Citation
Latin American business environment

Material Information

Title:
Latin American business environment an assessment
Portion of title:
Latin American business environment
Creator:
McCoy, Terry L., 1940-
Place of Publication:
Gainesville FL
Publisher:
Center for Latin American Studies, University of Florida
Creation Date:
2006
Publication Date:
Language:
English
Physical Description:
v. : ill., map ; 29 cm.

Subjects

Subjects / Keywords:
Business enterprises -- Latin America ( lcsh )
Economic conditions -- Latin America -- 1982- ( lcsh )
Economic policy -- Latin America ( lcsh )
Genre:
bibliography ( marcgt )

Notes

Bibliography:
Includes bibliographical references.
Statement of Responsibility:
Terry L. McCoy.

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Source Institution:
University of Florida
Holding Location:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
030592496 ( ALEPH )
41400140 ( OCLC )
AEW7530 ( NOTIS )

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I
2006 LATIN AMERICAN BUSINESS ENVIRONMENT
MI REPORT


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97777= 1 h !


Terry L. McCoy
With Meredith Fensom













UNIVERSITY OF
FLORIDA
September 2006


I










September 2006


Preface


The Latin American Business Environment Report (LABER) is a one of a kind
publication that presents in a single document an objective and accessible 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 its 20 most important economies.

In this edition the eighth since 1999 (all available at
http://www.latam.ufl.edu/labe/publications.html)* we are pleased to add a new
component to our annual assessment. Written by Meredith Fensom, Director of the Law
and Policy in the America Program at the University of Florida, the new section notes
critical features of the legal system that affect the conduct of economic activity in the
region.

The LABER is a publication of the Latin American Business Environment Program in the
Center for Latin American Studies. The program draws on the expertise and resources of
the University of Florida to prepare students for careers related to Latin American
business through degree programs, training courses and study abroad opportunities. The
program organizes topical 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. Jacob Schultz and Mary Mitchell helped prepare the
2006 report, which was edited by Charles Wood. I alone am responsible for the content
and analysis.


Terry L. McCoy, Director
Latin American Business Environment Program
tlmccoy @ latam.ufl.edu
www.latam.ufl.edu/labep.html










* The report may be cited without permission. Users are asked to acknowledge the source.








CONTENTS

Preface

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


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

L REGIONAL OVERVIEW ...............................................................11

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

Global Developments
Regional Developments

DOMESTIC ENVIRONMENT......................................................13

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


II. COUNTRY PROFILES.....................................................................22

NAFTA REGION..........................................................................22

Mexico

CENTRAL AMERICA...................................................................23

Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama

CARIBBEAN............................................................................28

Dominican Republic
Jamaica
Trinidad & Tobago









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

Bolivia
Colombia
Ecuador
Peru
Venezuela

BRAZIL AND THE SOUTHERN CONE..........................................37

Brazil
Argentina
Chile
Paraguay
Uruguay


III. OUTLOOK.........................................................................................42

REGIONAL OUTLOOK..........................................................42

External Environment
Domestic Environment


COUNTRY OUTLOOKS..............................................................44

Attractive Environments
Problematic Environments
Mixed Environments


TABLES............................................................................................49

SELECTED SOURCES ON LATIN AMERICAN BUSINESS........................63








2006 LATIN AMERICAN BUSINESS ENVIRONMENT REPORT


Terry L. McCoy

EXECUTIVE SUMMARY

As we enter the last quarter of 2006, the business and investment climate in Latin
America is generally positive. Fueled by high commodity prices and global capital flows
the region is enjoying the fourth consecutive year of economic growth and low inflation.
Of the eleven elections held thus far, only Bolivia witnessed the predicted victory of a
left-leaning populist candidate (Elections in Nicaragua, Ecuador and Venezuelan
elections are scheduled to take place later this year). Although there has been a retreat
from the more controversial features of the structural reform policies, the current export-
led economic cycle promises to last through 2007.

The table below classifies the 20 Latin American countries profiled in the LABER in
terms of the overall character of their business and investment climate in 2005 and 2006,
and indicates the outlook envisioned in 2007. Within the three broad categories -
"Attractive," "Problematic," and "Mixed" an arrow indicates whether a country's
environment has improved (+) or weakened (4) during the year. A "=" sign identifies
those countries that remained essentially unchanged.

2005 Environment 2006 Environment 2007
Attractive Problematic Mixed Attractive Problematic Mixed Outlook
Mexico =0
Costa Rica 4
El Salvador = +
Guatemala =
Honduras =
Nicaragua 4 4 ?
Panama
Dom Rep +
Jamaica =
Trin. & Tob
Bolivia 4 =
Colombia +
Ecuador 40 ?
Peru + +
Venezuela = =
Brazil 4 =
Argentina =
Chile =
Paraguay = =
Uruguay qy4 4
Total 4 4 12 5 4 11








2006 LATIN AMERICAN BUSINESS ENVIRONMENT REPORT

INTRODUCTION

The Latin American business environment remains favorable entering the last

quarter of 2006. Latin America has enjoyed four years of export-led growth

accompanied by low inflation and an increase in the flow of capital into the region.

Governments continue to enforce macroeconomic stability through inflation targeting,

fiscal discipline, and floating exchange rates. That's the good news. Less reassuring is

the weakened political support, expressed in recent elections, for the broader economic

reforms advocated in the 1990s as part of the New Economic Model (NEM) promoted by

the Washington Consensus. Also of concern are the persistent structural deficiencies that

undermine Latin America's global competitiveness and the prospects for long-term

growth and a shift in some countries toward reasserting state control of the energy and

infrastructure industries.



Figure 1
Model of Latin American Business Environment

External Environment








Whether a country's ,

economy holds the

promise of Mexico
-- L "* .' i'q llr ] n, .1ll
.I.un.rfi J-' "- I |)ll'Kii
continued growth or ".. I- *

faces the prospect -; / Nicarnauna
.I i]i -' '1 rinii-',I .and
of stagnation or -osto' Vi -- ine
: Venezuela" .
deterioration is the (iA (I I --,
Colombig. -'
result of a complex' ',
Ecua:;d ',w "

interplay of factors
Peri
that operate at N ., Brazi
.LN I A1 1, Brazil
global and domestic COM\ I [[N IT '
Bolvia l
levels, as depicted
Iaraw ay
in the conceptual a. ay ,
:'IERCOSUR
framework shown ( while

in Figure 1. In this
I 'rut u il
Argentina
edition of the ..

LABER we added a' ,

legal component to --

the framework to Ip

explicitly recognize

an increasingly important dimension of the business environment the rule of law. Rule

of law means that a country's legal system ensures that property and economic rights,

especially contract rights, are protected. When the rule of law prevails, individuals and








enterprises freely enter into contracts confident of the existence of legal mechanisms that

enforce the terms of the agreement. The effect that law and judicial systems can exert on

national economies extends beyond economic growth and the state of the investment

climate in a country to include the incidence of bureaucratic interference and the

prevalence of corruption and criminal behavior. Latin America's legal landscape is in

transition -- with some countries more advanced than others toward greater

predictability and adherence to the rule of law. Greater predictability and routine

adherence to the rule of law are necessary conditions for increased foreign investment.

When laws are applied and enforced fairly, public and private parties can make economic

decisions with reasonable certainty of the inherent risks.

The legal environment that prevails in contemporary Latin America is among the

many institutional weaknesses that plague countries in the region, some more than others.

Generally, adherence to the rule of law is low and the prevalence of corruption is high.

Chile, the region's most attractive business environment, is an exception with the highest

rule of law percentile ranking and lowest corruption rank of our twenty countries

surveyed (Table 13). Venezuela, Paraguay and Guatemala lie at the other end of the

continuum with respect to both measures. The absence of the rule of law and prevalence

of corruption generally translate into heavier bureaucratic burdens and are characteristics

of states unable to contain crime at an acceptable level. The growing recognition that

economic, political, and social development depend on modernizing a country's legal

systems explains the increase in foreign assistance to upgrade Latin America's legal

institutions, and accounts for the inclusion of judicial reform in recent free trade

agreements.








Part I of the 2006 LABER summarizes major regional developments that took

place in the last quarter of 2005 and first three quarters of 2006. Part II presents

thumbnail sketches of the 20 largest markets, grouped by geographic region and trading

blocs (see Map and Table 1). Part III re-arranges the countries according to an overall

assessment of their business environments and the outlook for the next 15 months.

Appended tables contain country-level data and regional averages on key economic,

social, political and legal variables. Also included is a list of selected sources that

provided additional business-related news on Latin America.








