive, at least through mid-2008. Initially it looked as though the
region would not be seriously affected by the subprime financial crisis and the economic
slowdown overtaking the United States. But the collapse of global financial markets in
September and October quickly made it clear that Latin America was not to be spared. By the
end of the year, the outlook for 2009 had turned decidedly negative. Although some countries
have been harder hit than others, as the table below indicates, the business environment
deteriorated in every one of the 18 largest countries. One year later, as the region entered the
final quarter of 2009, there were signs that Latin America was on the road to quick recovery.

The LABER classifies 18 countries into three broad categories "Attractive," "Problematic," and
"Mixed" according the overall character of their environments. The symbols indicate the
following changes: improved (A), deteriorated (V), no significant change (=) and uncertain (?).
Beginning in 2003, the number of attractive environments increased from four to eight as growth
and reform spread throughout the region. These favored countries were best positioned to
recover from the 2008-09 downturn. Because of its prolonged political crisis, Honduras joined
the ranks of problematic environments in 2009.

Latin American Business Environments
2008 Environments 2009 Environments 2010
Attractive Problematic Mixed Attractive Problematic Mixed Outlook
Mexico = V A
Dom Rep = V A
Costa Rica = V A
El Salvador A V A
Guatemala A V A
Honduras A V ?
Nicaragua = ?
Panama A V A
Bolivia V V A
Colombia A V A
Ecuador A V ?
Peru A V A
Venezuela V ?
Argentina V V A
Brazil A VA A
Chile = A
Paraguay A V A
Uruguay V V A
Total 8 4 6 8 5 5


































































6








2009 LA TIN AMERICAN BUSINESS ENVIRONMENT REPORT


INTRODUCTION

Three developments shaped the 2009 business environment in Latin America. The

first and most notable event was the economic downturn provoked by the global

financial crisis and world recession which abruptly ended the region's six year

growth cycle. GDP growth fell in all countries and unemployment grew. Second, it became

clear that most countries in Latin America which has a long history of externally induced

economic crises were better prepared to cope with the 2008-09 crisis because of prudent

policy-making and changes in the nature of the global economy. A third and related

development were signs that the downturn would be shallow and recovery rapid. By Q4, many

countries in the region not only regained lost ground, but even appeared to be in some respects

stronger than they were before the onset of the global crisis.

Figure 1
Components of the Latin American Business Environment

External Environment

Economic Domestic Environment
Global -----] ----
Financial P
S^ Policy
S Political --------- ------
Legal

Regional, Social












The analysis here uses the conceptual framework shown in Figure 1 to capture the most

salient components of the Latin American business environment. Part I of the 2009 LABER

summarizes major regional developments that took place between the last quarter of 2008 and

September 2009. Part II presents thumbnail assessments of the 18 largest markets, grouped by

geographic region and/or trading blocs (see Map).1 Part III presents the outlook for the next 15

months for the region and for the 18 countries. Following the text are tables that contain country-

specific data, along with regional averages, for key economic, financial, social, political and

legal indicators that were used in the analysis. At the end there a list of publicly available sources

that were monitored to compile the 2009 LABER.





























1 Venezuela, a founding member of the Andean Community (CAP), has applied for full MERCOSUR membership.
Bolivia is a member of CAP and associate member of MERCOSUR. Chile rejoined CAP in 2007 and is an
associate member of MERCOSUR.




















El S


DR-
CAF1


NAFTA

Y ~--
)
Dominican
Republic
SHonduras
nala
Nicaragua
alvador
Costa Rica
Panama
A olombia

Ecuad r


Per
ANDEAN
COMMUNITY





MERCOSUR
Chile


Uruguay


































































10









I. REGIONAL OVERVIEW

EXTERNAL ENVIRONMENT

Beginning with the meltdown of world financial markets in September 2008, the external

environment with which Latin America was linked through trade, capital flows, tourism and

migration became dramatically adverse. The financial crisis dried up access to credit and foreign

investment. More devastating still was the subsequent global economic slowdown which spread

from the mature economies to the emerging markets. This meant a decline in the volume of

exports, reduced revenues, and a drop in the flow of remittances. In the past, Latin America's

recovery largely depended on recovery in the mature economies, but that was before Latin

American trade and investment became more closely tied to dynamic emerging markets, especially

China. As a result of the shift in the region's relationship with other countries in the global

economy, Latin American countries engaged in the export of natural resources benefitted from

rising commodity prices in the second semester of 2009 as nations including China tried to pull

themselves out of the economic doldrums by increasing their own domestic demand through

consumer spending and consumption. Other changes, such as the measures taken during the

growth period to build up reserves and reduce debt, also made Latin America less vulnerable to the

global credit squeeze.

Global DevelopmentsV A 2

SImpact ofglobalfinancial meltdown was contained
The collapse of global financial markets brought an end to the surge in foreign direct
investment or FDI (Figure 3, Table 4), and contributed to a drop in local stock markets
and increases in country risk ratings in late 2008 and early 2009. However, by mid year
risk spreads began to narrow, and Latin American equities rallied to regain much of what
they had lost. In early October, all of the major regional markets were up at least 33% for
the year in dollar terms.


2 Symbols indicate developments of key components of environment: A improved; V deteriorated; = no significant
change since 2008 report.











* International lending institutions expanded financial support
The IMF re-emerged as an important source of back-up financing for Latin America. It
launched the Flexible Credit Line to provide short-term stand-by loans to emerging
economies hard hit by the financial crisis. Unlike other Fund programs, it did not impose
conditions on those borrowers judged to have sound policies. Mexico, Colombia, Peru
and Costa Rica applied for assistance under the new line (Table 8). Other Latin
American countries sought credit under traditional credit lines that do carry
conditionality.


* Global trade and commodity prices began to recover
The global slowdown took its toll on trade flows and commodity prices. Between July
2008 and January 2009, the index of world export volume (2003=100) dropped from 150
to 120 (according to the UN Economic Commission for Latin America and the Caribbean
or ECLAC). For Latin America, this was predicted to translate into an 11% drop in
export volume for 2009, the biggest decline since the Great Depression, and a 14% drop
in imports. Latin America's terms of trade, which had surged for the South American
resource exporters (Figure 2, Table 3), also deteriorated. Commodity prices improved
during the first half of 2009 (H1 2009) largely due to Chinese purchases that took
advantage of relatively low prices to restock reserves, and due to the government's large
infrastructure stimulus. However, the Chinese spending spree slowed in H2 2009, and
the prolonged recession in the mature economies limited the price recovery for
agricultural commodities and especially for minerals. There were signs of a mid-year
recovery in global trade flows in Latin America, evidenced by gains in June of 14.3% in
exports and 11.9% in imports.



Figure 2

Terms of Trade for Latin America, 1999-2008
(Source: ECLAC 2009)
1400

121 4
120 0 1151 1180
1087
1036
100 0 98 6
1000 963 96 6


80 0


60 0


40 0


20 0


001999 2000 2001 2002 2003 2004 2005 2006 2007 2008
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008











Figure 3
Net Foreign Direct Investment in Latin America, 1999-2008
(Source: ECLAC 2009)
100,000
92,155
90,000 86,235
79,923
80,000
72,190
70,000 66,914

60,000
0 54,563
50,996 49,692
= 50,000
40,000- .o 37,806
30,735
30,000

20,000

10,000


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


World trade negotiations stalled but emerging economies gained influence
Against the backdrop of declining global trade flows and threats of protectionism, the
World Trade Organization (WTO) in September announced that the Doha round would
resume, although none of the key players had modified their positions. The September
announcement that the G-20 would replace the G-8 as the principal global economic
forum was recognition of the growing importance of emerging markets in global
commerce. Brazil, Mexico and Argentina are members of the G-20.


Regional Developments =


U.S. administration sought to rebuild relations with Latin Americas
President Barack Obama took advantage of the April summit in Trinidad & Tobago to
begin to repair relations in the hemisphere. At the summit, he announced a new policy on
Cuba, but fell short of calling an end the embargo, as the Latin American leaders had
urged. Obama gave priority to strengthening relations with Mexico and Brazil as
regional powers. His promise of closer collaboration and sensitivity to Latin America
was tested again in June in the Honduran crisis when Washington sided with the Latin
American governments in demanding restoration of the deposed president.


Little movement on trade front
With the free trade agreements with Colombia and Panama awaiting final congressional
approval, the Obama administration relegated trade policy to the backburner. The most
important developments concerning economic integration occurred in South America,
where the South American Union (UNASUR) had some success in establishing itself as a
regional political bloc. Venezuela continued to promote the Bolivarian Alternative for
the Americas (ALBA) as a bloc of nations independent of the U.S.









DOMESTIC ENVIRONMENT


The domestic environments of all 18 countries began to deteriorate in the last quarter of

2008. The higher unemployment and the increase in poverty caused by the decline in GDP had

negative social consequences and threatened political instability.. By Q3 2009 there were signs

that some countries were coming out of the downturn, and by Q4 the regional economy was on

the road to recovery. In addition to the region's growing ties with China, observers also credited

the unexpectedly rapid recovery of Latin America to aggressive policies, especially in countries

that lead the recovery.

Economic and Financial Performance V A

Economies stopped growing and then began to recover
In 2009 regional GDP growth was negative for the first time in seven years (Figure 4),
and nine of the 18 economies were in recession (Table 1). However, most of the
economies were expected to grow again by the end of the year. All are forecast to return
to positive growth in 2010.

Inflation declined
Slower growth reduced the inflationary pressures which had increased during the first
three quarters of 2008 (Figure 5, Table 2), and allowed central banks to lower interest
rates in an effort to stimulate recovery.

Capital markets began to recover
Effective macroeconomic policies and preventative measures protected capital markets
and triggered renewed inflows of capital, which helped local stocks regain much of what
they lost at the end of 2008. These policies, where pursued, also insured that the renewed
inflows would not generate speculative bubbles.

Encouraging external performance under difficult circumstances
Many countries took advantage of positive balances of trade and current account
surpluses (Figure 6, Table 5), as well as growth in FDI (Figure 3, Table 4), to pay down
their foreign debt (Figure 7, Tables 6 and 7) and build up reserves, actions that insulated
Latin America from external shocks in a way that had not occurred in past financial
crises. As a sign of international confidence, Latin American currencies regained much
of what they had lost against the U.S. dollar (Table 8). Mexico, Brazil and Colombia
took advantage of the lower cost of borrowing to float large bond issues in September
and October. Remittances to the region especially important to Central America and
the Caribbean were expected to fall 11% in 2009, largely due to the economic
slowdown in the U.S.














Figure 4


GDP Growth for Latin America, 1999-2014
(Sources: ECLAC 2009, IMF 2009)
70

61
60 58 58


50 49
42
40
40


30
S22

O 20

10

0204
00M

-04
-1 0


-20


30
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008






Figure 5



Average Annual Inflation Rate for Latin America, 1
(Source: ECLAC 2009)
140


122
120



100 97
FL 1 90
U 85




550
S80) 74



m 60



40



20



00


2009 2010 2014


999-2009


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009














Figure 6

Exports and Imports of Goods and Services in Latin America,
2005-2008
(Source: ECLAC 2009)



1,017,983 nna a


879,663


781,193


* Exports
SImports


2005 2006


2007


2008


Figure 7


Gross Disbursed External Debt, 1999-2008
(Source: ECLAC 2009)


1,200,000




1,000,000




800,000


0
m


S600,000

.o


400,000




200,000




0


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

I Debt (Billions of US Dollars) - Debt as % of Exports of Goods and Services









Social Environment V

The six years of growth strengthened the social environment in important ways:

generating formal sector jobs and reducing unemployment; raising incomes and reducing the

poverty rate and even lessening inequality in Latin America (Table 9). Per capital GDP grew at

an annual average rate of over 4.0% between 2004 and 2008. Targeted income transfer

programs, funded by increasing fiscal revenues, had a further positive effect on the social

environment. The economic downturn that began in late 2008 began to reverse these gains. It is

estimated that each 1.0% decline in GDP increases the poverty rate by 2 to 3%. Lack of jobs and

rising poverty also threatened to increase the incidence of crime and violence, which were

among the highest in the world.

Unemployment grew as growth fell
ECLAC estimated that in March 2009 the combined unemployment rate in the nine
largest economies jumped to 8.5% from 7.9% a year earlier, and that, by the end of the
year, the urban unemployment rate would range between 8.7% and 9.1%.

Anti-poverty programs cushioned impact of crisis
Various cash transfer programs, which target the poor on the condition that parents keep
their children in school and provide them medical attention, benefitted 100 million in
Latin America in 2009.

Political Environment =

The political environments of Latin America continued to diverge along two paths.

While the majority of countries adhered to the model of constitutional representative democracy

that emerged in the 1980s, Venezuela headed a radical populist bloc based on direct participatory

democracy that resorted to periodic plebiscites to remove obstacles to re-election, to concentrate

power in the presidency, and to expand the state's role in the economy. For the most part the

political environment was yet to be altered by the economic crisis, although echoes of the kind of









political instability that has afflicted the region in the past were manifest in Honduras when

President Zelaya was forcibly removed from office.

Elections ratified status quo
There were only three presidential elections. In Central America voters delivered
victories to the center-left in El Salvador and center-right in Panama. Ecuadoreans gave
populist president Rafael Correa a second term.

Populist regimes pushed through constitutional reforms
The 2008 constitutional referendum made it possible for Correa to run for re-election.
Bolivians approved a referendum permitting a second term, and Venezuelan voters
strengthened President Hugo Chavez when they approved a referendum that abolished
term limits and expanded the powers of the president.