I. REGIONAL OVERVIEW


EXTERNAL ENVIRONMENT

A favorable external environment has been a key determinant of Latin America's

current growth cycle, especially the high commodity prices that favor the natural

resource-dependent economies of South America. Global capital flows have benefited all

of Latin America, which depends heavily on external funds for both equity and debt

financing because of low domestic savings rates and high indebtedness. Less positive for

Latin America, which is increasingly trade dependent, has been the lack of progress in

both global and regional trade talks.

Global Developments =1

Favorable terms of trade
Latin America's overall terms of trade improved in 2005 for the fifth year in a
row (Figure 2). The improvement was most pronounced in the Andean region.
Although energy-exporting economies are the big winners, and energy importers
the big losers (Table 2), world demand for all minerals and agricultural
commodities underlies the South American (and Mexican) export boom. In
February even chronically depressed sugar prices reached the highest level in a
quarter century. Rapid expansion of the Chinese and Indian economies, along
with continued growth of the U.S. economy, is keeping commodity prices high.

Positive global capital markets
Greater capital flows into emerging markets and lower interest rates contribute to
the current growth cycle in three ways. First, although modest especially when
compared to investment flows into Latin America in the 1990s and current flows
into Asia and Eastern Europe, foreign direct investment (FDI) is on the rise
(Figure 3 and Table 3). Second, Latin American stock markets have performed
well despite the mid-2006 dip that prompted foreign fund managers awash in
assets to allocate more of their portfolios to emerging markets. Third, declining
country risk spreads facilitated debt financing and refinancing. Overseas
remittances, the other major source of foreign financing for Latin America,
reached a record $53.6 billion in 2005, according the Inter-American
Development Bank.



1 Symbols are used here to suggest overall trends over the past 12 months: t improving; 4, declining; = no
significant change.








I. REGIONAL OVERVIEW


EXTERNAL ENVIRONMENT

A favorable external environment has been a key determinant of Latin America's

current growth cycle, especially the high commodity prices that favor the natural

resource-dependent economies of South America. Global capital flows have benefited all

of Latin America, which depends heavily on external funds for both equity and debt

financing because of low domestic savings rates and high indebtedness. Less positive for

Latin America, which is increasingly trade dependent, has been the lack of progress in

both global and regional trade talks.

Global Developments =1

Favorable terms of trade
Latin America's overall terms of trade improved in 2005 for the fifth year in a
row (Figure 2). The improvement was most pronounced in the Andean region.
Although energy-exporting economies are the big winners, and energy importers
the big losers (Table 2), world demand for all minerals and agricultural
commodities underlies the South American (and Mexican) export boom. In
February even chronically depressed sugar prices reached the highest level in a
quarter century. Rapid expansion of the Chinese and Indian economies, along
with continued growth of the U.S. economy, is keeping commodity prices high.

Positive global capital markets
Greater capital flows into emerging markets and lower interest rates contribute to
the current growth cycle in three ways. First, although modest especially when
compared to investment flows into Latin America in the 1990s and current flows
into Asia and Eastern Europe, foreign direct investment (FDI) is on the rise
(Figure 3 and Table 3). Second, Latin American stock markets have performed
well despite the mid-2006 dip that prompted foreign fund managers awash in
assets to allocate more of their portfolios to emerging markets. Third, declining
country risk spreads facilitated debt financing and refinancing. Overseas
remittances, the other major source of foreign financing for Latin America,
reached a record $53.6 billion in 2005, according the Inter-American
Development Bank.



1 Symbols are used here to suggest overall trends over the past 12 months: t improving; 4, declining; = no
significant change.












Figure 2


Terms of Trade for Latin America and the Caribbean, 1996-2005
(Source: CEPAL 2005)


115.0



110.0



105.0



S100.0
8





95.0



90.0



85.0



80.0


1996 1997 1998 1999 2000 2001 2002 2003 2004 2005




Figure 3


Net Foreign Direct Investment in Latin America and the Caribbean, 1996-2005
(Source: CEPAL 2005)


90,000


80,000


70,000


60,000


co 50,000


S40,000


30,000


20,000


10,000


0


1996 1997 1998 1999 2000 2001 2002 2003 2004 2005








World trade negotiations in trouble
Because of continuing disagreements over agricultural and the so-called
Singapore issues, the Doha Round of the World Trade Organization (WTO)
negotiations collapsed in July. Failure to conclude these negotiations, expected to
give special consideration to development economies, creates great uncertainty
about prospects for additional market liberalization and the future of the WTO.

Regional Developments =

Hemisphere trade negotiations assume sub-regional character
At their November 2005 summit meeting in Argentina, the Presidents of the
Americas failed to revive negotiations to establish a Free Trade Area of the
Americas (FTAA). With both WTO and FTAA negotiations going nowhere, trade
strategies now focus on forging smaller, sub-regional agreements. For the U.S.
this means bilateral FTAs with Central America and the Dominican Republic,
Peru, Colombia and Panama. In June, when Venezuela became a full member of
MERCOSUR, the South American governments took an important step toward
creating a counterpart to NAFTA. The implications of Venezuela's entrance into
MERCOSUR and the consequences for U.S.-South American relations remain to
be seen. Venezuela's participation does raise doubts about the viability of the
Andean Community.

Immigration debate clouds U.S.-Latin American relations
Congressional initiatives to tighten border controls and expel undocumented
immigrants, mostly from Latin America, have become a point of conflict. Should
the restrictive measures become law, they could disrupt the economies of both the
U.S. and the sending countries.

DOMESTIC ENVIRONMENT

The domestic components of the business environment are generally favorable.

However, the current round of elections is re-aligning control of government and policy

agendas in some countries. As a result, investors must keep abreast of changes in

individual countries, and be alert to growing differentiation within the region.

Economic and Financial Performance =

The economic and financial performance continues to be encouraging. What

began as a recovery in mid-2003 is today the longest period of sustained growth in recent








decades, and it promises to last through 2007. Economic growth has been accompanied

by low inflation and strong external performance.

Economic growth to hit 5.0%
The growth rates since 2004 (Figure 4) are well above the ten-year annual average
for the region. Furthermore, for the third consecutive year, the rate of growth for
all 20 countries in this report will exceed 3.0% (Table 4). Although export
growth is a major determinant of GDP growth, government and consumer
spending are important as well. As encouraging as these results are, Latin
America has had over the last decade the lowest average regional growth rate in
the world, according the World Bank. When population size is taken into account,
the rate of per capital growth drops to around 0.6% per year.

Inflation low but pressure increasing
At the regional level, inflation increased only 3.0% in 2005, but is forecast to
double in 2006 (Figure 5). Even with the projected increase, inflation would be at
the second lowest level recorded in the past ten years and very low by historical
standards. Argentina presents the most troubling scenario (Table 5).

Uncertainty in capital markets
Volatility threatened to return to Latin American capital markets in May and June
when stock markets suffered a sudden downturn after 12 quarters of increases -
the Chilean, Mexican and Peruvian stock markets all rose by more than 150% in
dollar terms while the Sdo Paulo index was up almost 350%. While local
developments were partly responsible for the drop, threats of inflation, higher
interest rates and lower growth in the developed economies bore most of the
blame as institutional investors shifted to less risky assets. The effects were to
slow down new equity and debt issuances, both of which had been booming, but it
turned out to be a temporary correction as markets are up again.

External performance favorable
While FDI is up only slightly, exports experienced a significant increase, as did
the current account surplus (see Figures 3 and 6). Total foreign debt fell to its
lowest level since 1997, and the debt burden, measured by the debt/export ratio,
became less onerous (Figure 7). Finally, Latin American currencies held their
own or appreciated against the dollar, and only six countries (vs. nine in 2005) are
currently under IMF agreements (Table 9).












Figure 4

Regional GDP Growth Rates for Latin America and the Caribbean, 1996-2006
(Source: CEPAL 2005)


7


6






S4




2







0--


-1


-2 -


05


Figure 5
Average Annual Inflation Rate for Latin America and the Caribbean, 1996-2006
(Source: CEPAL 2006)


100


9------


1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


N-


9.1

- 1 9 ,?,;


20.0


18.0


16.0


S14.0
.c
S
S12.0


10.0
la-

" 8.0


6.0


4.0


2.0


0.0


60












Figure 6


Exports and Imports of Goods and Services in Latin America and the Caribbean, 2002-2005
(Source: CEPAL 2005)


600,000




500,000




S400,000
00,000 -- ----- -- --




I I HImports



200,000 -- .... .




100,000---- --

10 0 ,0 0 0 -- ..... ... "' .. .



2002 2003 2004 2005


Figure 7

Gross Disbursed External Debt, 1996-2005
(Source: CEPAL 2006)


800.0 .
'67 ? 7 4
I 700.
3A1 .441 733 1

700.0 ,87 9 A


600.0














1996 1997 1998 1999 2000 2001 2002 2003 2004 200500.0
Debt ($US billions) Debt as% of exports of goods and services0.0
400.0










100.0


0.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

SDebt ($US billions) -- Debt as % of exports of goods and services








Social Environment#

The social environment again presents a mixed picture (Table 10). Economic

growth is reducing poverty and unemployment, but the region's great socio-economic

inequalities have not diminished under the policies of the NEM or the ongoing process of

social modernization, which is more advanced in Latin America than other emerging

markets. Crime and violence have increased with over one-third of Latin Americans in a

2002 survey reporting that they, or someone in their family, had been victims of crime in

the previous year (see Table 13).


Demographic transition nears completion
Declining fertility rates and population growth have spread throughout the region
as part of the broad social modernization of Latin America over the past half
century. The demographic transition, defined by low fertility and low mortality,
influences the business environment by leading to smaller families and increasing
the proportion of old people in the population.

Short-term poverty declining
Poverty has been declining since 2002. However, 40.5% of the Latin American
population still lives in poverty and 16.8% lives in extreme poverty (213 million
and 88 million people respectively) according to the UN Economic Commission
for Latin America and the Caribbean.

Social spending on the rise
The current economic recovery has also triggered a pro-cyclical increase in
government spending on education, health, housing and social security and
welfare.

Political Environment =

The political landscape in Latin America (Table 11) is moving away from the

centrist technocratic governments that ruled during the 1990s and becoming more

politically fragmented. The most notable departure from the politics of the previous

decade comes in the form populist movements that are displacing the traditional political

parties and winning elections in some countries. The constitutional civilian character of








all Latin American political systems masks two additional disturbing developments. The

first is that some elected presidents are not finishing their terms but forced to resign. The

second, at the other extreme, is the tendency of popularly elected presidents, epitomized

by Venezuelan president Hugo Chavez, to concentrate power in the presidency. By

perpetuating themselves in office, they are setting the stage for the possibility of

"constitutional dictatorships." Chavez, first elected in 1998, appears headed toward

another six-year term, which would give him 14 years in office. He has even suggested

that he would seek to amend the constitution through popular referendum to permit his

re-election for a third term. If this comes to pass, Chavez could serve 20 years as chief

executive of a major country in the region. While the Venezuelan leader actively

promotes his Bolivarian version of democracy as the right system for Latin America, it is

not sweeping through the region.

Elections inconclusive
With eleven of the 20 countries holding presidential elections between the end of
2005 and 2006, and many campaigns fielding populist candidates patterned after
Chdvez, the door seemed open to a definitive shift to the populist left. Thus far,
however, only in Bolivia has a candidate aligned with Chavez won, although
elections in Nicaragua and possibly Ecuador later this year could have similar
results. Candidates of the center right or social democratic left won in Honduras,
Chile, Costa Rica, Colombia and Mexico and are favored to win in Brazil. Voters
in Peru rejected the candidate endorsed by Chavez in part because of Venezuela's
interference in the election. The Latin American political lineup now offers a
populist alternative that complicates domestic politics, policy choices and
relations with the U.S.

Executive-legislative relations problematic in some countries
While voters did not hand power over to populist governments, neither did they
give a free reign or a clear mandate to elected leaders of the center or right, but
frequently denied the ruling party legislative majorities (see Table 11). Presidents
Kirchner of Argentina and Fernandez of the Dominican Republic gained
majorities in congressional by-elections while voters in Chile, Bolivia and
Colombia gave the winning candidates effective control of Congress. Elsewhere
the presidents must negotiate legislative action in opposition-controlled








congresses. Chavez's coalition won all seats when the opposition withdrew from
the December 2005 congressional elections.

Policy Environment #

The policy agenda that emerged in the early 1990s as the Washington Consensus

is increasingly challenged. The centerpieces of the NEM prescribed for Latin America

were, first, policies to achieve macroeconomic stability and, second, structural reforms to

open the region's economies. Regional integration was advanced to complement the

policy agenda promoted in the 1990s. In recent years growing disillusionment with the

performance of the NEM has contributed to the rise of populism and has raised doubts

about the efficacy of the NEM itself. A string of unambiguous victories for populist

candidates could provoke a return to the inward-looking, protectionist policies of

previous eras. The indecisive nature of recent elections suggests no clear-cut paradigm

shift, although the political climate is growing hostile toward key structural reforms in

some countries.

*Macro-economic policies secure
Governments in the region continue to adhere to the NEM "holy trinity" of
inflation targeting, floating exchange rates and, most importantly, fiscal discipline
(see Figures 5 and 8, Tables 5, 9 and 12). Most have also reduced and
restructured public debt during the current economic expansion.

Erosion of commitment to structural reform
The privatization of energy and infrastructure industries has come to a standstill in
the region. Some governments are aggressively re-imposing state control. Under
Chavez, Venezuela has steadily reduced the role of private capital in the oil
industry. On May 1, 2006, President Morales proclaimed that his government
would nationalize Bolivia's energy industry. Ecuador has similarly re-asserted
state control over the oil industry, including cancellation of Occidental
Petroleum's concession. While it is not yet clear how far the nationalization
impulse will go, it is altering the investment environment for key industries.










Figure 8

Fiscal Deficit/Surplus, 1996-2005 (% of GDP)
(Source: CEPAL 2005)

0.0
.. ..'

-0.5


-1.0 -


L) 13 -


S-2.0







33 1

-3.5






Legal Environment


Countries across the region are engaged, to one degree or another, in judicial


reforms, frequently in response to the legal standards assumed under free trade


agreements (FTAs) and bilateral investment treaties (BITs). The inclusion of reform


provisions in trade and investment treaties speaks to the growing recognition of the


importance of legal protections to the conduct of all forms of economic activity. Various


indicators of the strength of the legal environment in Latin America are contained in


Table 13. "Crime Victimization" distinguishes among the 20 countries in terms of the


incidence of crime, which has been growing and is high compared to other regions of the


world. "Corruption Perception" ranks the countries in terms of the degree of government


corruption as reported in annual surveys administered by Transparency International.








Latin America comes across as a region of high corruption, although significant

differences exist country-to-country. The following two measures listed in Table 13 are

designed to capture the degree of government intervention and regulation of the

economy. Again the legal environment does not seem business friendly.


Harmonization of business regulations
Four of the five Central American countries and the Dominican Republic are
reforming their legal codes (protection of intellectual property rights, competition
policy, etc) in order to be in compliance with CAFTA-DR. Costa Rica,
considered to have the strongest legal environment in Central America, has yet to
ratify the agreement.

*Use of arbitration
Because judicial reform efforts have not met with the hoped-for results, there is a
trend toward the increased use of arbitration, particularly to resolve commercial
disputes.








II. COUNTRY PROFILES


NAFTA REGION

U.S.-Mexican relations have deteriorated, although NAFTA seems secure.

Immigration and border security have become the central issues. The negative tone of

the debate in the U.S. has already taken its toll on the "special relationship" that

Presidents Bush and Fox once promoted. Should Congress pass (and President Bush

sign) a hard-line measure such as the one favored by House Republicans, the negative

repercussions would be severe.

In January, Mexico and the U.S. ended a longstanding dispute when Washington

agreed to phase out duties on Mexican cement imports. As part of the settlement, Mexico

withdrew complaints filed under NAFTA and WTO dispute resolution provisions. If

elected president, Andr6s Manuel L6pez Obrador threatened to renegotiate NAFTA. His

defeat removes this potential irritant from U.S.-Mexican relations, but there is widespread

apprehension in Mexico over the 2008 NAFTA deadline to end tariffs on corn and beans

imported from the U.S. Under threat of WTO sanctions, Mexico agreed to eliminate

barriers to high fructose corn syrup imports from the U.S. Major automakers are taking

advantage of NAFTA and Mexico's other free trade agreements to ramp up investment in

new plants. Automobile production will surpass a record two million cars in 2006 with

about 75% destined for export from Mexico.

Mexico W: Increasing uncertainly due to contested election

SSatisfactory economic performance
GDP growth in 2006 will be more than 2005 and inflation is not a problem.


2 The symbols for each country indicate the following trends: + business environment improved, +
business environment deteriorated, = no significant change since 2004 report.








II. COUNTRY PROFILES


NAFTA REGION

U.S.-Mexican relations have deteriorated, although NAFTA seems secure.