Strong support for incumbents
Public opinion polls registered surprisingly high approval ratings given their economic
difficulties for the presidents of Brazil, Chile, Colombia, Costa Rica, Peru and
Uruguay, in part because of their responses to the economic crisis.

Breakdown of constitutional rule in Honduras challenged hemisphere
Beyond the implications for the future of democracy in Honduras, the removal of an
elected president raised the specter of a return of military intervention in politics, and
questioned the ability of inter-American community of government to influence the
behavior of one of its member states.

Policy Environment A

Sound fiscal policies were widely credited with moderating the impact of the worst

external shock since the Great Depression and facilitating a rapid recovery. In contrast to

previous economic crises, this time around the policies adopted by many countries proved to be a

source of strength. During the boom, governments in these countries some more effectively

than others built up fiscal surpluses (Figure 8, Table 11), managed interest rates to keep

inflation within pre-announced targets, adhered to floating exchange rates, and set aside external

surpluses as a means to build up reserves and pay down the external debt. When the crisis came,

the cushion provided by such policies enabled countries to lower interest rates and draw on fiscal

and foreign reserves to stimulate their economies. Taken together these policies engendered a










level of confidence that both avoided the financial meltdowns of the past (1994-5 peso crisis, for

example) and helped restore capital flows.

Measures to boost liquidity and restore investor confidence
In addition to lowering benchmark interest rates to historically low levels, central banks
relaxed reserve and other requirements.

Countercyclicalfiscal policies
Governments implemented spending measures to assist small and medium enterprises,
agriculture, housing and infrastructure investment. They also cut taxes or gave targeted
tax breaks to spur investment and consumption. The magnitude and impact of these
measures depended in large part on the fiscal resources available. The Brazilian
countercyclical package was the largest, amounting to 8.5% of GDP, while Chile,
Colombia and Mexico spent between 2.4 and 2.8% of GDP, according to ECLAC.

Governments expanded control over energy sector
Resource nationalism spread to Brazil with the government's plan to limit private
participation in exploitation of the "pre-salt" oil fields in the Atlantic.


Figure 8
Central Government Balance for Latin America 2004-2008
(Source: ECLAC 2009)


0.0


-0.3


* Primary Balance U Overall Balance









Legal Environment =


In terms of rule of law, incidence of corruption, economic freedom, property rights and

crime victimization, Table 12 again shows considerable difference among the legal environments

of the 18 largest economies. Chile, Uruguay and Costa Rica had relatively strong environments,

while Venezuela fell near the bottom on most indicators. The pattern was somewhat different

regarding the bureaucratic barriers to conducting business (Table 13), although Chile was again

at the top and Venezuela at the bottom. Over the past year there were both setbacks and

advances in the region's legal environments.

Radical populist regimes weakened legal environment on several fronts
The rule of law was compromised by overt interference by strong executives, often
including disputes with the judiciary that resulted in the replacement of recalcitrant
judges. Venezuela and Bolivia, along with Colombia and the Dominican Republic, acted
to abolish or change term limits allowing an otherwise tenure-limited president to seek
reelection. Property rights were also under siege in several countries. The expropriation
of property was most extensive in Venezuela, where land, industry and the media were
targeted. In Ecuador, the repudiation of foreign debt and the withdrawal from
international investment dispute resolution mechanisms prompted similar fears.
Argentina's nationalization of private pensions last fall likewise marked a significant
encroachment on the part of the state on private property.

Ongoing judicial and procedural reform
Several countries have continued to reform their judiciaries. Brazil established a
procedure to set nationwide standards for judicial ethics and behavior and to enforce
these standards by removing corrupt or incompetent judges. Mexico and Chile continued
with reforms that affect criminal and civil processes.

Increasing protection of intellectual property rights
As part of its ratification of DR-CAFTA, Costa Rica modified its trademark laws, and
entered into several international conventions on property rights. Peru likewise modified
its border controls to target pirated goods. Chile and Peru signed the Patent Cooperation
Treaty this past year. In each of these cases, the legal changes were prompted by
commitments in free trade agreements with the United States and/or the European Union.
Colombia, under its free trade agreement with the United States (yet to be ratified by the
U.S. Congress), would also accede to the Patent Cooperation Treaty.

Tax reforms
Prompted in part by the need to make their countries more competitive and the need to
encourage the repatriation of capital from abroad, several countries, including Argentina,









Brazil, El Salvador and Mexico, modified their tax codes to simplify obligations, or to
provide for limited amnesties for declaration and repatriation of assets held abroad.

* Violence and crime challenges to rule of law
In Mexico, continued drug- and gang-related violence caused the death of thousands and
prompted the federal government to send troops to several violence-ridden states. In
Peru, the Shining Path, once thought defeated, re-emerged as a threat in parts of the
country. Although the guerrilla movements in Colombia have been driven back in recent
years, serious threats remained as did the problems of dealing with the results of
displacement and the paramilitary violence. Guatemala and El Salvador continued to
deal with the legacy of guerrilla violence. A deterioration of economic and social
conditions in Venezuela made Caracas one of the world's most dangerous cities.


































































22









II. COUNTRY PROFILES


NAFTA REGION

Mexico's dependence on the U.S., deepened by the integration of the two economies

under NAFTA, meant that the decline in trade, the lower investments and the reduced

remittances caused by the U.S. recession were especially hard on the Mexican economy. .

Another challenge that affected the two North American neighbors was the escalation of

violence linked to the flow of drugs and weapons across their shared border. In the midst of

these economic and social challenges, the two countries entered into a nasty trade dispute in

March when Washington reneged on its NAFTA obligation to allow Mexican truckers across the

border to deliver cargo in the U.S., prompting Mexico to retaliate by levying tariffs on certain

U.S. products.

In this unfavorable context, and in light of the deterioration in U.S.-Mexican relations

under the Bush regime, President Obama set out early in his administration to repair bilateral

relations between the two countries. Both he and Secretary of State Clinton made high profile

visits to Mexico in the spring, and Obama backed away from his campaign call to renegotiate

NAFTA. The two governments redoubled efforts to combat drug trafficking and violence

through the Merida Initiative. At the "Three Amigos Summit" in mid-August, the leaders of the

NAFTA countries pledged to cooperate to deal with issues facing North America, but the fact

remained that, while trade and investment increased dramatically in the early years of NAFTA,

the integration of North America was has begun to run its course, and bilateral relations

continued to dominate the agenda.









Mexico V3: Global economic crisis and escalating drug violence presented serious
challenges.

Economy fell into deep downturn
Mid-year forecasts predicted that in 2009 GDP would drop 7.0%, resulting in the steepest
decline since the 1930s and the deepest in Latin America. There were signs that the
economy bottomed out in Q2 and would begin to grow. In late August the stock market
was up for the year 33% in dollar terms, but still not up to its 2008 high.

Integration with U.S. increased vulnerability
Unlike past crises (most recently the 1994-5 Tequila crisis), the current one did not
originate locally, and Mexico was much better prepared to cope with falling exports, FDI
and remittances (down by an estimated 20%) and declining trade (exports to U.S. down
36% in May). Measures to reduce the dollar-denominated debt and build up reserves
cushioned the impact of the credit meltdown. In late March, the Mexican government set
up a $47bn Flexible Credit Line with the IMF, and it implemented a $30bn currency
swap with the U.S. Federal Reserve. These measures, combined with strong fiscal and
monetary policy, helped Mexico retain investment grade credit rating. The peso rallied
mid-year to regain some of the ground lost against the dollar.

Drug-related violence and swine flu weakened social environment
The dramatic escalation in drug related violence, and the shocking impunity of the
perpetrators, raised the image of Mexico as a failed state, although Mexico's effective
response to the swine flu outbreak helped restore the government's credibility. It was
nonetheless apparent that the social problems facing the country had deepened. Official
unemployment rose to 6.12% in July, the highest figure on record.

Opposition won control of Congress
The PRI, the leading opposition party, doubled its seats in the lower house, which has
exclusive control over the budget, and won key gubernatorial posts in July mid-term
elections. In coalition with the small Green Party, the PRI-led opposition will control
Congress for the remaining three years of President Calderon's term. The electoral defeat
did not diminish Calderon's personal popularity (nearly 70% in September polling).

Macroeconomic policies secure but passage of key reform measures uncertain
Mexico did not deviate from its market-friendly macroeconomic policies, and throughout
the year employed them to implement counter-cyclical monetary and fiscal measures to
stimulate the economy. In September, the central bank left the benchmark interest rate
unchanged at 4.5% for the second month in a row in anticipation that the recovery was
beginning. With the opposition in control, Congressional approval of fiscal, labor,
energy and state reforms pushed by Calderon are likely to be more difficult. Of
continuing concern was the need for further opening of hydrocarbons to private capital as
oil and gas production continued to decline.

3 The symbols for each country indicate the following overall trends: A business environment improved, V
business environment deteriorated, = no significant change since 2008 report.










*Important legal reforms
November 2008 reforms gave PEMEX greater autonomy and budgetary control, as well
as the right to contract with private firms, both foreign and domestic. Contractors are
limited, however, to exploration and production because the opposition included
language which expressly prohibits the private sector's participation in transportation,
storage, or refining. Reforms of criminal procedures aimed to reduce the backlog in
cases moved Mexico closer to U.S.-style judicial system. In an attempt to reduce
violence and to free up police to address more serious drug trafficking, Congress
decriminalized the possession of small amounts of illegal drugs.


DR-CAFTA COUNTRIES

By virtue of their dependence on the U.S. through trade (reinforced in the 2006 by the

DR-CAFTA trade agreement), tourism, investment and remittances, it was inevitable that the

global financial crisis and economic slowdown that had its origins in the U.S. would be hard on

the economies of Central America and the Dominican Republic. Of the seven countries, all but

two the Dominican Republic and Panama were expected to finish 2009 with negative GDP

growth. The outlook for 2010 was brighter in part because of recovery in the U.S., but the lack

of major commodity exports (reflected in the region's comparably weak terms of trade) meant

that the DR-CAFTA countries did not benefit directly from the more robust Chinese recovery.

Even more damaging for Central America were political developments, which not only

tested regional integration but also raised doubts about the strength of democratic governance.

Suspicion of fraud in the November 2008 municipal elections in Nicaragua reinforced the

impression that President Daniel Ortega was consolidating power along the lines of his close

ally, Hugo Chavez, in Venezuela. There was a scandal in Guatemala triggered by charges (later

proven without merit) that the president was behind the assassination of a leading political

figure. Most unsettling, however, was the late June military intervention in Honduras that

removed the elected president, and the subsequent failure of Central American leaders to broker









a settlement that allowed the restoration of constitutional rule. The breakdown of democracy in

Honduras, which echoed the political chaos that gripped Central America during the 1980s,

overshadowed the peaceful transfers of power in El Salvador and Panama, and represented a

setback to the deepening of regional integration underway in the past decade.

Central American heads of state met in December 2008 to discuss strategies to combat

the credit crisis. The result was a 41-point economic agreement which proposed increased

integration, food security, and investment. Integration measures included a plan to "standardize

laws" in the areas of immigration, education, and security, and to implement a common currency

for the region. In July 2009, the International Court of Justice (ICJ) ruled on a long-running

dispute between Nicaragua and Costa Rica over control of the San Juan River, which borders

both countries. The ruling allows Costa Rica free navigation for all commercial navigation,

including tourism. The court ruling upheld Costa Rica's objection to Nicaragua's attempt to

require obtain visas and pay fees, but affirmed Nicaragua's right to deny use of the river to Costa

Rican police forces.

Dominican Republic V: Strong environment coped with downturn.

Growth slowed
The brisk GDP growth that resumed after the 2003-04 banking crisis disappeared in the
Q4 2008. Although early 2009 forecasts called for negative growth, subsequent forecasts
predicted low to modest growth in 2010. Under these conditions inflation remained
moderate.

External performance declined
The U.S. recession translated into falling demand for Dominican exports, declining FDI
(from 2008's record level), and fewer tourists. Remittances from the large Dominican
expatriate community in the U.S., which account for over 9% of GDP, were expected to
fall by as much as 10%. Lower oil prices partially offset these losses and kept the current
account deficit down. In May the country reapplied for full membership in CARICOM
(with which it had a free trade agreement). Although the economic benefits to be derived
from membership would be small, it would facilitate negotiating an Economic
Partnership Agreement for CARICOM with the EU. In early September, the government
reluctantly requested a $1.5bn loan from the IMF to cope with the crisis.









Policy options limited
A deteriorating fiscal position limited the government's ability to implement counter-
cyclical spending programs. The overall fiscal deficit, which reached 3.2% of GDP in
2008, continued to swell.

New constitution near approval
The Constitutional Revision Assembly, the sixth constitution since gaining independence
from Spain in 1865, was expected to approve the text of a new constitution that would
include reforms to relax restrictions on presidential succession, and facilitate changes to
the judiciary. In December 2008 the legislature authorized the formation of limited
liability companies and limited sole proprietorships in order to facilitate the creation of
small and family-run businesses, a legal status previously limited to large and medium-
sized Sociedades Anonimas.

Costa Rica V: Multiple responses to deep downturn.


Economic growth turned negative
GDP growth, averaging over 5% since 2003, was expected to take one of the biggest
drops in Latin America. The downturn reduced inflation, which averaged in the double
digits in the same time period. Between September 2007 and September 2008, the
consumer price index experienced the highest rate of increase in 10 years. Over the
succeeding 12 months, the increase was the lowest in 10 years.

Difficult external environment
In November 2008 the General Assembly, following a closely contested public
referendum, gave final approval of DR-CAFTA, which locked in preferential trade
arrangement with the U.S. In an effort to diversify its external relations, the government
initiated free trade negotiations with China. In April it secured a $735mn line of credit
with the IMF to moderate the impact of the adverse global environment. The trade deficit
widened as exports fell faster than imports.