Immigration and border security have become the central issues. The negative tone of

the debate in the U.S. has already taken its toll on the "special relationship" that

Presidents Bush and Fox once promoted. Should Congress pass (and President Bush

sign) a hard-line measure such as the one favored by House Republicans, the negative

repercussions would be severe.

In January, Mexico and the U.S. ended a longstanding dispute when Washington

agreed to phase out duties on Mexican cement imports. As part of the settlement, Mexico

withdrew complaints filed under NAFTA and WTO dispute resolution provisions. If

elected president, Andr6s Manuel L6pez Obrador threatened to renegotiate NAFTA. His

defeat removes this potential irritant from U.S.-Mexican relations, but there is widespread

apprehension in Mexico over the 2008 NAFTA deadline to end tariffs on corn and beans

imported from the U.S. Under threat of WTO sanctions, Mexico agreed to eliminate

barriers to high fructose corn syrup imports from the U.S. Major automakers are taking

advantage of NAFTA and Mexico's other free trade agreements to ramp up investment in

new plants. Automobile production will surpass a record two million cars in 2006 with

about 75% destined for export from Mexico.

Mexico W: Increasing uncertainly due to contested election

SSatisfactory economic performance
GDP growth in 2006 will be more than 2005 and inflation is not a problem.


2 The symbols for each country indicate the following trends: + business environment improved, +
business environment deteriorated, = no significant change since 2004 report.








Capital markets stronger
The stock market, which produced several Initial Public Offerings and finished
2005 at a record high, was up 13.75% for the year in early September 2006
following the May correction and election dispute. An innovative mortgage-
backed securities line is helping fund a housing-boom.

Oil prices bolster external position
FDI dropped in 2005. Exports were up, but so was the current account deficit.
The government issued 30-year bonds. In August, the government converted $12
billion in foreign debt into peso obligations in order to prevent a repeat of the
1994 peso crisis. Foreign exchange reserves held by the central bank are greater
than the external debt.

Violent drug-related crime persists

Unsettled political environment
The close election of Felipe Calder6n and L6pez Obrador's decision to mount an
all-out challenge seriously weakened the political environment. The new
administration must heal deep political wounds and build a working relationship
with Congress.

Policy reform more problematic
Fortunately the government took measures to cushion the economy during the
election. Up to now, macro-economic policy remains unaffected by political
events, although prospects for passing deeper reforms to enhance Mexican
competitiveness are even less likely than under the Fox administration.

Antitrust law strengthens legal environment
Landmark legislation will open the monopolistic public utilities sector and
address a U.S. complaint filed with WTO on behalf of U.S. carriers seeking entry
into Mexico's telecommunications market dominated by TELMEX. Opening the
oil and power sectors to private participation would make the economy more
competitive (the World Economic Forum ranks Mexico 55th out of 104 countries
in its 2005 Global Competitiveness Report), but would require amending the
Constitution. Congress passed important securities reforms in the past year.



CENTRAL AMERICA

All of the Central American countries except Costa Rica have ratified the

CAFTA-DR, but before the agreement can go into effect the signatory countries must

amend their legal codes to conform to provisions of the agreement. The most








controversial commitment is the pledge to protect intellectual property rights. Some

governments have moved more quickly than others to comply with CAFTA-DR,

although all countries are actively soliciting foreign investment on the basis of free trade

with the U.S. The export of Central American apparel items to the U.S. has declined in

part due to the delayed implementation of CAFTA-DR. The Central American

governments have agreed to lower border barriers and establish a common external tariff

regime as they prepare to negotiate an FTA with the European Union.

Rising oil prices are an increasing economic burden for Central America. Price

hikes boosted the region's petroleum import bill by 39% in 2005 and contributed to a

growing current account deficit, according to the UN Economic Commission for Latin

America and the Caribbean. If energy prices continue to rise at the same pace as the past

two years, the increase will erode Central America's overall economic growth.

Costa Ricaf: New administration promises centrist, market-friendly government


Moderate growth with inflationary pressures
In an effort to reduce inflation to under 10% the Central Bank is considering
adopting an inflation-targeting regime to replace the crawling peg mini
devaluation mechanism.


Favorable external performance
Although both FDI and exports increased in 2005, and the total debt and debt
burden declined, the country continues to carry a current account deficit. In June
Moody's upgraded the debt rating outlook from "negative" to "stable" on the
basis of the country's fiscal restraint and lower debt ratios.

Election reinforces changing nature of politics
Although there was none of the uncertainty surrounding the legitimacy of the final
outcome as in Mexico, Oscar Arias became president with a narrow margin and
high voter abstention rate. Furthermore, the office of the president is weaker now
than it was during his first term as president in the late 1980s. With the decline of
the traditional political parties and the mobilization of civil society, political








power has become fragmented, and the administration does not have a legislative
majority.

CAFTA-DR and fiscal reform still policy priorities
Arias promised quick action on CAFTA-DR, but opposition remains strong and
the agreement still has not been ratified. He also faces a tough fight to pass fiscal
reforms that failed during his predecessor's term. The reforms would modify the
tax system and generate additional revenue for social projects.

Market openings pending
Ratification and implementation of CAFTA-DR would force the government to
open the insurance, energy and telecom sectors to private investment. The
Constitutional Chamber of the Supreme Court rejected a reform that Arias
pushed, and the National Assembly passed legislation almost unanimously to
simplify the public works law.

El Salvador#: Gains under CAFTA-DR

Growth is up and inflation under control

Exports and foreign investment growing
As the country best prepared to exploit CAFTA-DR, the agreement is delivering
higher exports (except from the maquila sector) and FDI. Increased investment in
textiles suggests that El Salvador may be poised for recovery. Remittances
continue to be crucial for the debt-ridden economy, and the government
successfully issued bonds to finance the fiscal deficit.

Crime-fighting programs fail to reduce gang-related violence

Indecisive mid-term elections
Both the governing ARENA and opposition FMLN parties gained seats in
Congress (for a total of 34 and 32 respectively), but neither has a majority. This
means that President Saca must continue to operate in alliance with two small
parties and negotiate with the FMLN on legislative measures that require 2/3
approval.

Tax reforms producing increased revenue

Compliance with CAFTA-DR strengthens legal environment
El Salvador now has the most competitive environment in Central America (see
Table 13). Sanctions for customs fraud, an appellate process to contest levying of
trade-related tariffs and taxes, a sanitary standards law, and strengthened
intellectual property protections are part of comprehensive harmonization
package.








Guatemala #: CAFTA-DR contributes to strengthening of \\eak en ironment

Improving economic performance
GDP growth for 2006 is projected to be best since 1998, and inflation has
dropped.

Mixed external performance
Both FDI and the foreign debt were unchanged in 2005, although the debt/export
ratio improved and investment is expected to pick up now that Guatemala is fully
compliant with CAFTA-DR Moody's upgraded the nation's bond rating in July,
based on an improvement in the balance of payments due to increased
remittances.

Violence and corruption make social environment problematic
Guatemala has one of the highest murder rates in Latin America, and the police
are linked to criminal violence.

Political environment unchanged

Steady macro-economic policy
In July Standard & Poor's raised the long-term currency ratings citing both
political progress that reduced uncertainty over economic policy and the passage
of measures strengthening the rule of law.

Strengthened legal environment
In addition to legal measures to comply with CAFTA-DR, Guatemala passed an
anti-tax evasion law and is considering legislation to encourage foreign
investment in mining. However, it has the most corrupt environment in Central
America, according to Transparency International (Table 13).

Honduras#: Improving environment for ne\\ government

Four years of growth and moderate inflation
Like the other Central American countries, Honduras hopes that full membership
in CAFTA-DR will reverse the declining fortunes of the textile industry.

Debt relief aids external position
As a "Heavily Indebted Poor Country," Honduras receives forgiveness on its
foreign debt as well as IMF assistance under a Poverty Reduction Growth
Facility. On the other hand, high oil prices are increasingly a drain on the
economy, and FDI fell in 2005.

New approach to combating gang violence
With Honduras under international scrutiny for human rights violations, President
Zelaya promised that he will rethink the mano dura policies of his predecessor
and take a more nuanced approach in dealing with this serious problem.








Opposition wins presidency but not Congress
Manual Zelaya won a close victory over the ruling National Party's candidate.
Zelaya's Liberal Party came up short of a majority in Congress, but has formed a
coalition with small parties.

No majorpolicy shifts expected
Telecommunications sector was opened to private competition at the end of 2005,
and the fiscal deficit is declining.

Significant legal reforms
Modernization of trade, customs enforcement, dispute resolution and intellectual
property laws will make environment more attractive.

Nicaragua : Elections dominate en\ ironment

Economic performance softening
Compared to 2005, inflation is up and growth is down.

Crucial international assistance
FDI picked up in 2005 and exports are growing, but Nicaragua has the highest
debt burden in Latin America, even after $1 billion in debt forgiveness. In
January, the IMF agreed to reactivate its Poverty Reduction and Growth Facility
loan program (releasing $220 million) following the National Assembly's
approval of the budget to support a tough structural adjustment program.

Ortega slight favorite
In November, Nicaraguans will elect a new president and renew the National
Assembly. Both Caracas and Washington are actively seeking to influence the
outcome, which further polarizes a political environment gripped by strikes and
demonstrations over the past year. Former president Daniel Ortega holds small
lead in early polls.

High fiscal deficit

Legal reforms
To become eligible for CAFTA-DR, Nicaragua has reformed its banking and
finance laws and has strengthened intellectual property protection and customs
enforcement.

Panama#: Most dynamic environment in Central America

Strong economic performance.
Growth in canal traffic, trade-related services and construction promise to deliver
another year of 6.0% expansion in GDP.








External position positive
Although FDI dropped in 2005, Panama's inflow was the highest in Central
America. By the same token, the current account deficit is relatively large as is
the foreign debt. FTA negotiations with the U.S. have not been concluded.

President Torrijos governs from strong position
His standing in public opinion polls is favorable, and he enjoys a legislative
majority.

Agenda shifts to social policies and canal expansion
With passage of the controversial and contested pension and fiscal reforms, which
should help lower the fiscal deficit over the long run, the government is giving
legislative priority to initiatives to reduce poverty, unemployment and inequality.
The government has convoked a national referendum in October to approve its
proposal for expanding the Panama Canal.

Legal environment
The wording of the recently enacted fiscal reform law is confusing. Foreign
investors in Panama generally must rely on local law firms to guide their projects
through the bureaucracy.


CARIBBEAN

ECLAC forecasts that the Caribbean region will grow by an impressive 6.3% in

2006 (versus 4.9 for Latin America), although there is substantial variation within the

region with energy rich Trinidad & Tobago and the Dominican Republic experiencing

exceptional years. With the exception of Trinidad & Tobago, however, rising oil prices

are taking a toll on Caribbean economic growth. Between 2003 and 2005 the region's

petroleum import bill as a percent of GDP jumped from 7.9% to 9.5%, according to

ECLAC. On the social front, homicide rates have soared in Caribbean countries in recent

years, placing tourism and business interests at risk. With suspects walking free due to

ineffectual courts and corrupt law enforcement, vigilante justice is on the rise.

Against the backdrop of the collapse of both WTO and FTAA negotiations, the

Caribbean Community (CARICOM) is moving to develop alternative trade options. In








January, six CARICOM nations (including Jamaica and Trinidad & Tobago) became the

first full members of the long promised but much delayed Caribbean Single Market and

Economy, which will deepen if implemented economic integration by allowing the

free movement of capital and labor, and by establishing a regional monetary authority. In

April CARICOM trade ministers reached an agreement with the U.S. Trade

Representative to activate the joint Trade and Investment Council as the first step toward

negotiating a bilateral FTA with Washington. With the impending end of the Caribbean

Basin Economic Recovery Act that grants Caribbean countries preferential access to the

U.S. and final ratification of CAFTA-DR, the Caribbean risks being put at a disadvantage

in its most important export market. At the same time that it is seeking to build new

economic links to the U.S., the CARICOM countries (minus Trinidad & Tobago) are

strengthening ties with Venezuela through a trade agreement (PetroCaribe) that

guarantees the islands low cost oil and a market for their agricultural products and

services. CARICOM has agreed support to Venezuela's bid for a non-permanent seat on

the U.N. Security Council.

Dominican Republic#: Fast recovery and settled political situation upgrade
environment to attractive

Strong economic performance
Economy has experienced three years of growth in excess of 6.0%, topping out at
8.0% in 2006, tying it with Venezuela for the highest rate in Latin America.
Rapid decline in inflation and falling interest rates are important components of
current recovery, while an unreliable power sector and the carryover of banking
crisis are deterrents to even higher growth.

Improved external position
FDI and exports are up, and the country has a current account surplus for the
second year in a row. Full participation in CAFTA-DR awaits Congressional
approval of legal reforms.








High unemployment, frequent blackouts and rising crime mar social
environment

Governing PLD wins mid-term elections
In May voters rewarded President Fernandez for restoring health to the economy
by giving his party a clear majority in both houses of Congress and important
municipal offices.

Important items on policy agenda
Congress must approve tax reform, reform of the power sector and other reforms
mandated by IMF-Standby agreement, which should be easier given the
governing party's majority. The government has reduced the fiscal deficit.

Comprehensive legal reform
Recent years have seen the promulgation of statutes to protect the environment,
reform the financial sector as well as telecommunications and trade. Reform of
the Market Regulation Code, intended to strengthen free market competition and
consumer rights has been stalled in the Congress but is expected to gain
momentum with the pending implementation of CAFTA-DR.


Jamaica#: New prime minister inherits gradually improving environment

Growth is up in 2006 and inflation is down.

Stronger external position
High bauxite prices, driven by Chinese imports, and a booming tourist industry
are attracting growing FDI. The foreign debt fell, but the burden as a percent of
exports is still high. Standard and Poor's reaffirmed its upgrade of credit ratings
based on the government's commitment to fiscal discipline and debt reduction as
well as on the economy's long-term growth prospects. Through PetroCaribe,
Venezuela provides 23,000 barrels of oil a day at subsidized prices, saving
Jamaica up to $200 million a year.

Chronic gang-related violence
Jamaica suffers from alarmingly high homicide rates. Increased crime is partly
attributed to deportees who are returned to their home country mostly for drug-
related crimes in the U.S., the U.K., and Canada. Many form part of a growing
trans-regional gang network. The police force has been unable, or unwilling to
respond to the increasing climate of insecurity.

Ruling PNP selects new leader for 2007 elections
Portia Simpson Miller replaced retiring P.J. Patterson as Prime Minister in March,
following an intra-party election. She will lead the governing PNP into next
year's parliamentary election.









*Greater emphasis on social policy
A long-term Member of Parliament and former cabinet minister, the new PM
promises to increase spending on poverty-reduction while striving for a balanced
budget and a reduced public debt. The government also plans to support
expansion of the aluminum industry.

Trinidad & Tobago#: Booming economy and political stability sustain attractive
environment

Rapid economic growth and moderate inflation
High energy prices, increased investment, consumer spending and government
construction combine to produce an annual GDP growth over 7.0%.

Strong external position
Demand is soaring for liquefied natural gas

Kidnapping decreasing but still a problem

Corruption scandal of minor consequence
Energy minister forced to resign, but ruling PNM party firmly in control.

Strong investment policy
The government is plowing windfall profits from soaring energy prices back into
upstream and downstream construction that will allow the country to capture a
larger share of the value added and will generate more jobs.


ANDEAN SOUTH AMERICA

Although it continues to benefit from high commodity prices and favorable terms

of trade, Andean South America again has three of the most problematic business

environments in Latin America. The new government in Bolivia joined Venezuela to

pursue a populist, nationalist development strategy. This option was rejected by voters in

both Colombia and Peru putting them at odds with their neighbors. Ecuador, which

features a volatile political situation with weak institutions, could also opt for the populist

route in its November elections, or produce another weak government incapable of

serving out its constitutional mandate.








The region's volatile politics are undermining regional integration. In April,

President Chavez announced that Venezuela was withdrawing from the Andean

Community to protest the fact that Colombia and Peru signed bilateral trade agreements

with the U.S., which Chavez claimed would subject the Andean nations to unfair

competition from cheap U.S. imports. Shortly following this, Bolivia and Cuba joined

Chivez's Bolivarian Alternative for the Americas, an agreement advanced to challenge

the U.S.-sponsored FTAA. In July, Venezuela became a full member of MERCOSUR.

Even though the other four Andean presidents (including Evo Morales of Bolivia)

pledged to work together to preserve the Andean Community, and Chile announced that

it would explore rejoining CAN, its future is now tenuous. The E.U. has broken off talks

with CAN until the Andean nations resolve their disagreements. Washington indicates

that it will not renew the Andean Trade Preference and Drug Eradication Act granting

preferential access to the U.S. market. It expires at the end of 2006.

Bolivia *: Ne\\ government reshaping business environment along populist lines

Positive economic performance
Growth is up and inflation is down but under difficult circumstances.