Country geared up for 2010 elections
Both of the major political parties selected their presidential nominees Laura Chinchilla
of the ruling PLN, who served as a vice president and minister in the Arias
administration, and Otton Solis of the PAC, who came close to winning in 2006.

Policy focus shifted to countercyclical measures
With inflation falling, the government announced in late January the "Shield Plan" which
featured a mixture of cash transfers, relaxed regulations and public spending designed to
assist families, workers, small businesses. The plan also helped financial sector cope with
the crisis and lay the groundwork for recovery.

DR-CAFTA altered legal environment
The agreement opened the state-run telecommunications and insurance industries to
private investment, and strengthened the protection of intellectual property rights.









Congress enacted the nation's first law to address organized crime. Among other things,
the new law allows judges and prosecutors to lift bank secrecy in cases of organized
crime, and provides for longer prison sentences for those convicted of organized crime.

El Salvador : New government inherited economic downturn and related social
deterioration.

Modest economic performance weakened
GDP growth, which was the weakest in Central America over the decade, turned negative
in 2009 with a moderate uptick expected in 2010.

Declining trade, investment and remittances
While the new government recognized Cuba, it re-asserted the country's special ties with
the U.S. Washington reciprocated with pledges of continued support. The outgoing
administration negotiated an $800mn precautionary standby loan with the IMF.

Crime and violence constituted serious social problem

March election produced victory for left
Mauricio Funes, a former TV newsman, ran a centrist campaign and won a historic
victory for the FMLN, the leftwing party of the guerrillas who fought against the
government in the bloody civil war of the 1980s. On taking office, Funes affirmed his
adherence to the pragmatic Latin American left, but he had to satisfy both the moderate
and radical wings of his own party, and must deal with a legislature in which he does not
have a majority.

Continuation of centrist policy agenda
The new administration went out of it way to assure the private sector and international
investors that it would do nothing to jeopardize El Salvador's reputation as a business
friendly country. Dollarization and deteriorating fiscal accounts limited its counter-
cyclical and social policy options.

Compromise on supreme court membership
In June the term of office for five of fifteen Supreme Court judges expired, which caused
a political crisis when the President sought to change the legislative assembly's
traditional, and highly partisan, power of appointment. Under a compromise agreement
the presidency of the court went to a member of the conservative opposition, and the
remaining positions were distributed among the parties.


Guatemala V: Economic and political crises challenged the environment.

Growth turned negative
The downturn brought an end to a decade of economic growth but also reduced
inflationary pressures.









Violence, growing unemployment and poverty undermine social environment
Violence linked to organized crime, drug trafficking and youth gangs gave Guatemala
one of the highest homicide rates in the world. In September the government declared a
"public calamity" to deal with a wave of hunger and malnutrition caused by a drought
and the economic crisis.

President survived calls for resignation
Although President Colom resisted calls for his resignation over charges that he was
involved in the assassination of a prominent political opponent, his already weak
government suffered further loss of power. The scandal also underlined the degree to
which violence and corruption penetrate politics and society.

Measures to reduce violence and impunity strengthened weak legal environment
Congress in April approved a new law to combat arms and munitions. In July, it
extended for two years the mandate of the UN's International Commission against
Impunity to investigate links between organized crime and the state. Its continued
relevance was demonstrated by the dismissal in August of the head of the national police,
together with his assistant and several deputies, for suspicion of being involved in narco-
trafficking. Guatemala adopted a secured transaction law that allows borrowers to use
property as collateral and thereby increase credit flows.

Honduras V: Political crisis was serious setback for environment.

Political crisis deepened economic downturn
Because of the conditions it shares with the rest of Central America, the economy was
headed for a significant slowdown, following five years of healthy growth. The June 28
removal of President Zelaya accelerated the fall in exports, tourism, investment, and
consumer spending.

Defacto government faced hostile external environment
The UN, the OAS and international community quickly condemned the removal of
elected President Zelaya and adopted sanctions to force the de facto government of
Roberto Micheletti to return Zelaya to office. In an unlikely alliance, both the U.S. and
Venezuela insisted on restoring the deposed president. In September Washington
terminated $30mn in aid it had earlier suspended.

Removal ofpresident further polarized politics
Events leading up to the removal of President Zelaya his growing alignment the ALBA
bloc promoted by Venezuela's Hugo Chavez, and steps to amend the constitution had
polarized the political environment, but his removal and subsequent resistance of the
interim government to a negotiated reinstatement produced a political stalemate and put
the November presidential election in doubt.

Policy-making paralyzed









Nicaragua V: Volatile politics unsettled weak environment.

Economic downturn
After enjoying a modest growth cycle, GDP turned negative, and outlook for 2010 was
for a weak recovery. Inflation declined in 2009.

External environment turns negative
During the growth cycle FDI flow helped offset Nicaragua's weak terms of trade.
Tourism grew by more than 7.0% in 2008. International assistance helped hold down
external and fiscal deficits and allowed Nicaragua to reduce its debt burden. All of these
flows declined in 2009. The U.S. cut back on bilateral and Millennium Challenge
Corporation assistance because of the unresolved dispute over municipal elections.
European donors also reduced aid. President Chavez of Venezuela promised to make up
the difference with ALBA support, but it was not clear if he could fill the gap.

Weak social environment
Nicaragua had the second highest rate of illiteracy the lowest per capital income
(measured in purchasing power parity terms) and ranked last of the 18 countries on the
Human Development Index of the LABER countries (Table 9).

Controversy surrounded municipal elections
Working with pliable state institutions, and with their former enemies in the Liberal
Conservative Party (PLC) of former president Aleman (whose sentence for conviction on
embezzlement had been reduced to house arrest by the government and was then quashed
by the Supreme Court), the Sandinista government consolidated its control of all levels of
government to minimize the possibility of opposition gains in the November 2008
elections. The elections themselves generated widespread charges of fraud and political
paralysis that was broken when the PLC voted to approve the Sandinistas running the
National Assembly.

Macro-economic policy adhered to orthodox measures

Controversial legal reforms
The government joined with conservative allies and Catholic and evangelical churches to
pass one of the most draconian abortion laws in the world. In another controversial
move, Ortega decreed new import taxes which would be collected and administered by
the supreme court, thus circumventing the finance ministry. Legal experts protested that
the decree is unconstitutional because only the legislature is constitutionally authorized to
create or modify taxes.

Panama V: Business-friendly administration inherited strong economy.

Growth dipped but fast recovery expected
Between 1999 and 2008 Panama registered the highest rate of growth of the 18 countries
(Table 1). Recently expansion of the Panama Canal boosted annual GDP growth above









10%. In 2009 it was expected to expand at only 2.5% (tied with Bolivia for the highest)
while doubling to 5.0% in 2010.

Panama awaits ratification ofFTA with U.S.
Under pressure from Congress, the Obama administration set aside plans for quick
consideration of the FTA, pending Panama's reform of banking secrecy laws and labor
rights. FDI, an important determinant of the recent growth spurt, declined in 2009.

Growing threats to personal security
Drug trafficking and related criminal activities caused a jump in homicide rate.

Opposition captures presidency
Conservative businessman Ricardo Martinelli won a landslide victory in the May
election, and his electoral alliance won a majority in the National Assembly. The new
president filled his cabinet with nominees from the business community along with
members from the rival political parties.

Crisis postponed policy reforms
As a candidate Martinelli pledged to strengthen security, reform the tax system and
increase countercyclical public infrastructure investment. However, a deteriorating fiscal
situation limited the government's ability to act. Declining canal toll revenues also
weakened the fiscal outlook, although the economic downturn did not threaten canal
expansion.

Tax reformsfor multinational companies
The government introduced new rules governing tax incentives for multinational
companies headquartered in Panama. Under the new rule, companies that hold the
appropriate license (la Licencia de Sede de Empresa Multinacional) are exempt from
income taxes in Panama for services rendered abroad by their affiliates. The new
regulations allow companies to sponsor unlimited visas for employees, which mean that
their workforce no longer has to consist of 90% Panamanian citizens. The new
government also pledged to reduce corruption and red tape.


ANDEAN SOUTH AMERICA

The resource exporting economies of the Andean region continued to grow well into

2008 thanks to favorable terms of trade generated by high commodity prices, and the subsequent

slowdown was less than in the rest of Latin America. However, the overall profile for the region

was far from healthy. The business environments of three Bolivia, Ecuador and Venezuela -

of the five countries were problematic due to weak institutions, populist politics, and growing









state intervention in their economies. The three problematic environments also ranked lowest on

rule of law and at the top in corruption in Latin America. Peru, Bolivia and Ecuador had to deal

with protests by indigenous communities objecting to government proposals to open their lands

to energy, mining and agriculture development by private investors.

Tensions among the member countries of the Andean Community weakened regional

trade and unity. Most serious was the ongoing dispute between Venezuela and Colombia. In

July, President Chavez froze diplomatic relations and took steps to disrupt trade between the two

neighbors, who are each others' second biggest trading partners (the U.S. being the first for

both). In addition, Ecuador and Colombia had not yet resumed diplomatic relations that were

broken in 2008 over a Colombia troop incursion into Ecuador. Peru presented its case to the

International Court of Justice (ICJ) for a redefinition of Peru's maritime border with Chile,

which had rejoined the Andean Community in 2007. The two countries have growing trade ties,

making the ongoing litigation a sensitive issue. Chile did not challenge the jurisdiction of the

ICJ over the matter, but will contest the claim in court. These disputes were a blow to the

Andean Community from which Venezuela had withdrawn in 2006 to cast its lot with ALBA

and MERCOSUR as a step toward consolidating a South American bloc. The assistance of the

Andean Development Corporation was a bright spot.

Bolivia V: Political and economic developments gave some stability to weak
environment.

Economy avoided deep downturn
GDP growth dropped but stayed positive and was among best in region. Inflation
declined. Outlook for 2010 is for a modest uptick.

Mixed external performance
Through 2008 Bolivia continued to take advantage of favorable terms of trade, growing
exports and current account surpluses to reduce its debt and build up the international
reserves that helped it cope with the global crisis. The managed exchange rate regime
minimized the currency volatility experienced elsewhere in Latin America. FDI flows









were modest but positive despite strong resource nationalism. The relationship with the
U.S. seemed on the mend, but in June the U.S. declared that Washington was not
renewing Bolivia's duty-free trade privileges under the Andean Trade Promotion and
Drug Eradication Act (ATPDEA). The Office of the United States Trade Representative
explained that the reason for the decision was the "explicit acceptance and
encouragement of coca production at the highest levels of the Bolivian government."

Morales consolidated political position
In a repeatedly postponed referendum, voters in January approved a new constitution that
expanded indigenous rights, expanded state control of the economy, and allowed the
president to run for re-election once. It was increasingly apparent that, although Bolivia
remained polarized, Morales has reconfigured Bolivian politics into a dependable
majority supporting him and his policies against a divided opposition. This made the
political environment less volatile and gave the president room to implement his populist
agenda.

Mixed policy profile
The government left little doubt that it would continue to expand state control over key
sectors of the economy when it nationalized BP's holding, but it also pursued orthodox
macroeconomic policies to enable it to moderate the downturn and shift resources to
public housing and income transfer policies.

Other changes in legal environment
The new 411-article constitution provides for constitutional and Supreme Court justices
to be elected by popular vote and to increase the size of the senate from 27 to 36
members with increased representation for recognized indigenous groups. The new
constitution also provides for indigenous areas to administer criminal justice according to
their own customs. In separate referendum voters approved a cap on land holdings,
limiting the maximum to 5,000 hectares.

Colombia V: Uncertain future of president cast shadow on improving environment.

Economic performance deteriorated but recovery on horizon
GDP growth turned negative in the last quarter of 2008 and continued to contract during
the first half of 2009, erasing some of the impressive gains achieved during the previous
five years. A modest recovery is expected in the second half of 2009, continuing into
2010. During Q2 the local stock market rose 50% against the dollar.

U.S. ties central to external position
With close economic and political alignment with Washington, Colombia continued to be
the odd nation out in South America. When the government announced that Colombia
would increase access of U.S. troops to Colombian bases to fight drug trafficking -
President Uribe came under attack from other South American presidents, but he held his
ground. Although the Obama administration promised to move ahead on the free trade
agreement with its South American ally, the measure remained stuck in Congress. With
its more open economy and business friendly environment, both trade and foreign









investment boomed during the growth cycle. The global downturn hit Colombia hard,
however, because of its relatively large debt burden and fiscal deficit. In April, Colombia
applied for a $10.5bn contingency loan through the IMF's new Flexible Credit Line. In
October, it sold $lbn in overseas bonds to help cover the growing fiscal deficit.

Third term for Uribe dominated political environment
With national elections scheduled for May 2010, the likely winner in the presidential
contest remained uncertain. Although he had yet to say whether he would run for a third
term, the President signed a law that would permit it. If the Constitutional Court rules
favorably on the measure, the provision would then be put to a vote in a national
referendum.

Policy aimed at soft landing
In response to falling inflation and to combat the economic slowdown, the central bank
lowered the overnight lending rate from 10% to 4.5% between December 2008 and June
2009. Unlike central banks in the region that stopped lowering interest rates as signs of
recovery appeared, three consecutive quarters of economic decline prompted the
Colombian central bank to lower its benchmark interest rate again in late September.
Deterioration in both the external and fiscal accounts limited the government's
countercyclical options on the spending side where it had hoped to launch an ambitious
infrastructure investment plan.