Uncertain external position
By aligning with Venezuela and adopting a populist policy agenda, President
Morales is generating serious tension in relations with Washington. Likewise the
nationalization of the energy industry has created problems with Bolivia's
immediate neighbors, especially Brazil, which depends heavily on natural gas
from Bolivia and is heavily invested in the industry. Bolivia needs private
investment in both the energy and infrastructure industries, but FDI has seriously
declined in recent years. Foreign companies cannot afford to abandon Bolivia
given its large gas reserves and current global energy prices, but they are likely to
wait for additional signals from the new government.

Morales promises to remake social environment
Top priority is to be given to the full incorporation of the indigenous peoples into
national life and improving their standards of living.








Political environment transformed
With an unprecedented 54% of the vote and majorities in both houses of
Congress, Evo Morales took office with a mandate for change.

Radical shift in policy agenda
Morales announced the nationalization of the energy industry on May 1.
Authorities threatened to seize company assets if new contracts giving the state
greater control could not be negotiated within six months. They are renegotiating
royalty agreements. Morales launched a sweeping land reform plan, promising to
speed up stalled redistribution of public lands and even redistribute private
holdings. Farmer's groups responded that they would form self-defense groups to
prevent land seizures.

Uncertain legal environment
The legal insecurity generated by the abrogation and forced renegotiation of
contracts and the disregard for private property rights raises the concerns of
foreign investors

Colombiaf: Growth. stability and improved security enhance environment

Strong economic performance
Thanks to favorable terms of trade, falling interest rates and consumer spending,
the economy is enjoying the fourth year of growth over 4.0%. Inflation continues
to fall in spite of larger fiscal deficit.

Improving external position
FDI is flowing back into Colombia at an increasing rate, and exports are
experiencing healthy growth, although there is still a current account deficit.
Total debt and debt/export ratio are declining. In June 2006, reacting to a steep
drop in the stock and bond markets, the government terminated requirements that
foreign investors maintain their money in the country for at least one year. The
IMF Stand-by agreement is scheduled to expire in November. Colombia and the
U.S. concluded negotiations for their FTA.

Improved security strengthens social environment
Homicides and kidnapping have both declined; drug trafficking has not.

President in a stronger position
President Uribe's right-of-center coalition won control of both houses of Congress
in March. In May he was re-elected in the first round. The two elections were a
defeat for the traditional parties and a victory for Uribe's hard line policy -
endorsed by Washington against the guerrilla insurgency and drug trafficking.
They are also a reward for the economic recovery.








Centrist policy agenda
Uribe has pledged to give more attention to social problems while maintaining
macro-economic stability. This means pushing a series of fiscal reforms through
Congress to free more resources for poverty reduction, education and defense.
He has also promised to implement a peace process with the FARC and ELN now
that security has been strengthened. In contrast to the re-nationalization actions
of other South American countries, Colombia is partially privatizing the state-
owned oil company and soliciting private investment to boost exploration and
production.

Mixed legal environment
In July, Colombia passed an investment stability law that guarantees that the laws
governing certain investments will remain in effect for a period of three to twenty
years, depending on the type and size of the investment. Concern and criticism
are growing about the nature and efficacy of the amnesty for paramilitary forces.


Ecuador. Problematic environment facing election uncertainty

Satisfactory economic performance
High oil prices are producing higher growth in 2006, following a dip in 2005.
Dollarization keeps inflation low.

Problematic external position
The decision to revoke the contract of Occidental Petroleum, the country's biggest
foreign investor, and take over $1 billion of the U.S.-based oil company's assets
led Washington halt trade negotiations wit Ecuador. The move followed a new
50% tax on the profits of foreign oil companies. Venezuela has filled some of the
gap, but relations are not as tight as with Bolivia.

October elections
Both Congress and the presidency are up for re-election. Weak political parties
make it difficult to anticipate the outcome, and do not promise a smooth
transition. In the meantime, interim president Alfredo Palacio, the seventh chief
executive in ten years, is no more effective in governing than his deposed
predecessor, and he was unable to convene a Constituent Assembly to adopt
needed political reforms.

Unsettled policy environment
The constant turnover in key government positions has severely disrupted the
policy process. No significant policy decisions are expected until the new
administration takes office in early 2007.

Legal environment
Ecuador's Supreme Court was disbanded for seven months during 2005 but has
reassembled with new judges.









Peru : Rejection of populist candidate preserves improving business environment

Strong economic performance
GDP growth has exceeded 4.0% for five years with low inflation and low fiscal
deficits. The IMF delivered its approval of Peru's economic performance, and
President Alan Garcia promised to renew the Stand-by loan agreement.

Stronger external position
Exports jumped again in 2005 propelled by strong terms of trade while FDI has
also experienced several years of growth. Foreign debt remains steady, although
the debt burden has declined. The U.S. and Peru concluded negotiations and
signed the Peru Trade Promotion Agreement (PTPA) in April. Although
President Garcia continues to insist that he will seek to renegotiate the FTA,
Peru's Congress has ratified the agreement. U.S. lawmakers have still to vote on
the FTA.

Elections divide control of government
Voters chose Alan Garcia who left his first term in disgrace after effectively
bankrupting Peru in the 1980s over populist Ollanta Humala. Humala's party
won the most seats in Congress, although not a majority.

Policy challenges for new government
Committed to keeping the macro-economic policy framework of his predecessor,
Garcia named a respected finance minister. He also promised to reduce poverty
and marginality in Southern Peru, a region that was bypassed by the economic
recovery and where people voted for Humala. Because the FTA favors coastal
agribusiness exports and small farmers are likely to suffer from increased U.S.
agricultural imports, it will not be easy to deliver on the social agenda. With the
participation of the private sector, the administration plans to expand the
extraction and export of natural gas.

Legal environment
The PTPA provides for a secure, predictable legal framework for U.S. investors
operating in the country, including the enforcement of labor and environmental
standards; protection of intellectual property rights; and an effective process to
resolve disputes. The pirated goods trade in Peru is estimated to be worth more
than $2 billion a year and it is not limited to books, DVDs and music. The
National Superintendency of Tax Administration (SUNAT) has increased tax
collection rates and simplified payment procedures, but the enormous number of
new tax laws passed every year poses a challenge. President Garcia has promised
a full reform of the country's tax system.










Venezuela =: Oil bonanza facilitates populist agenda at home and abroad

Robust economic recovery
2006 promises a third year of high GDP growth, while inflation is declining for
fifth year in row. High oil prices have triggered an explosion in consumer
spending and government construction.

Aggressive external posture
Extremely favorable terms of trade produce record exports and a large current
account surplus, yet FDI is tepid, indicating the perception of high risk in spite of
the oil boom. Under President Chavez, Venezuela aspires to abandon its status as
a "rule-taker" in international affairs and to become a "rule-maker." At the
regional level, that goal means using oil diplomacy to cultivate friendly relations
in Latin America and the Caribbean, forging a strong South American bloc and
promoting his Bolivarian alternative to the U.S-backed NEM and the FTAA.
Standard & Poor's upgraded Venezuela on the basis of its credit worthiness and
declining debt burden.

Socialprograms
The government has spent considerable sums of the oil windfall on health,
education, food and housing and employment programs in poor neighborhoods.
Its oil-for-doctors agreement with Cuba is part of this effort. Although these
programs have bolstered the administration's political standing among the low
income Venezuelans who were left out of previous oil-generated spending sprees,
they have not significantly reduced poverty or crime.

December election
The opposition boycotted the December 2005 legislative elections, which meant
that Chivez's supporters won all 167 seats in the National Assembly, further
consolidating power in the president's hands. The often-fragmented opposition
has not only agreed to contest the December 2006 presidential election, but has
united behind a single candidate: Manuel Rosales, former governor of Zulia.

Populist policy agenda
The government continues to increase its share of oil revenues and deepen
ownership and management of the industry, stopping short thus far of
nationalizing the foreign firms, which account for nearly one-third of production.
It has also diversified export markets, presumably to reduce dependence on the
U.S.

Problematic legal environment
Based on the indicators in Table 13, Venezuela has one of the most crime ridden,
most corrupt, most bureaucratic and least competitive legal cultures in Latin
America. Of particular concern to business is the erosion of property rights in the
face of President Chdvez's threats to expropriate uncultivated agricultural land








and abandoned factories. A law passed in 2003 gives the government very broad
powers of eminent-domain to seize property.