Human rights violations and wire tapping challenged rule of law
Critics indicted the president for failure to crack down on human rights violations
allegedly perpetrated by military and civilian authorities. Revelations that the
intelligence agency (DAS) had spied on opponents of the government further raised
doubts about the rule of law in Colombia, but in September as required by Congress, the
Obama administration certified that Colombia's record on human rights did not
disqualify it from continuing to receive military assistance.

Ecuador V: Elections clarify political environment for populist government.

Economy softened
Growth, which jumped in 2008, slowed to near zero in 2009. The outlook was for a
modest recovery in 2010.

More confrontational external posture
Embracing full membership in ALBA, Ecuador unambiguously aligned itself with
Venezuela, Bolivia and Nicaragua, thereby complicating its relations with the U.S. and
Colombia. The government announced that it was withdrawing from the International
Center for Settlement of Investment Disputes (ICSID), the court run by the World Bank
that was arbitrating Ecuador's $10bn worth of investment disputes. FDI, which had been
in decline under Correa picked up in 2008, but the withdrawal from the ICSID raised new
investor concerns. The ongoing dispute with Chevron over its liability for environmental
damages flared up in September. In December, Ecuador defaulted for the second time
in 10 years on $3.9bn worth of bonds. It then arranged an auction for the defaulted









2012 and 2030 bonds, under which investors could agree to pay the government's 35%
buy-back price or ask for a higher price. S&P returned Ecuador's rating to CCC+ after
the buyback, and Fitch upgraded the nation's credit rating from restricted default to CCC
in September.

Government increased social spending but faced indigenous protests
The government increased the minimum wage and invested in income transfer programs
and social services. A new mining law prompted widespread protests from indigenous
groups claiming sovereignty over territories to be opened exploitation. The law allows
industrial and development activities in areas of the country hitherto reserved to
indigenous populations.

Election to second term strengthened president's hand
President Correa followed up his victory in the 2008 constitutional referendum with re-
election to a full four-year term. In the May elections, Correa achieved an unprecedented
first round victory with over 50% of the vote, and his supporters won control of
Congress. In a country that had eight presidents in 13 years, the stability that Correa
achieved was noteworthy. His next challenge was to push ahead with a radical populist
agenda, without an established political party to work with in Congress.

Policies to cope with downturn
Dollarization and a tight fiscal situation limited the government's countercyclical options.
With falling remittances from abroad, Ecuador adopted a new minimum corporate
income tax and increased the tax on money sent from abroad from 1% to 2%.
In another move intended to remedy the nation's weak financial state, the central bank
required all banks to keep at least 45% of deposits within Ecuador. The new requirement
was expected to force Ecuadoran banks to repatriate some of the estimated $1.2 billion
held overseas. It was unclear how the law would apply to subsidiaries of foreign banks.

New constitution changes legal environment
The new constitution added a fifth branch to Ecuador's government in the form of the
Consejo de Participaci6n Ciudadana y Control Social, or Council on Citizen
Participation and Social Control, which was set up to be an equal partner to the existing
executive, legislative, judicial, and electoral branches. According to the government, the
purpose of the Consejo was to increase citizen involvement in public life and promote
transparency in government. Among the provisions relevant to business, the new charter
expanded the role of the state in the economy, strengthened the powers of the president
(shifting control of monetary and financial policy from the central bank to the president,
for example), and placed further restrictions on foreign investment.

Peru V: Strong environment faced downturn and political challenges.

Growth down but fast recovery likely
Peru had the highest annual GDP growth in the region, averaging over 5.0% for the past
decade. For 2009 the forecast anticipated a drop to 2.0%, but followed by an increase to
5.0% in 2010. Inflation, which jumped in 2008, was down to the lower rate to which









Peruvians were accustomed. After a big drop in 2008, the stock market surged in the first
half of 2009 as commodity prices recovered.

Strong external performance
With the FTA with the U.S. secured, Peru sought to negotiate agreements with its other
important trading partners, most notably China, and it continued to strengthen ties with
Brazil. In May, the government announced that it might request Flexible Credit Line
assistance from the IMF. In August, S&P reaffirmed the country's positive credit rating
citing a good outlook for growth due to prudent fiscal and monetary policies and stable
economy. Although FDI was expected to drop, Peru still offered attractive investment
opportunities in mining, infrastructure, and industry.

Widespreadpoverty and regional inequalities weakened social environment

Protests again undermined political environment
At the end of 2008, unrest in poor rural provinces forced President Garcia to declare a
state of emergency while charges of high level corruption forced him to replace key
cabinet members. In June, protests broke out in the Amazon region over government
decrees that opened indigenous areas to foreign firms for petroleum and logging
exploitation and hydro-electric dam construction. When the confrontation with the police
turned violent, the decrees were rescinded, and the president again had to make major
changes in his cabinet.

Fiscal and monetary policies addressed economic downturn
With external and fiscal reserves funneled into stabilization funds and a reduced debt
burden, the government implemented a range of stimulus programs, but was not
successful in ameliorating the persistent social problems that weaken the business
environment.

Legal proceedings against former president
The Supreme Court upheld a lower court's conviction of former president Alberto
Fujimori for human rights violations while in office and sentenced him to 25 years in
prison. He was also found guilty of corruption. Other important legal developments
included: a change in the mining royalty law so that royalties would henceforth be based
on the value of the minerals extracted rather than on the amount of earth moved by a
mine; a prohibition against importing used cars; and the outlawing of the sale and use of
kerosene, a chemical used in the production of cocaine.

Venezuela V: Deterioration on all fronts but president strengthened his hold on power.

Growth stalled while inflation soared
After five years of rapid expansion, the economy slowed in the latter half of 2008 and
stopped growing in 2009. The outlook for 2010 was for a weak recovery but no
slowdown in inflation was in sight. Inflation was expected to exceed 40% in 2009 in
spite of the weak economy, price controls and a fixed exchange rate.









* Drop in oil prices threatened external performance
The run-up in oil prices, which gave Venezuela the most favorable terms of trade in the
region, allowed President Chavez to pursue an activist foreign policy and finance
expansion of the state into all sectors of the economy. While FDI was booming in the
rest of Latin America, Venezuela experienced net outflows in spite of the oil boom. The
persistent low price of oil in 2009 meant declining export earnings and multiple demands
on the reserves of hard currency that had allowed the government to eschew conventional
sources of foreign financing. The president continued courting new sources of
investment and credit.

* Poverty down but threats to personal security a growing concern

* Despite electoral setbacks, Chavez tightened political grip.
Voters followed up their rejection of the December 2007 constitutional referendum by
delivering a victory to opposition candidates in key races in the November 2008 state and
local elections. Chavez bounced back with a win in the February referendum, which
abolished term limits for all elected officials. Furthermore, the president took steps to
undercut the power and authority of the winning opposition officeholders and to curtail
the independence of the media. Having already consolidated control over Congress, the
judiciary, the armed forces and the bureaucracy, there was little organized opposition
capable of challenging the president or holding him accountable.

* Expanding state control over economy and heterodox macroeconomic policies
The government maintained the bolivar pegged at 2.15 to the dollar where it has been
since 2005, in spite of a black market rate of close to 7-to-1. With oil revenues down, the
artificially strong bolivar created liquidity problems that made it difficult for foreign
companies to be compensated or remit profits. For consumers, the system of price
controls to hold down inflation generated shortages of everything from milk to drugs.
The government used these shortages to justify the take-over of private food processing
firms. It also nationalized oil service contractors, as well as air and sea ports. On the
fiscal side, the government raised taxes and cut spending, but having previously
abolished the stabilization fund, it could not fund an effective stimulus program.

* Government tightened control over education
A new education law promulgated in August will allow more state oversight of the public
school system, while making the educational "missions" permanent. The new law
removes religious education from the curriculum and reduces the autonomy of
universities. The law also takes steps to suppress "student federations," a large source of
opposition to Chavez's government and prohibits media outlets from publishing news
that "causes terror in children, incites hatred, attacks the healthy values of the Venezuelan
people, or the mental and physical health of the population."









MERCOSUR REGION

Efforts to build a South American bloc again overshadowed MERCOSUR. Venezuela's

application for full membership in the latter remained on hold as the Brazilian Senate and

Paraguayan legislatures refused to hold votes on Venezuela's entry in protest of threats to

freedom of the press and other political developments in that country. Venezuela did not comply

with other norms of MERCOSUR, which suggested that it would never achieve full membership.

MERCOSUR members did not resort to protectionist measures against each other, as

they had in response to past economic downturns. However, the fact that only 11% and 8.6% of

Brazil's exports and imports respectively were with MERCOSUR markets indicates the bloc was

relatively unimportant economically to its largest member. Uruguay and Paraguay continued to

find MERCOSUR unsatisfactory for their small economies. There was a proposal before the

U.S. Senate to grant both of these countries preferential access to the U.S. market by adding

them to Andean Trade Promotion and Drug Eradication Act. The dispute between Argentina and

Uruguay over construction of pulp plants on a shared river went before the International Court of

Justice. Brazil took an important step to strengthen relations with its MECOSUR neighbor when

it agreed to an arrangement increasing benefits to Paraguay from the joint Itaipu hydroelectric

dam.

The South American Union of Nations (UNASUR), founded in 2008, held several

summits, but the presidents were unable to come to an agreement on how to respond to

Colombia's decision to allow U.S. troops greater access to its military bases. President Uribe

chose not to attend one of the meetings, and then suggested that his country might withdraw

from UNASUR. This standoff indicated the limits to South American integration. In late









September they did agree to form the Bank of the South with initial capital of $7bn to finance

development projects and facilitate trade among members.


Argentina V: Environment continued to weaken.

Economy stopped growing
GDP, which started to fall in late 2008, contracted in Q2 2009, and forecasts were that it
would not return to the robust growth rates of 2003-08. Both falling exports and
consumer demand were components of the downturn in growth. The ongoing dispute
over the government manipulation of cost of living data meant led most observers to
believe that inflation was significantly higher than the rate reported by the National
Statistics Institute. The local stock market, which took a big drop at the end of 2008, was
up 83% in local currency for the year and 65% in dollars in September. The gap was a
function of a managed devaluation to keep the peso competitive.

Adverse external environment
Declining trade flows and deteriorating agricultural commodity prices hurt external
performance as did a severe drought and the government's ongoing dispute with farmers.
In late August, the government took a tentative step to re-enter global capital markets
when it announced a swap of short-term debt to relieve pressure building on public
finances. A similar move failed last year with the collapse of global financial credit
market, and most experts are waiting for additional steps to restore the country's credit
worthiness. Likewise observers were skeptical that the government was serious about
renewing relations with the IMF of which it had been critical.

Rising crime rates and swineflu outbreak weakened social environment

Kirchner administration suffered serious setback in midterm legislative elections
The government lost its majority in the lower house while barely holding on to control of
the Senate in the June elections. Among the losing candidates was the President's
husband and predecessor, Nestor Kirchner, who would seem to have been eliminated as
her likely successor in 2011. Contributing to the outcome electoral setback were the
economic situation, the prolonged struggle with farmers, and splits within the Peronist
bloc. The president passed up an opportunity to reach out to the opposition when she
made only cosmetic changes in her cabinet following the election.

Uncertain policy agenda
Analysts thought that the mid-term election might move the government toward a more
orthodox policy stance, but that did not happen.

Measure to curb power of media
Before the new, opposition-dominated Congress could be seated in December, Congress
approved and the president signed a bill that will divide television and radio broadcast
frequencies into thirds between private media outlets, civil society groups, and the









government. The nation's leading media group will be forced to sell off many of its radio
stations, TV channels, and part of its cable TV network to comply with new ownership
requirements. The law also requires licensing from a new broadcasting commission, and
introduces local content requirements of 70% for radio programming and 60% for
television. Opposition groups and the Inter-American Press Association criticized the
measure, claiming that it gives too much power to the government and noting that the law
is motivated by a dispute between Kirchner and the president of Grupo Clarin,
Argentina's largest broadcast company. By the measures in Table 12, the Argentine legal
environment was one of the most problematic in Latin America.

BrazilV A: Emerging from crisis as most dynamic environment in region.

Growth took deep drop in first half but turned up in second
GDP growth for 2009 was expected to be negative for the year, but it began to recover in
the third quarter more quickly and robustly than anticipated. Modest but sustained
increases in private and public consumption helped offset the sharp decline in exports and
imports. Industrial output turned positive between the second and third quarters.
Automobile sales set a record in September. By early September the stock market had
registered over a 50% gain in local currency and over 90% in dollars (reflecting recovery
of the real-dollar exchange rate) for the year to date.

Strong external performance
Brazil made gains on a number of fronts in a difficult external environment. Most
notable was Brazil's assertive role as a leading emerging market with BRIC status and a
leading member of the G-20. A WTO arbitration panel ruled in favor of Brazil
authorizing retaliatory measures against U.S. cotton payments. Strong capital inflows,
especially FDI, allowed the county to build up reserves which served as insurance against
currency volatility and allowed the central bank to lower interest rates. By September
2009 the real had regained so much of what it lost against the dollar that exporters were
concerned that it was overvalued. In September, Moody's joined the other two rating
agencies to anoint Brazil with investment grade, citing "the resiliency of the economy"
during the crisis as the key. It placed a $1.2bn 30-year bond issue on the New York
market at a spread of only 175 basis points. In late October the government levied a 2%
tax on foreign purchases of stocks and bonds in an attempt to slow down appreciation of
the real.

Social progress withstood economic downturn.
In the face of economic stagnation and increasing unemployment, and in contrast to what
happened in past crises, both poverty rates and income inequality continued to fall during
2009 in part due to the Bolsa Familia program that provided assistance to poor women
who kept their children in school. By 2008 the program reached 25% of the population.

2010 election began to dominate politics
President Lula, who cannot run after two terms, named Minister Dilma Rouseff as his
favored successor, but electoral success depends on putting together a coalition with the
PMDB, Brazil's largest party but one plagued by high-level corruption scandals. Very









early polling put former Sdo Paulo Governor and past presidential candidate Jose Serra in
the lead.

Policy initiatives to stimulate recovery and regulate hydrocarbons
Of some concern was the expectation that Henrique Meirelles would step down as
president of the central bank as the law requires of individuals who run for public office.
Under his leadership the bank asserted its independence and deftly used changes in
benchmark interest rates to strike a balance between fighting inflation and stimulating
recovery.

Changes in regulation of oil and gas sectors
In the wake of major offshore oil discoveries, President Lula submitted a package of bills
to Congress in August which would give Petrobras a minimum 30% stake in any future
concession while creating a new state-controlled company to manage contracts and
exploration of the "pre-salt" deepwater fields. A New Social Fund would capture oil
revenues to finance investment in education, infrastructure, poverty reduction, and
science and technology. The proposals prompted opposition in Congress, including a
filibuster in the lower house to demand that the "urgency" clause attached to the
legislation be removed. The president agreed, which will slow the legislative process. A
law adopted in March regulating the downstream natural gas activities requires
companies transporting or storing natural gas to be formed and managed in Brazil, and
foreign entities to form a Brazilian subsidiary to participate in natural gas concessions.
The new law allows consumers to bypass local distribution companies and, in some
cases, to reach their own agreements to purchase natural gas. A new land tenure law
approved in June grants untitled landholders in the Amazon legal tenure of land they
occupy.

ChileV: Government policies limited impact of downturn

Economy in recession
2009 GPD growth was expected to be negative for first time in a decade. Recovery
began in Q3. Falling domestic demand and lower energy prices reduced inflationary
pressures below the central bank's targeted rate.

Improving copper prices not enough to offset earlier deep decline
Chile is the world's leading producer of copper, the country's leading export. Between
July and December 2008, the price of copper fell from $4.07 a pound to $1.20. By mid-
2009 the price was over $2.00 and forecast to stay in this range. A strong peso hurt
Chilean exports.

Social policies mitigated impact of downturn
Since returning to democracy, the poverty rate has dropped from 45% to under 14%.
Public housing construction and increasing educational opportunities received special
attention under the outgoing administration of Michelle Bachelet, and its fiscal stimulus
package generated jobs to partially offset unemployment rose.









Tightly contested presidential election
September polling gave Pifiera of the conservative opposition Alliance a lead over former
president Eduardo Frei of the ruling Concertacion, but not enough to avoid a runoff. The
late surge in approval ratings for Bachelet helped counter the growing feeling that it was
time for the opposition to rule Chile.

Countercyclical policies enacted in response to recession
In January the government announced that it would draw on savings accumulated when
copper prices were high to fund a $4.4bn stimulus plan composed of infrastructure
spending, support for small and medium businesses, tax cuts and investment in the state
copper company. On the monetary side, the Central Bank lowered the reference interest
rate to 0.5% (a record low in July) to complement anti-recessionary fiscal measures.

Legal reforms
In August the government announced that it would liberalize rules on both equity and
fixed-income trading in order to boost trading volumes and make local capital markets
more attractive to foreign investors. A new Transparency Law that required the
government to open millions of documents for public scrutiny took effect in April 2009.
It further obligates public institutions such as the Senate, Chambers of Congress, the
Central Bank, the Judiciary, the military, and municipalities to publish information on
their day-to-day activities on their Web sites. President Bachelet signed into law a
measure that modified Chile's Worker's Code, guaranteeing women equal pay, and
Congress continued to purge leftovers from the Pinochet dictatorship.

Paraguay V: Unsettled politics and economic downturn slowed advances.

Big drop in growth
After only two years of strong growth, GDP was expected to contract by 3.0% in 2009
but return to moderate growth in 2010.

Renegotiated Itaipu deal favored Paraguay
In addition to giving President Lugo a political victory, the bilateral agreement increased
Brazil's yearly payments to Paraguay from $120mn to $360mn and allowed it to sell
electricity directly to Brazilian customers. FDI and exports, which had been experiencing
healthy growth, were hurt by global economic crisis.

Scandal weakened president
President Lugo, struggling to establish his government and meet high expectations
generated during his victorious campaign, had to cope with Colorado supporters
entrenched in the legislature, judiciary and bureaucracy, as well as with squabbles within
the ruling Patriotic Alliance for Change. He suffered a further setback when it was
revealed that he fathered children while still a Roman Catholic bishop.









Policy commitments unfulfilled
The new administration made no progress in enacting land reform, reducing poverty or
fighting corruption. The president had to replace six ministers after less than a year in
office.

Supreme Court reforms?
President Lugo proposed reforms to make the Supreme Court less partisan. The
opposition countered that Lugo was attempting to breach the separation between
government branches in order to stack the court with friendly jurists.

Uruguay V: Presidential election took center stage.

Downturn was moderate
GDP growth, which averaged over 8.0% between 2004 and 2008, dropped but was
expected to stay positive in 2009 and recover to 3.5% in 2010. Inflation, which jumped
to 9.2% in 2008, also fell.

Positive external performance
The government took advantage of increasing FDI and exports to reduce its heavy debt
burden, which helped cushion the impact of the global financial meltdown on Uruguay.
Diversification of international trade reduced exposure to the volatile Argentine
economy, although it benefited from the inflow flight capital from its larger neighbor. In
September with successful placement of an international bond issue ratified investor
confidence the country.

October 2009 election to select new president and determine control of legislature
The two leading candidates, former guerrilla Jose Mujica of the ruling Frente and former
president Luis Alberto Lacalle of the opposition Blanco party, were running as
moderates, which suggested that there would be no major policy shifts.

Strengthened bank regulations and conservative policies protected economy

Minor changes to strong legal environment
An initiative to redress past human rights abuses would repeal the amnesty law that
shielded military personnel from prosecution for violations committed during the
dictatorship if approved in a public referendum to be held concurrently with the October
25th election. A collective bargaining bill under consideration would shorten labor
lawsuits and force late-paying companies to pay a 10 percent penalty.









III. OUTLOOK


OUTLOOK FOR THE REGION

Initial speculation regarding the impact of the global financial meltdown and economic

slowdown that began in 2008 was that Latin America would escape major damage because it

was effectively decoupledd" from the principal global trouble spots. When it became clear by

the end of 2008 that Latin America would not escape, the concern was that the region was in for

a deep downturn of its own followed by a slow recovery of the type provoked by previous

external shocks. By mid-2009, however, many of the region's economies were recovering more

rapidly than in past crises, presumably due to long and short-run changes in the external

environment but also because of stronger domestic environments. In this conclusion we explore

the outlook for the region and its 18 largest economies as 2009 draws to a close. For each

country, we indicate whether it the business environment is likely to get better (A), get worse

(V), or stay the same (=) through 2010. A question mark (?) indicates the outlook is uncertain.

We further identify key variables to monitor in the coming 12-15 months.



External Environment

SGlobal
In September, the OECD reported that the global recovery had started earlier than
expected. It predicted weak 2010 growth in the G-7, but a more dynamic performance in
emerging economies less exposed to the financial downturn. Because of China's
growing importance in the global economy and increasing trade and investment ties with
Latin America, its rapid recovery was a positive development. Of concern was whether
China's surge in commodity imports had run its course or if the recent trends were an
indication of a long-term increase that will undergird higher commodity prices and
increased trade flows in the future. And even more important, especially to Mexico and
to Central America and the Caribbean, was the timing and strength of the U.S. recovery,
which was beginning to gain a foothold in late 2009. For Latin America as a whole
exports to the U.S. were five times those to China in 2008.
Keys: Global recovery led by U.S. and China; WTO negotiations









*Regional A
Pending regional issues include the political standoff in Honduras; coordinated action to
reduce drug trafficking and violence, especially but not only on the U.S.-Mexican border;
and the definition of trade policy under the Obama administration. Venezuela and the
ALBA bloc seem certain to continue pursuing a path antagonistic to the U.S. Also likely
are changes within Cuba and with respect to U.S. policy toward Cuba, both of which
have the potential to substantially alter the island nation's environment.
Keys: Resolution ofHonduran crisis; U.S. engagement with Latin America; ALBA
nations; Cuban transition

Domestic Environment

Economic and Financial Performance A
The region and each of the 18 economies were expected to grow in 2010 and continue
growing over the next five years, albeit below the rate achieved in 2003-2008 (Figure 4,
Table 1). In mid-October, the RGE Monitor revised its 2010 regional forecast upward to
3.3% based largely on the improving performance of Brazil. On the financial side, trade
and FDI should begin to recover, although remittances will be slower to recover. Given
their quick recovery to virtually pre-downturn levels, regional stock markets are due for
corrections as are some local currencies. Any signs of weakness in the economic
recovery would negatively affect investor confidence and financial markets.
Keys: Commodity prices; global liquidity

Social Environment =
It is fortunate that the impact of the downturn was less severe than in past recessions
since recoveries of employment and family incomes always lag behind the resumption of
economic growth. This means governments will have to continue spending on social
assistance and job creation programs as long as they have the fiscal resources. They will
also have to devote resources to the ongoing fight against drug-related violence which
surged alarmingly in 2009.
Keys: Availability of fiscal resources to mitigate unemployment and poverty; concrete
progress in reducing threats to social and personal security

Political Environment =
National elections always have the potential of re-shaping the Latin American political
environment, and there are seven scheduled through the end of 2010. In the 2004-05
electoral cycle, candidates of the left predominated in nine of the 12 contests, although,
once in office, the winners fell into two categories with respect to the policies that they
pursued the populist left and pragmatic left. This time around, with the exception of
Bolivia, there are currently no radical leftist candidates with a serious chance of winning.
In two countries with center-left governments Chile and Uruguay the center-right
candidates stand a good chance of winning. Given this lineup no significant political
shifts are likely, although uncertainty surrounds the Honduran situation.
Keys: 2009 elections in Uruguay, Honduras, Chile and Bolivia; 2010 elections in Costa
Rica, Colombia and Brazil; resolution of Honduran crisis









Policy Environment =
The divergence in policy environments is not going to disappear. Most countries are not
expected to deviate from the market-oriented policy paradigm of the Washington
consensus as revised over the years. However, governments in the radical populist camp
will continue to deepen the role of the state in the economy. Argentina with a foot in
both camps may opt for one paradigm or the other. As the recovery gathers steam,
governments will have to shift from loose to restrictive monetary and fiscal policies to
head off inflation and reign in deficits.
Keys: Reappearance of inflationary pressures; deepening state control of energy and
mineral sectors

Legal Environment =
The growing divide within Latin America holds true for the outlook for rule of law
measures also. On the one hand, there will be incremental advances in the representative
democracies in terms of stability of legal systems, improvement in judicial education and
professionalism, and use of ADR (Alternative Dispute Resolution). On the other hand,
the radical populist regimes will move backwards in most rule of law measures -
especially politicization of judiciaries and political interference in process. Once again,
the changes will be incremental since these legal environments are already quite
problematic. One particularly important development to monitor will be new regulations
governing exploitation of energy and mineral reserves since this is a sensitive issue
throughout Latin America.
Keys: Incremental reforms; regulations for mining and energy sectors



COUNTRY OUTLOOKS

This section divides the 18 countries into three categories according to the overall

strength of their business environments in 2009 attractive, problematic or mixed -- then

assesses the outlook for each through 2010. As the year wound down, the outlook for next year

for all 18 countries was more encouraging than earlier in the year, but it was better for some than

others.

Attractive Environments (8)

Although the environments in all eight of the countries in the attractive category

deteriorated over the past year, their environments were stronger than in the remaining 10

countries and likewise their prospects for 2010 more promising. Recognizing that there are









differences among them, the eight countries are relatively attractive because they have: 1)

records of sustaining growth while controlling inflation; 2) positive external profiles; 3) stable

social environments with effective programs targeted at strengthening them; 4) stable political

and government institutions; 5) predictable, market-friendly economic policies; and 6) legal

environments with rule of law and low corruption.