BRAZIL AND THE SOUTHERN CONE

The business environments in Brazil and the Southern Cone countries of South

America are positive thanks largely to booming global commodity markets. There were

two developments one negative and the other positive that directly affected regional

integration. Uruguay and Argentina are involved in a nasty dispute over the construction

of two large cellulose mills on the Uruguayan side of a river that divides the two

countries. Argentina claims that the plants threaten their shared ecosystem. Argentine

environmentalists blockaded the bridge connecting the two countries, a tactic that

disrupted trade and tourism. The International Court of Justice issued a decision in July

denying Argentina's petition to halt construction of the plants. The dispute not only

strains relations between the two MERCOSUR neighbors, but also focuses attention on

Uruguay's (and Paraguay's) broader dissatisfaction with the asymmetrical nature of the

bloc. Uruguayan President Tabar6 Vasquez, a left-leaning president who was expected to

align with Lula in Brazil and Kirchner in Argentina, is pursuing the possibility of an FTA

with the U.S.

The major positive development for MERCOSUR was the admission of

Venezuela to full membership, an important step toward expanding MERCOSUR into a

South American bloc. The trade provisions of Venezuelan membership will be phased in

over a period of years, and the exceptions for which MERCOSUR is infamous are likely

to weaken the original commitment to an integrated regional economy. Venezuela does

not have to adopt MERCOSUR's common external tariff for four years, nor will it have








to establish fully free trade with Argentina and Brazil for 12 years, although it must

immediately open its markets to Paraguayan and Uruguayan imports. The presence of

Cuba's Fidel Castro at the signing ceremony underlines the expanded pact's political

aspirations.

Brazil = : En ironment unaffected by corruption or election-year politics

Solid economic performance
GDP growth, which slumped in 2005, has bounced back, and inflation is
declining. Stocks have done well. With growing foreign participation, the
BOVESPA closed 2005 up 28% at a historic high and was up again over 17% in
dollar terms in late August.

Encouraging external position
Brazil has taken advantage of high commodity prices to expand exports and
sustain a large current account surplus. Favorable capital markets and lower
country risk have allowed it to restructure and reduce its foreign debt. FDI is
recovering from the anemic levels of recent years. The real has steadily
strengthened against the dollar leading the central bank to periodically buy dollars
on the spot market in an effort to keep Brazilian export prices competitive. In
another move to reduce the supply of dollars, new foreign exchange rules went
into effect in August allowing exporters to keep a portion of dollars earned abroad
overseas for as long as they want.

Criminal violence has escalated
World attention has been drawn to the problem of violence in Brazil over the last
year. During May 2006, prison-based gangs left 180 dead in Sao Paulo.

Lula headed for second term
In spite of the ongoing corruption scandal that has taken down the president's
closest advisors and the apparent impunity of criminal gangs, Lula has a solid lead
in the polls and seems likely to win a first round victory in October over former
Sao Paulo governor Geraldo Alkmin. Economic growth and social programs that
target lower income Brazilians are the principle sources of the incumbent's
popularity. Lula will depend less on his party and more on shifting congressional
alliances to get legislation approved in his second term.

Macro-economic policies secure but reform awaits new government
By maintaining a primary fiscal surplus, inflation is falling within the targeted
range, which has allowed the Central Bank to lower interest rates. The prime
SELIC rate was down to 14.25% in late August from 19.75% in August 2005.
Moody's raised Brazil's credit ratings but warned that government spending
threatens to get out of hand.








Threats to public security dominate legal environment
Throughout the year, organized drug-trafficking gangs have increasingly
challenged the legal system by seizing control of prisons and then mounting
armed attacks throughout Sdo Paulo. Police corruption is a major concern. To
encourage foreign purchase of Brazilian bonds, the government decided in
February to exempt foreigners from a withholding tax on bonds.

Argentina =: Uneven environment in spite of strong recovery

Growth and inflation up
In 2006 the economy will for the fourth year in a row expand by around 8.0%
On the downside inflation will again top 12.0%, and it would be higher were it
not for government-imposed price controls.

Mixed external performance
Because of high commodity prices exports are booming. There is a current
account surplus and FDI is returning. With help from Venezuela, the government
made great show of paying off the balance of its IMF debt in January and ending
its contentious relationship with the Fund. It still has a large debt that is
technically in default with private bondholders. The government issued a dollar-
denominated bond in March under at a yield of 8.0% and risk premium of 400
basis points, which suggests that investors expect a premium.

Continuing decline in unemployment and poverty

Kirchner headed for second term
President Kirchner has strengthened his hold on government and politics. His
allies won control of the Senate and gained a plurality in the lower house in the
October 2005 mid-term elections. He now firmly controls the ruling Peronist
party, and the opposition is splintered and weak. His approval ratings are very
high thanks to the economic recovery.

Heterodox policy mix
Maintaining fiscal discipline during the 2007 election campaign will be a
challenge. More troubling is the lack of incentives and protection for desperately
needed investment in energy and infrastructure. Kirchner seems unlikely to
address any of these issues as he seeks re-election.

Expanded presidential powers weakens legal environment
Executive powers have been expanded through changes in the country's tax
system, new government spending authority, the founding of state-owned
enterprises and the re-nationalization of privatized ones.









Chile#: Smooth transfer of power in Latin America's most attractive environment

Healthy growth and low inflation
Annual GDP growth has been around 6.0% for three years, and the Central Bank
raised interest rates 14 straight times since September 2004 to keep inflation
under the 3.0% targeted range.

Strong external position
The soaring price of copper has produced a large current account surplus. FDI is
strong, and the peso continues to appreciate, but not enough to weaken exports.
In August, Chile became the first country in the world to enter into an FTA with
China, which is the second leading destination for Chilean exports after the U.S.
The agreement also secures Chile as the South American gateway to the Asia-
Pacific market.

Student protests draw attention to social issues
Nationwide student protests demanding better public schools made it clear that
inequality is a serious problem for Chile.

New administration responds to challenges
Despite her first round victory and Congressional majority, President Michelle
Bachelet had a short honeymoon. Responding to criticism for the way she
handled the student protests and falling approval ratings, the president replaced
three key cabinet ministers in early June, less than three months into her term.

Policy initiatives
Chile has a large fiscal surplus, which allows the government to strengthen the
social safety net with special attention to filling gaps in the privatized pension
system and improve public education. In foreign policy, Bachelet gives priority
to strengthening relations with South American neighbors, especially Bolivia, in
part because of Chile's dependence on imported energy.

Dynamic legal environment
As Table 13 demonstrates, Chile has the strongest legal environment in Latin
America, and new laws are being implemented in many sectors to further
strengthen the legal system. Of most importance is the long-stalled MK2 (capital
market reform II) legislative project, which could overhaul the laws governing
Chile's capital markets. The 2004 codification of a model international
arbitration law reflects the goal of becoming a center for international arbitration
services, but it is not an encouraging sign that arbitral processes have twice since
been subjected to Supreme Court review.










Paraguay =: No significant changes in environment

Moderate growth but inflation up
GDP growth will reach at least 3.0% for the fourth year in a row, but inflation
may hit double digits for the second consecutive year.

Modest external performance
FDI is stagnant, but exports are up. Although the debt/exports ratio has declined,
President Duarte admitted in April that debt servicing was so onerous that his
government was tempted to skip payments.

Weak legal environment
Very high levels of corruption, low economic freedom and weak legal guarantees
make Paraguay unattractive to foreign investors.

Uruguay#: Continued impro ement of increasingly attractive environment

Economic recovery continues
Growth and inflation are satisfactory. In 2005 the GDP reached the level where it
had been in 1998, before the economy collapsed in 1999.

Exploring FTA with U.S.
Modest export growth, a current account surplus and a reduced debt burden,
permitted the government to make two early payments on its IMF loan, although
Uruguay intends to continue receiving support from the Fund through the full life
of the Stand-by agreement. What looked like a tactical move to express its
dissatisfaction with MERCOSUR (and Argentina's attempts to stop construction
of the cellulous plants) has evolved into serious trade talks with Washington. In
recent years, the U.S. has become Uruguay's single largest export market.

Slow action on policy reforms
Because of the fractious nature of the ruling coalition, the government is not
taking advantage of its majority in Congress to push ahead on fiscal and labor
reforms.

Healthy legal environment
Uruguay and the U.S. signed their bilateral investment treaty in November 2005.








III. OUTLOOK


REGIONAL OUTLOOK

On balance the outlook for the Latin American business environment remains

favorable through 2007, making the recovery that began in mid-2003 the longest period

of uninterrupted growth since the early 1990s. There are, however, conditions emerging

that are likely to slow growth in the region and weaken what has been an attractive

business environment. Below we examine the outlook over the next 15 months for each

component of the regional business environment before assessing the outlook for the 20

countries in the next section. For each component and each country, we indicate whether

it is likely to get better (+), get worse (4), or stay the same (=) through 2007. We use

"?" to indicate an uncertain outlook. We further identify key variables to monitor in the

coming 12-15 months.