Mexico A
Given the setbacks of the past year, it would be easy to overlook the progress that Mexico
has made over the past two decades in opening its economy and building a competitive,
stable political system. On the economic front, the question is how soon will Mexico
recover from its deep downturn? That depends in important part on the speed and
strength of the U.S. recovery but also on the ability of the divided executive and
legislative branches to maintain a steady course on macroeconomic policy and advance a
reform agenda. An early test will be how Congress deals with President Calderon's
proposal to increase taxes in order to offset declining oil revenues and thereby
maintaining the coveted investment grade rating. The government must also make some
headway in containing drug-related violence and corruption that have become
increasingly endanger the business environment. Finally, the tenor and substance of U.S.
policy toward Mexico will be important.
Keys: U.S. recovery; executive-legislative relations; fiscal reforms; progress in war of
drug-related violence

Dominican Republic A
Recovery is in sight. How robust it will be depends heavily on what happens in the U.S.
However, a return to the high growth that made the environment so dynamic in the 1990s
and again during the middle part of this decade seems to be at least a year off.
Keys: U.S. recovery; constitutional reform to allow immediate re-election of the
president

Costa Rica A
As with the other DR-CAFTA countries, the pace of Costa Rica's recovery depends on
the U.S. Regardless of which leading candidate succeeds Oscar Arias, there should be no
major policy shifts, although Otton Solis, who is the underdog in the race, would likely
endorse a more interventionist role for the state.
Key: U.S. recovery; February election

Panama A
The outlook is promising. The economy seems headed for a quick turnaround, and the
new business friendly government with a legislative majority has stabilized the political
environment.
Key: Recovery of global trade flows; reform of bank laws and U.S. ratification of FTA









* Peru A
Because Peru is the world's largest silver producer and ranks among the top five in gold,
copper and zinc, the recovery of global mineral prices throughout 2009 was favorable for
a quick recovery, even if growth did not return to the impressive rates reached before the
downturn. However, unless the government is able to make meaningful headway in
spreading the benefits of the recovery to the highland Indian communities and crafting a
compromise acceptable to indigenous communities for exploiting mineral and energy
resources in the Amazon, the political environment may become increasingly favorable
for a radical populist candidate to contest the 2011 election as happened in 2006.
Keys: Commodity prices; indigenous unrest in highlands and Amazonia

* BrazilA
In 2010 Brazilians elect a new president. The country's business environment became
stronger emerging as the most dynamic in the region during the seven years of
President Lula. Not only did the former labor leader adhere to the macroeconomic policy
agenda of his predecessor, but he institutionalized strong social welfare programs and
projected Brazil on to the world stage. In late September his approval rating stood at
70%. Major offshore oil discoveries added to Brazil's luster, as did the speed with which
the economy came out of the crisis. Lula's leading role in the G-20, and the awarding of
the 2016 Olympics to Rio de Janeiro further enhanced Brazil's emergence as one of the
top three emerging markets (along with China and India). Regardless of the outcome of
the November election, the environment will remain attractive. To consolidate the gains
made since 1995, the new administration must push to reform the tax and labor laws;
reduce the bureaucratic obstacles to doing business in Brazil (it still takes 152 days to
start a business there compared to only 27 in Chile, Table 13); work toward political
reforms that would reign in the corruption and scandal; and make demonstrable progress
in combating drug-related violence.
Keys: November 2010 election; efforts to reduce organized urban violence

* Chile A
With opposition candidate Sebastian Pifiera leading in the polls, it appears that the center-
left coalition that has held the presidency since the return to democracy in 1990 could be
headed for defeat, although the contest is certain to go to a runoff in January. Given the
strong centrist consensus that shapes Chilean politics, a victory of the right would not
trigger major policies shifts, either on the economic or social fronts. The recession has
been deeper and longer than expected, but the phalanx of counter-cyclical measure
should help produce a recovery in 2010. Although the growth rate has converged toward
the regional average over the last decade, strengthening of the social, political and legal
environments maintained Chile's status as a very attractive business environment.
Keys: December 2009 election; copper prices

* Uruguay A
Under the presidency of Tabare Vazquez, Uruguay with a small, open and highly
dollarized economy has become one of the more attractive business environments in
South America. Regardless of who wins the presidential election both major candidates
were campaigning in the center -- the transition to the new administration should be









smooth with policies of the popular outgoing administration remaining in place. Because
the race is close it will likely go to a run-off with minor parties tipping the balance.
Key: October 2009 election


Problematic Environments (5)

Because of its unresolved political crisis, the Honduran business environment was

downgraded from the mixed to the problematic category in 2009. The remaining four countries

have the least business-friendly environments in Latin America because they opted for radical

populist politics and policies. This translates into political systems with power concentrated in

the hands of president and weak institutions and heterodox economic policies. Rule of law is

weak, especially regarding property rights and the protection of foreign investment, and

corruption high. With the exception of Nicaragua, the countries in this category are energy

exporters with rent seeking economies subject to the volatility of global markets. Doing business

is risky but the rewards can be high.

Honduras ?
Failure to reach an agreement along the lines of the Arias accord (which would allow
President Zelaya to return to office with limited powers and the promise to give up the
presidency in January) mean that great uncertainty continues to grip the Honduran
environment. This extends to the outcome and legitimacy of the November 29 election in
which the two major candidates are Elvin Santos of the ruling Liberal Party and Porfirio
Lobo of the conservative National Party. Before the coup, Santos led in the polls; after
the coup, Lobo took the lead, although the number of undecided voters surged. In the
meantime, the standoff resulted in the escalating cutoff of major aid and trade flows,
inflicting considerable damage on the economy and the Honduran people.
Keys: Agreement on returning Zelaya to office; November elections; new government

Nicaragua ?
The unresolved conflict in neighboring Honduras has the potential to destabilize
Nicaragua's polarized political environment as does President Ortega's drive to secure
the reforms necessary to seek immediate re-election. In the meantime, the country's
economic fate remains closely tied to the U.S. in spite of Ortega's alignment with
Venezuela.
Keys: U.S. recovery; maneuvering to re-elect Ortega









Venezuela ?
By conventional criteria, Venezuela seems headed for a prolonged crisis that would
threaten survival of any government. Growth is off and inflation out of control. There
are shortages in basic consumer goods, and violent crime is on the rise. Yet it would be a
mistake to write off President Chavez. Since coming to power in 1999, he has built a
dedicated following among the lower classes who have repeatedly come to his recue at
key moments in his campaign to remake Venezuela at home and abroad. His current
term lasts until 2013 with the possibility of unlimited re-election thereafter and there are
no credible alternatives. And even though the business environment is in many respects
the least attractive in Latin America, the fact that the country sits on one of the largest oil
reserves in the world means that foreign companies are willing to stay in the game on
President Chavez's terms. How long this lasts depended heavily on oil prices.
Keys: Oil prices; November 2010 legislative elections

Ecuador ?
Ecuador finds itself in a precarious position. Although the political situation is more
stable, the government has yet to define its policy agenda and its external position is
precarious. Cut off from international credit markets, the economic outlook rests heavily
on the price of oil. Under such conditions, foreign investment in the oil industry would
seem crucial, but the Correa administration seems likely to tighten rather than liberalize
access for foreign companies.
Keys: Oil prices; Correa's policy agenda

Bolivia A
The business environment in Bolivia is more stable but still problematic because of the
populist policy agenda. Morales is headed for a new term. The only question is whether
he can wrest control of the Senate from a divided opposition. Investors await the
government's rules governing private participation in lithium exploitation. Lithium
batteries will power the next generation of electric cars, and Bolivia has the world's
largest deposits.
Key: December elections; resource policies


Mixed Environments (5)

The business environments of the five countries in this category come up short either

because they are disadvantaged in the global economy and/or because of challenging social

environments, uncertain politics, inconsistent policies, and weak rule of law. Argentina was best

endowed to benefit from the boom in global commodity prices, but politics and policies hindered

its performance. Colombia and Paraguay, also commodity exporters, were held back by armed

civil conflict in the first case and dysfunctional politics in the second. El Salvador embraced the









prescribed policies but was burdened with unfavorable terms of trade. In both El Salvador and

Guatemala armed gangs presented a serious social challenge. This mix of pluses and minuses

shapes the outlook for these countries.

El Salvador A
The outlook for El Salvador is for a modest uptick as exports to, and remittances from,
the U.S. recover. The stability of the political situation and moderate orientation of the
new administration are positive features of the environment while gang-related violence
constitutes a negative dimension.
Keys: U.S. recovery; executive-legislative relations

Guatemala A
Because of weak institutions and persistent social maladies, Guatemala's recovery and
longer term outlook are guarded.
Key: U.S. recovery;

Colombia A
With a third term for Uribe yet to be decided, the leading candidates to replace him are
former defense minister Juan Manuel Santos to the right of center and former Medellin
mayor Sergio Fajardo to the left of center. Should the popular Uribe gain the right to run
for reelection and should he make the decision to enter the race, he would be the favorite.
Although the Colombia president aggressively defended his independent stance in South
America, he must seek to normalize relations with Colombia's immediate neighbors.
Keys: May election; relations with Venezuela and Ecuador; FTA with U.S.

Argentina A
Recovery from the 2008-09 downturn seems unlikely to be as dynamic as recovery from
the 2001-2002 meltdown. This time around although the external environment has
become increasingly favorable for Argentina's commodity exports there is too much
uncertainty about the government's policy agenda and its ability to work with a
legislature, which will be controlled by the opposition. Because of a deteriorating fiscal
situation and difficult debt servicing profile, Argentina needs to regain access to
international capital markets. This depends not only on the recovery of global liquidity
but also on the government's ability to rebuild Argentina's credit worthiness. The latter
will be contingent on producing believable measures of inflation, reaching agreement
with private bondholders, improving relations with the IMF, and pursuing credible and
consistent macroeconomic policies.
Keys: Executive-legislative relations; access to international credit markets; relations
with rural sector

Paraguay A
President Lugo faced a difficult first year in office. The high point was reaching
agreement with Brazil to increase Paraguay's revenues from the Itaipu hydroelectric
installation. He survived paternity scandals, but must still consolidate his leadership and









make progress in bringing Paraguay into the mainstream of South American economics
and politics at a time when the country is struggling to recover from the downturn.
Key: Executive-legislative relations










TABLES


Table 1 GDP GROWTH, 1999-2014

Table 2 ANNUAL INFLATION, 1999-2009

Table 3 TERMS OF TRADE, 1999-2008

Table 4 NET FOREIGN DIRECT INVESTMENT, 1999-2008

Table 5 EXPORTS, IMPORTS AND CURRENT ACCOUNT BALANCE, 2005-
2008

Table 6 GROSS DISBURSED EXTERNAL DEBT, 1999-2008

Table 7 DEBT/EXPORT RATIO, 1999-2008

Table 8 EXCHANGE RATES AND IMF AGREEMENTS, 2009

Table 9 SOCIAL ENVIRONMENT, 2009

Table 10 POLITICAL ENVIRONMENT, 2009

Table 11 CENTRAL GOVERNMENT BALANCE, 2004-2008

Table 12 LEGAL ENVIRONMENT, 2009

Table 13 LEGAL ENVIRONMENT, 2009










Table 1
GDP GROWTH, 1999-2014
(Percentage Change)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


Average
1999-2008


20091 20102 20143


NAFTA REGION


Mexico


DR-CAFTA COUNTRIES
Dominican Republic
Cosia Rica
El Salvador
Guatemala
Honduras
licaragua
Panama

ANDEAN SOUTH AMERICA
Bolivia
Colombia
Ecuador
Peru
Venezuela


MERCOSUR REGION
Argentina
Brazil
Chile
Paraguay
Uruguay


3.8 6.6 0.0 0.8 1.4 4.0 3.2 4.8 3.2 1.3


6.1 5.7 1.8 5.8 -0.4 2.7 9.2 10.7 7.5 5.3
82 18 11 2 9 64 43 59 88 73 26
3.4 2.2 1.7 2.3 2.3 1.9 3.1 4.2 4.7 2.5
8 36 23 39 25 32 33 53 57 40
-1.9 5.7 2.7 3.8 4.5 6.2 6.1 6.6 6.3 4.0
i7 41 30 08 25 53 43 39 32 32
4.0 2.7 0.6 2.2 4.2 7.5 7.2 8.5 11.5 9.2


0.4 2.5 1.7 2.5 2.7 4.2 4.4 4.8 4.6 6.1
-42 29 22 25 46 47 57 68 77 26
-6.3 2.8 5.3 4.2 3.6 8.0 6.0 3.9 2.5 6.5
09 30 01 2 50 40 51 67 76 89 9 8
-6.0 3.7 3.4 -8.9 -7.8 18.3 10.3 8.4 8.4 4.8


-3.4 -0.8 -4.4 -10.9 8.8 9.0 9.2 8.5 8.7 7.0
0:8 43 13 27 1 1 57 32 40 57 51
-0.8 4.5 3.4 2.2 3.9 6.0 5.6 4.3 5.1 3.2
-15 -33 21 I00 3 41 29 43 68 58
-2.8 -1.4 -3.4 -11.0 2.2 11.8 6.6 7.0 7.4 8.9


2.9 -7.0 2.5 4.9


LATIN AMERICA AND
CARIBBEAN 0.2 4.0 0.4 -0.4 2.2 6.1 4.9 5.8 5.8 4.2 3.3 -1.9 3.1 4.3
SOURCE: ECLAC, 20082009 Economic Survey of Latin America and the Caribbean
1 Preliminary estimates for Year 2009 from ECLAC
2 Projections for Year 2010 from ECLAC
3Projections for Year 2014 from IMF











Table 2
ANNUAL INFLATION, 1999-2009
(Percentage variation in CPI, December through December)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


Mexico


DR-CAFTA COUNTRIES
Dominican Republic
Cosia Rica
El Salvador
Guatemala
Honduras
licaragua
Panama

ANDEAN SOUTH AMERICA
Bolivia
Colombia
Ecuador
Peru
Venezuela


12.3 9.0 4.4 5.7 4.0 5.2 3.3 4.1 3.8 6.5


5.1 9.0 4.4 10.5 42.7 28.7 7.4 5.0 8.9 4.5
10 1 10 2 11 0: 9 7 99 131 14 1 94 1:08 139
-1.0 4.3 1.4 2.8 2.5 5.4 4.3 4.9 4.9 5.5
49 51 89 63 59 92 86 58 8; 94
10.9 10.1 8.8 8.1 6.8 9.2 7.7 5.3 8.9 10.8
72 99 4 4 0 66 89 96 102 162 12 7
1.5 0.7 0.0 1.5 1.5 3.5 3.4 2.2 6.4 6.8


-- 3.4 0.9 2.4 3.9 4.6 4.9 4.9 11.7 11.8
92 88 76 70 65 55 49 45 4 5
60.7 91.0 22.4 9.3 6.1 1.9 3.1 2.9 3.3 8.8
37 37 .01 1 15 25 35 15 1 1 3 66
20.0 13.4 12.3 31.2 27.1 19.2 14.4 17.0 22.5 31.9


MERCOSUR REGION
Argentina -1.8 -0.7 -1.5 41.0 3.7 6.1 12.3 9.8 8.5 7.2
Brazil 89 60 771 125 92 76 57 30 45 59
Chile 2.3 4.5 2.6 2.8 1.1 2.4 3.7 2.6 7.8 7.1
Paraguay 54 86 84 146 93 28 99 125 60 75
Uruguay 4.2 5.1 3.6 25.9 10.2 7.6 4.9 6.4 8.5 9.2

LATIN AMERICA AND
CARIBBEAN 9.7 9.0 6.1 12.2 8.5 7.4 6.1 5.0 6.4 8.4
SOURCE: ECLAC, 20082009 Economic Survey of Latin America and the Caribbean
1 Preliminary estimates for Year 2009 from IMF Economic Outlook 2009
2 Includes Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, and Trinidad and Tobago


NAFTA REGION


20091











Table 3
TERMS OF TRADE, 1999-2008
(2000=100)

1999 2000 2001 2002 2003


2004 2005 2006 2007 20081


NAFTA REGION


Mexico


DR-CAFTA COUNTRIES
Dominican Republic
Costa Pica
El Salvador
Guatemala
Honduras
Nicaragua
Panama

ANDEAN SOUTH AMERICA
Bolivia
Colombia
Ecuador
Peru
Venezuela

MERCOUSUR REGION
Argentina
Brazil
Chile
Paraguay
Uruguay


99.3 100.0 97.4 97.9 98.8


105.7 100.0 100.9 101.5 97.9
106 9 100 0 100 9 1015 97 9
99.6 100.0 102.5 101.6 97.7
101 9 100 0' 96 95 8 930 '
107.5 100.0 94.8 92.0 88.0
95.3 100.0 88.4 87.0 84.1
104.6 100.0 102.7 101.6 97.2


97.1 100.0 95.8 96.2 98.5
87 2 100 9J 2 92 5 95 2
89.1 100.0 84.6 86.8 89.8
100 8 100 0 5 6 98 J 102 2
66.1 100.0 82.2 87.6 98.7


90.9 100.0 99.3 98.7 107.2
ci97 1 1000 99 6 4 970
94.2 100.0 93.3 97.2 102.8
101 7 I00 0 1 1I00 2 96 7 101 J
95.9 100.0 104.0 102.6 103.5


101.6 103.6 104.1 105.1 105.9


104.1
102 3
91.5
111 3
118.1


109.2

124.9
104 3
99.9


111.8
111 0
102.4
119 4
154.4


106.9
99 2
139.8
97 0
90.7


134.6
1152
109.9
151 1
184.4


113.0
11:,38
183.7
95 5
88.7


139.5
124 J
113.0
156 6
202.1


117.1
106 7
190.7
100.' 1
90.4


144.0
138 1
124.0
136 L9
249.5


132.7
11i04
164.9
107 3
92.3


LATIN AMERICA AND
CARIBBEAN 94.5 100.0 96.3 96.6 98.6
SOURCE: ECLAC, 2008 2009 Economic Survey of Latin America and the Caribbean
1 Preliminary estimates for Year 2008 from ECLAC


103.6 108.7 115.1 118.0 121.4










Table 4
NET FOREIGN DIRECT INVESTMENT, 1999-2008
(Millions of US dollars)
1999 2000 2001 2002 2003 2004 2005 2006 2007 20081
NAFTA REGION


13,631 17,789 23,045 22,158 15,183 19,216 15,325 13,558 19,022 21,264


DR-CAFTA COUNTRIES
Dominican Republic
Costa Pica
El Salvador
Gualemala
Honduras
ilicaragua
Panama

ANDEAN SOUTH AMERICA
Bolivia
Colomnbia
Ecuador
Peru
Venezuela


1,338
614
162
155
237
337
864


1,008
1 392
648
1 812
2,018


22,257
26 888
6,203
238
238


MERCOSUR REGION
Argentina
Brazil
Chile
Paraguav
Uruguay


734
2 111
720
811:'
4,180


9,517
30 498
873
98
274


1,079
451
289
488
301
150:1
467


703
2 526
1,330
1 070:1
3,479


2,005
24 715
2,590
78
291


674
1 277
1,275
2 156
-244


2,776
14 1108
2,207
12
180


195
783
872
1275
722


878
9 894
2,701
22
401


909
733
366
255
553
250
1,019


63
2 83
837
1 599
864


3,449
8 33
5,610
32
315


1,123 1,528 1,579 2,885
904 1 371 1634 2: 1:1
398 268 1,408 719
470 552 720 822
599 669 928 875
241 287 382 626
918 2,498 1,907 2,402


-242 278 362 508
5 59: 5 558 8 136 8 406
493 271 193 974
2 579 3467 5 425 4
1,422 -2,666 -1,591 -1,041


3,954 3,099 4,969 7,502
12 550: -9380 27 518 24 601
4,801 4,556 9,568 9,896
47 167 178 311
811 1,495 1,139 2,049


LATIN AMERICA AND
CARIBBEAN 79,923 72,190
SOURCE ECLAC, 2006 2009 Economic Survey of Latin America and the Caribbean
1 Preliminary estimates for Year 2008 from ECLAC


66,914 50,996 37,806 49,692 54,563 30,735 86,235 92,155


Mexico











Table 5

EXPORTS, IMPORTS3 AND CURRENT ACCOUNT BALANCE, 2005-2008


NAFTA REGION
Mexico

DR-CAFTA COUNTRIES
Dominican Republic
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama

ANDEAN SOUTH AMERICA
Bolivia
Colombia
Ecuador
Peru
Venezuela

MERCOSUR REGION
Argentina
Brazil
Chile
Paraguay
Uruguay

LATIN AMERICAN AND
CARIBBEAN 2


2005


(Millions of US dollars)
2006


20081


Exports Imports C/Account Exports Imports C/Account Exports Imports C/Account Exports Imports C/Account


230,299 242,599


10,058 11,336
9,721 10,747
4,557 7,744
6,611 11,234
3,494 5,245
1,963 3,404
10,808 10,688


3,280 2,866
24,393 24,900
11,480 11,851
29,450 15,205
56,829 28,915


46,813 34,925
134,355 97,962
48,317 38,148
4,045 4,158
5,085 4,692



560,629 479,391


-4,6651 266,146 278,015


-478
-971
-724
-1,432
-147
-745
-759


634
-1,881
322
1,148
25,534


5,690
13,985
1,315
41
42


11,153 13,732
11,074 12,450
5,185 8,797
7,601 12,712
6,022 8,339
2,378 3,963
12,416 11,918


4,352 3,459
28,558 30,355
14,213 13,749
26,490 18,241
66,782 38,503


54,569 41,111
157,283 120,467
66,510 44,362
5,199 5,406
5,787 5,877


36,2441 781,193 699,626


SOURCE: ECLAC, 2008-2009 Economic Survey of Latin America and the Caribbean
1 Preliminary estimates for 2008 from ECLAC
2 Includes only those counties which have complete data for the four years
'Exports and Imports Include both goods (FOB) and services


-4,375 289,364 305,743


-1,288
-1,023
-671
-1,524
-404
-710
-527


1,317
-2,983
1,618
2,854
27,149


7,770
13,643
7,154
128
-392


11,927 15,343
12,850 14,103
5,533 9,890
8,714 14,511
6,430 9,957
2,709 4,649
14,262 14,628


4,957 4,143
34,213 37,416
16,070 15,619
31,041 23,941
70,838 52,987


66,356 53,353
184,603 157,790
76,618 53,958
6,437 6,487
6,850 6,722


50,862 879,663 833,159


-8,331


-2,096
-1,647
-1,183
-1,786
-1,275
-1,001
-1,422


1,591
-5,837
1,650
1,220
20,001


7,412
1,551
7,189
165
-80



16,692


309,383 333,722 -15,725


11,860
13,834
6,121
9,637
6,956
3,074
16,153


6,948
42,588
20,556
35,166
95,409


82,111
228,393
77,209
8,832
9,258


17,914 -4,437
16,536 -2,676
11,012 -1,596
15,581 -1,863
11,604 -1,977
5,456 -1,475
17,604 -2,792


5,680 2,015
44,727 -6,761
20,743 1,194
34,005 -4,180
56,359 39,202


67,536 7,034
220,247 -28,227
69,011 -3,440
9,393 -345
10,068 -1,119


1,017,983 1,004,426 -26,887












Table 6
GROSS DISBURSED EXTERNAL DEBT, 1999-2008
(Millions of US dollars)


NAFTA REGION


Mexico


166,381 148,652 144,526 140,099 140,554 139,152 130,731 117,506 141,823 150,142


DR-CAFTA COUNTRIES
Dominican Republic
Cosia Rica
El Salvador
G.ualemala
Honduras
I icaragIua
Panama

ANDEAN SOUTH AMERICA
Bolivia
Colombia
Ecuador
Peru
Venezuela


MERCOSUR REGION
Argentina
Brazil
Chile
Paraguay
Uruguay


LATIN AMERICA AND
CARIBBEAN 763,170 743,532
SOURCE: ECLAC, 2008 2009 Economic Survey of Latin America and the Caribbean


750,019 743,955 775,759 771,919 676,019 663,050 752,094 778,247


1999


2000


2001


2002


2003


2004


2005


2006


2007


20081


3,661
36J41
2,789
2 631
4,691
6 548
5,568


4,573
36 733
15,902
28 586
37,016


152,563
225 610
34,758
2 996
8,261


3,679
5 307
2,831
2644
4,711

6 6604
5,604


6,740
36 130
13,216
27 981
36,437


155,014
216 921
37,177
3275
8,895


7,566
8 341
9,075
J 226
3,028
3 385
8,276


4,176
5.265
3,148
2.925
4,757
6.374
6,263


6,861
39.163
14,376
27.195
35,398


166,272
209.935
38,527
3.074
8,937


7,220
9.082
9,711
4.382
3,321
3.512
8,477


4,536
5 310
3,987
3119
4,922

6,349


6,945
37 382
16,236
27 872
35,460


156,748
2110 711
40,504

10,548
10,548


5,987
5.575
7,917
3.467
5,242
6.596
6,504


7,709
38.065
16,756
29.587
40,456


164,645
214.929
43,067
3.371
11,013


6,380
5710
8,211
3844
5,912
5391
7,219


7,562
39 497
17,211
31 244
43,679


171,205
201 373
43,517

11,593


6,813
6.485
8,761
3.723
5,093
5.348
7,580


7,666
38.507
17,237
28.657
46,427


113,799
169.451
44,934
3.056
11,418


6,296
6.994j
9,586
3.958
3,879
4.527
7,788


6,278
40 .103
17,099
28.672
44,952


108,873
172.589
47,590
3.1069
10,560


5,386
44 553
17,445
33 137
52,949


124,575
193 219
55,822
3 14
12,218


5,913
46.392
16,514
34,587
46,360


128,112
198.361
64,768
3.5027
12,027











Table 7

DEBTI/EXPORT RATIO, 1999-2008
(as a percentage of exports of goods and services)
1999 2000 2001 2002 2003 2004 2005 2006 2007 20082
NAFTA REGION
Mexico 112 83 84 78 81 70 60 44 49 49

DR-CAFTA COUNTRIES
Dominican Republic 46 41 50 55 67 68 67 65 63 61
Costa Rica 37 41 46 46 46 45 37 63 65 66
El Salvador 88 77 88 105 115 108 109 185 164 159
-uatemala 76 69 75 79 84 85 75 52 48 45
Honduras 210 189 196 196 195 190 148 66 47 48
licaragua 680 60J 570 557 505 327 287 191 125 114
Panama 78 72 78 84 86 82 71 63 58 52

ANDEAN SOUTH AMERICA
Bolivia 349 303 296 283 262 197 151 144 109 85
Colombla 263 229 260 263 242 203 157 141 130 109
Ecuador 298 221 253 264 229 192 150 120 109 80
Peru 372 330 321 302 274 210 1J6 107 10 98
Venezuela 166 105 126 128 141 109 83 67 75 49

MERCOSUR REGION
Argentina 546 496 533 538 479 431 245 199 188 156
Brazil 409 336 311 301 257 185 126 109 105 87
Chile 165 160 172 179 162 114 94 72 73 84
Paraguav 95 98 109 120 108 83 70 59 49 J4
Uruguay 238 243 274 392 357 270 225 183 178 130

LATIN AMERICA AND
CARIBBEAN 211 172 181 178 168 138 101 85 85 76
SOURCE: ECLAC, 2008-2009 Economic Survey of Latin America and the Caribbean
SGross disbursed external debt includes the public-and-private sector external debt Also includes International Monetary Fund loans
2 Preliminary estimates for Year 2008 from ECLAC










Table 8


EXCHANGE RATES AND IMF AGREEMENTS, 2009
US Dollar Exchange Rate


September 1, 2008


September 1, 2009


% chance Exchance Rate Recime


IMF Acreements (Dates)


NAFTA REGION
Mexico


peso


13.29 -5.55% Independent Float


Flexible Credit Line (4/09-4/10)


DR-CAFTA COUNTRIES
Dominican Republic
Cosia Rica
El Salvador
G.ualemala
Honduras
I licaragua
Panama

ANDEAN SOUTH AMERICA
Bolivia
Colombia
Ecuador
Peru
Venezuela


peso
colon
col6n/U.S. dollar
quetzal
lempira
cordoba ore
balboa/U.S. dollar


boliviano
peso
sucre/U.S. dollar
nuevo sol
bolivar fuerte


MERCOSUR REGION
Argentina peso
Brazil real
Chile peso
Paraguay guaran,
Uruguay peso
SOURCES: Oanda , IMF Homepage


35.67
563 16
8.92
7 58
19.42
19 52
1.02


7.15
195600
1.00
301
2.15


3.09
163
511.25
4081 210
19.62


36.51
59J 44
8.91
8 38
19.24
20 53
1.02


7.16
2050 ,75
1.00
2 96
2.15


3.86
1 88
560.77
5:2 50.
22.97


-2.35%
-5 5500o
0.11%
.10 550 o
0.93%
-5 170
0.00%


-0.14%
-4 8400
0.00%
1 6600
0.00%


-24.92%
.15 340
-9.69%
-23 87" u
-17.07%


Managed Float
managedd Float
Dollarized
managedd Float
Managed Float
managedd Float
Dollarized


Managed Float
Independent Floal
Dollarized
Independent Float
Managed and Licensed


Engineered Float
Independent Floal
Independent Float
Independent Floal
Managed Float


Stand-by (J4/09-7/10)
Stand-by (1/09-3/10)
Stand-by (4/09-10/10)

PRGF (10/07-10/10)





Fle-ible Credit Line (5/1019-5/1 0)

Stand-by ( 1/07-2/09)


SlandtLv 51':I6-8I':1


Key for IMF Agreements
Stand-by is the most common type of credit arrangement designed to provide short-term financial assistance


Currency












Table 9

SOCIAL ENVIRONMENT, 2009


AVG. POP. ILLITERATE GDP PER
GROWTH POP. CAPITAL
% (% age 15+) 1 (PPP $US ) 2


1999-2007


GDP P/C (PPP)
GROWTH

1992007
1990-2007


NAFTA REGI ON
Mexico


DR-CAFTA REGION
Dominican Republic


El Salvador


H onduras
I i.: j ,i,.1ii
Panama


ANDEAN SOUTH AMERICA
Bolivia
Colombia
Ecuador
Peru
Venezuela


MERCOSUR REGION
Argentina
Brail
Chile
Paraguay
Uruguay


72 $14,104


$6,706


$5,804


$3,796


$11,391



$4,206


$7,449


$12,156


24 $13,238


35 $13,880

21 $114 4216
21 $11,216


SOURCES: UNDP, Human Development Report 2009 ,CEPAL, PanoramaSocialdeAmencaLatina2008
Data refer to national illiteracy estimates from censuses or surveys conducted between 1995 and 2007, unless otherwise specified
2GDP per capital (Purchasing Power Parity in $U S) 1PPP dollar has the same purchasing power in the domestic economyas 1 US dollar has in the US economy
3The Glni index measures inequalityoverthe entire distribution of income or consumption A value of 0 represents perfect equality, and a value of 130 perfect inequality
The Human Development Index (HDI) measures a country achievements in three aspects of human development longevity (lfe expectancy at birth), knowledge (combination of literacy rate and enrollment ratio), and a
decent standard of living (GDP per capita- PPP in $ US)
Percent of urban population in poverty


POPULATION
(Millions)
2010


2005-2010


INCOME
INEQUALITY
GIN I ndex3
2007


HDI
(World rank)4
2009


POPULATION IN
POVERTY


2007


URBAN
UNEMPLOYMENT
RATE


2008


49



141


55


42


65



(2007) 77


69

S73
73


(2006) 31 7



445


(2004) 47 5


689


290



540


426


285



(2006) 21 0


(2006)137


1815










Table 10
POLITICAL ENVIRONMENT, 2009
Level of Democratic Consolidation Current Government
Election Inaugurating Unscheduled Political Civil
Democracy Head-of-State Changes Rights1 Liberties2 President / PM Term Control of Legislature
NAFTA REGION
Mexico 2000 2 34 Calder6n 2006-2012 Opposition Coalition
DR-CAFTA COUNTRIES
Dominican Republic 1963 1 2 2 Fernandez 2008-2012 Government
Costa Pica 1949 1 1 Arias 201:116-201:, OCpposition
El Salvador 1984 2 3 Funes 2009-2014 Opposition
Guatemala 1985 1 3 4 Colon 2008-2012 Opposition
Honduras 1982 1 3 3 ? 2009-2013 ?
I icaragua 1984 4 3 Ortega 2007-2011 Opposition
Panama 1994 1 2 Martinelli 2009-2014 Govt. Coalition
ANDEAN SOUTH AMERICA
Bolivia 19803 7 3 3 Morales 2006-2010 Govt. Coalition
Colombia 1958 3 4 Uribe 2006-22010 Go.t Coalition
Ecuador 1978 8 3 3 Correa 2009-2013 -.o..ernmenl
Peru 1980 1 2 3 Garcia 2006-2010 Opposition
Venezuela 1958 6 4 4 Chavez 2007-2013 Government
MERCOSUR REGION
Argentina 1983 3 4 2 2 C. Kirchner 2007-2011 Government
Brazil 1989 2 2 Lula da Sil..a 2006-2010 Govt Coalition
Chile 1989 1 1 Bachelet 2006-2010 Opposition
Paraguay 1993 3 3 Lugo 2008-2013 Go.t Coalition
Uruguay 1985 1 1 Vazquez 2005-2010 Government
SOURCE Freedom in the World 2009: Setbacks and Resilience.
1 Freedom House definition Those rights that enable people to participate freely in the political process On this scale 1 represents the most free and 7 the least free
2 Freedom House definition Freedoms to develop views, institutions and personal autonomy apart from the state On this scale 1 represents the most free and 7 the least free
3 Interrupted democracies
+ + Up or down indicate, respectively, an improvement or a worsening of the political environment from 2008











Table 11
CENTRAL GOVERNMENT BALANCE 2004-2008


(Percentages of GDP)
Primary balance
2004 2005 2006 2007 20081


Overall balance
2004 2005 2006 2007


NAFTA REGION
Mexico h/ 1.7
DR-CAFTA COUNTRIES
Dominican Republic j/ -1.6
Costa Rica 1.4
El Salvador 0.9
Guatemala g/ 0.3
Honduras -1.5
Nicaragua -0.1
Panama i/ -1.2
ANDEAN SOUTH AMERICA
Bolivia c/ -3.1
Colombia e/ -1.6
Ecuador f 1.5
Peru 0.6
Venezuela 1.8
MERCOSUR REGION
Argentina b/ 3.2
Brazil d/ 2.6
Chile 3.1
Paraguay g/ 2.7
Uruguay 2.4
LATIN AMERICA AND CARIBBEAN 0.6
Source (ECLAC) Economic Commission for Latin America and the Caribbean, 2008


1.9 -0.3 -0.5 -0.2


-0.2 -0.1 -1.8 -2.0 -1.6


1 Preliminary estimates for the year 2008 from ECLAC b/ National public administration, on an accrual basis c/ General government
d/ Federal government and central bank The figures are derived from the primary balance based on the-below- the-line criterion and nominal inter
e/ Central national government Does not include the cost of financial restructuring f/ Accrual basis g/ Central administration h/ Public sector
i/ The overall balance for 2005 includes an adjustment for compensation to bondholders amounting to 111 6 million balboas j/ Accrual basis


20081











Table 12
LEGAL ENVIRONMENT, 2009


Rule of Law1
Percentile Rank

29.7 +


CAFTA-DR
Dominican Republic
Cosla Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama

ANDEAN SOUTH AMERICA
Bolivia

Ecuador

Venezuela

BRAZIL AND SOUTHERN CONE
Argentina
Brazil
Chile
Paraguay


33.0 +
62.7 4
30.6 4
12.9 4
20.6 4'

49.8


12.0
37.8 4
9.1

2.9 +


32.1
46.4 4
88.0 +
15.3 +


Corruption Perception2
Index Rank


3.6 4


3.0 4

2.0

1.9


2.9
3.5
6.9 +
2.4


102 4

151 +

158


109 +
80
23 +
138


Economic Freedom3
Score Rank


NAFTA REGION
Mexico


49 +


88 +
46
33
87+
91 +

55 *


130 +
72
137 +

174 +


138
105 *
11 +
79 +


Property Rights4 Crime Victimization5
Percentile Rank | % Yes


65.8 4


59.2
66.4 +
69.8 +
59.4 +
58.7
59.8 +
64.7


53.6
62.3 +
52.5 +
64.6 +
39.9


52.3
56.7 #
78.3 +
61.0 #


Uruguay 65.6 6.9 t 23 k 69.1 + 38 + 70 28
1: As measured bythe \brld Bank's Governance Indicators: 1996-2008 . The percentages measure the extent to which agents have confidence in and abide bythe rules of society,
including perceptions of the incidence of crime, the effectiveness and predictability of the judiciary, and the enforceability of contracts.
2: As measured by Transparency International, Corruption Perceptions lndex2008 . Focuses on corruption in the public sector and defines corruption as the abuse of public
office for private gain. The scores used in the index range from 10 (co untry perceived as virtually co rruptio n-free) to almost 0 (co untry perceived as almost totally co rrupt). The country ranks measure the
corruption level in 159 countries as perceived by business peo pie, risk analysts, investigative journalists and the general public.
4 Up or down indicate, respectively, an improvement or a worsening of the environment from 2007. The absence of an arrowindicates "no change" from the previous year.
3: As measured by the Heritage Foundation's 2008 Index of Economic Freedom. Scores are based o n a to 100 scale, 1 being an economic environment tha is least conducive to economic freedom, 100
being the most conducive. Countries are also ranked in order of economic freedom, 1 being the most free.
4: As measured by the Heritage Foundation's 2008 Index of Economic Freedom. The percentages measure the degree to which a co untry's laws protect private property rights and the degree to which its
government enforces those laws. 100% indicates that private property is guaranteed by the government, 0% indicates that private property is outlawed.
5: As measured by Latinobaro metro 2008. "Have you, or someone in your family, been assaulted, attacked, or been the victim of a crime in the past 12 months?' Those who respo nsed "Don't knoW' or
did not provide an answer were excluded from the results.


20
40
25 +
40
5+


20 +
50
90
30 ,










Table 13
LEGAL ENVIRONMENT, 2009


Days Required to1


Enforce Trade Across Number of
;ontractSc Bordersd Paymentsa


Paying Taxes'
Hours
Requiredb


Intellectual Property"


Tax Rate (% Estimated Trade Losses due to
Profit)c copyright Piracy in millions USD


NAFTA REGION
Mexico

CAFTA-DR
Dominican Republic
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama


28 + 74


60
21
31
30
23 4
124
44


ANDEAN SOUTH AMERICA
Bolivia
Colombia
Ecuador
Peru
Venezuela

BRAZIL AND SOUTHERN CONE
Argentina
brazil
Chile
Paraguay
Uruquav


460
877
786 4
1,459
900 +
540
686


595 +
1,346
588 +
468
510


9 9
18 43
14 4 53
19 39
20 47
29 4 64
9 59


19 4
14 +
20 +
24
49 +


13 4
14 +
21
35 +
19


41
31
8
9
70


9
11
10
35
53


1: As measured by the V\brld Bank Group's report "Doing Business 2009" a) Average time in calendar days spent registering a firm. b) Average time in calendar days spent completing the procedures to
register property. c) Average time in calendar days from the moment a plaintiff files a lawsuit in court until the moment of payment. d) Average time in calendar days necessary to comply with all procedures
required to export goods,
44 Up or down indicate, respectively, an improvement or a worsening of the environment from 2007. The absence of an arrowindicates "no change" from the previous year.
2: As measured bythe V\b rid Bank Group's report "Doing Business 2009" a) total number of tax payments peryear b) time it takes to prepare, file and pay (or withhold) the corporate income tax, the value
added taxand social securitycontributions c) total amount of taxes and mandatory contributions payable bythe business.
3: As measured bythe International Intellectual PropertyAlliance 2009 Country Reports. Estimates are based on 2008 losses due to copyright piracy in millions of USD unless year is otherwise noted.
Industries included in estimates include; sound recordings and musical compositions, business software, entertainment software, motion pictures and books.


108.1
69.4
25.9
35
58.5


Start a
Business


Register
Propertyb C


27 + 549 +


916.7


480
282
320 +
344
224 4
240
482


1,080
256
600
424
864


453 4
2,600
316
328
336


12 (2007)
29.8
17.8 (2001)
23.8 (2002)






21.8 (2005)
116.5 (2007)
51 (2006)
110.5
174.6 (2006)


340.1
1,185.10
130
135 (2007)
10.1 (2002)


I










SELECTED SOURCES MONITORED FOR 2008 LABER


Print
The Economist
LatinFinance
Wall Street Journal

On-line
BBC Mundo. cor
http://news.bbc.co.uk/hi/spanish/news/
Bloomberg.com: Latin America
http://www.bloomberg.com/news/regions/latinamerica.html
Brazil Focus: Weekly Report
Subscriptions available at fleischer(,aol.com.br
Council on Hemispheric Affairs Report
http://www.coha.org/
Latin American Newspapers accessible through Latin American Network Information Center at
http://wwwl.lanic.utexas.edu/la/region/news/
Latin America Advisor: The Interactive Forum for the Region's Leaders
Subscriptions available to mailto:freetrial@,thedialogue.org
Manchester Trade Export Performance & Trade Relations
www.ManchesterTrade.com
Miami Herald
www.herald.com
New York Times
www.nvtimes.com
RGE Monitor
www.rgemonitor.com

Primary Data Sources
International Monetary Fund
http://www.imf.org/
Organization of American States Foreign Trade Information System
http://www.sice.oas.org/
U.N. Economic Commission for Latin America and the Caribbean
http://www.cepal.org/default.asp?idioma=IN
World Bank: Global Development Finance 2008
http://siteresources.worldbank.org/INTGDF2008/Resources/gdf complete web-appended.pdf











































Latin American Business Environment Program
Center for Latin American Studies
University of Florida
PO Box 115530
University of Florida
Gainesville, FL 32611-5530 USA

Tel: (352) 392-0375
Fax: (352) 392-7682
www.latam.ufl.edu/labe.html


68




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