External Environment

Global ~
The biggest external threats to continued Latin American expansion are the rise in
U.S. interest rates, orchestrated by the Federal Reserve System to contain
inflation, and a slowdown in the U.S. economy. Both would have repercussions
for Latin America by raising its cost of capital and dampening demand for its
exports. In May and June 2006, emerging stock market indexes fell after soaring
during the first part of the year on fears of global inflation and interest rate hikes,
and country risk spreads increased. The deterioration of conditions in the Middle
East promises to keep oil prices at record levels.
Keys: US interest rates; commodity prices; global growth

Regional =
Venezuela's entry into MERCOSUR raises two scenarios for U.S.-Latin
American relations: The first is that under Brazil's influence President Chavez
will moderate his Bolivarian challenge to the Washington. The second is that
Chavez succeeds in making MERCOSUR a South American platform to ratchet
up confrontation with the U.S. Failure of the U.S. Congress to ratify the FTAs
with Peru and Colombia would represent a significant setback for U.S.-Latin
American relations, as would the passage of a hard-line immigration policy.
Keys: South American geopolitics, U.S. Congress








III. OUTLOOK


REGIONAL OUTLOOK

On balance the outlook for the Latin American business environment remains

favorable through 2007, making the recovery that began in mid-2003 the longest period

of uninterrupted growth since the early 1990s. There are, however, conditions emerging

that are likely to slow growth in the region and weaken what has been an attractive

business environment. Below we examine the outlook over the next 15 months for each

component of the regional business environment before assessing the outlook for the 20

countries in the next section. For each component and each country, we indicate whether

it is likely to get better (+), get worse (4), or stay the same (=) through 2007. We use

"?" to indicate an uncertain outlook. We further identify key variables to monitor in the

coming 12-15 months.

External Environment

Global ~
The biggest external threats to continued Latin American expansion are the rise in
U.S. interest rates, orchestrated by the Federal Reserve System to contain
inflation, and a slowdown in the U.S. economy. Both would have repercussions
for Latin America by raising its cost of capital and dampening demand for its
exports. In May and June 2006, emerging stock market indexes fell after soaring
during the first part of the year on fears of global inflation and interest rate hikes,
and country risk spreads increased. The deterioration of conditions in the Middle
East promises to keep oil prices at record levels.
Keys: US interest rates; commodity prices; global growth

Regional =
Venezuela's entry into MERCOSUR raises two scenarios for U.S.-Latin
American relations: The first is that under Brazil's influence President Chavez
will moderate his Bolivarian challenge to the Washington. The second is that
Chavez succeeds in making MERCOSUR a South American platform to ratchet
up confrontation with the U.S. Failure of the U.S. Congress to ratify the FTAs
with Peru and Colombia would represent a significant setback for U.S.-Latin
American relations, as would the passage of a hard-line immigration policy.
Keys: South American geopolitics, U.S. Congress








Domestic Environment


* Economic and Financial Performance 4
The outlook for 2007 is for continued but slower growth. Furthermore, there is
greater uncertainty in the forecast. On the financial side, most observers conclude
that the region (some countries more than others) is better prepared to cope with
external shocks than it was in the 1980s and 1990s, but the fact remains that the
reduced flow of funds from abroad would negatively affect both equity prices and
debt costs in Latin America.
Keys: Commodity prices

* Social Environment#
Four years of growth have helped reduce poverty and unemployment.
Key: Continued growth

* Political Environment ?
In 2007, only four countries (the most important being Argentina) are scheduled
to hold elections, but there are three elections yet to be decided in 2006 that could
strengthen or hold in check the populist left. All of the presidents elected this
year will attempt to impose their policy agenda. In those countries where the
president does not have a legislative majority, governabilityy" may be a serious
issue.
Keys: 2006 elections in Nicaragua, Ecuador and Venezuela and 2007 election
in Argentina; executive- legislative relations

* Policy Environment =
The policies credited with securing macro-economic stability in Latin America
seem safe for another year. By the same token there is unlikely to be significant
headway in implementing second and third generation structural reforms. Those
countries with populist-leaning administrations are likely to continue re-imposing
state control of key sectors of the economy. While a full paradigm shift is not
likely, the retreat from some elements of the NEM is underway.
Keys: Election outcomes in Nicaragua and Ecuador

* Legal Environment =
No region-wide changes are expected in the coming year, save for the
implementation of additional legal reforms to comply with trade agreement
obligations in the CAFTA-DR signatory countries, Colombia and Peru.
Accompanying the recent growth of BITs in the region, additional arbitration
legislation is expected as a means of responding to the immediate need to provide
greater legal protections to foreign investors.
Keys: Successful implementation of legal reforms








COUNTRY OUTLOOKS

This section divides the 20 countries into three categories attractive, problematic

and mixed based on the overall character of their business environments in 2006, and

then assesses the outlook for each for 2007. The environment in eight countries is

expected to improve and two are expected to weaken (Mexico and Argentina). Most will

stay the same while the situation is highly uncertain in two countries (Nicaragua and

Ecuador). Occasionally cumulative or sharp short-term changes in an environment

justify reclassification. For 2006 three of the 20 countries shifted categories. The

Dominican Republic was upgraded from mixed to attractive and Paraguay was

reclassified from problematic to mixed. Ecuador was downgraded from mixed to

problematic.

Attractive Environments

Although not without weaknesses, the business environment in five countries is

fundamentally sound and offers an attractive risk-reward balance, although the election

dispute in Mexico has made it less attractive. Costa Rica also has some unresolved issues

and more problematic politics. On the other hand, the dramatic turnaround of the

Dominican Republic has returned its environment to the attractive category.

Mexico 0
Now that Felipe Calder6n has been proclaimed winner in the presidential election,
he faces formidable challenges: He must unite a deeply divided nation and form a
working coalition in Congress probably with the PRI where the PAN has the
most seats but not a majority. Under these circumstances Calder6n may be hard
pressed to govern Mexico much less deliver the pro-market reforms (taxes, energy
and labor) that eluded the Fox administration.
Keys: Ability of new administration to heal wounds and build a working
majority in Congress








Costa Rica =
The inability of President Arias thus far to work with the opposition-controlled
Assembly to secure ratification of CAFTA-DR and passage of a fiscal reform
package suggest that his government will not have an easy time implementing the
measures needed to reinforce Costa Rica's competitive standing.
Keys: Executive-legislative relations; CAFTA-DR vote

Dominican Republic
His win in the legislative elections gives President Fernandez the popular mandate
he needs to pass important reforms. It also eases his re-election in 2008 since he
campaigned hard and staked his political future on a PLD win.
Keys: Approval of CARFTA-DR-mandated reforms; improved social
environment.

Trinidad & Tobago #
Nothing on the horizon is likely to threaten the country's positive environment.
Keys: Energy prices

Chile =
To fulfill the high expectations that accompanied her election and to
accommodate the growing pressure to share the wealth generated by record high
copper revenues, President Bachelet must show progress in strengthening the
pension system, improving public education and reducing poverty. To sustain
economic growth, she is going to have to lock in reliable energy supplies, most
likely from Bolivia, the country with which Chile has a long-standing border
dispute. High energy prices began to slow growth in the third quarter of 2006.
Keys: Presidential leadership; pension reform; relations with Bolivia

Problematic Environments

Political polarization (Nicaragua), weak institutions (Ecuador), issues of

governability (Ecuador and Nicaragua) and populist policy agendas (Bolivia and

Venezuela) make the business environments of the four countries in this category risky.

The outlook for Nicaragua and Ecuador depends on the outcome of elections scheduled

for later this year, although it is likely that the unsettled political situation in each will

carry over into the new administrations.

Nicaragua ?
A victory for Sandinista Daniel Ortega, who held a slight lead in the polls over
Eduardo Montealegre of the Liberal Alliance, would further unsettle a business
environment that had been struggling to improve over the past three years. The







Liberal Party, associated with the Somoza dictatorship and the Contras, is in an
electoral alliance with the Sandinistas.
Keys: November 2006 election; transfer of power to new administration

Venezuela =
In spite of the anti-business rhetoric and high risk, investors cannot afford to write
off Venezuela. It is too important as an oil supplier, trading partner and
investment opportunity. By the same token, Venezuela needs foreign investment,
especially to expand oil exploration and extraction. An opposition victory in
December would signal a major shift in the business environment, but that seems
unlikely. In the meantime, Chivez and the private sector will continue to carve
out a pragmatic if prickly working relationship.
Keys: Oil prices; relations with Washington; December elections

Bolivia =
Because his supporters failed to win a two-thirds majority in the Constituent
Assembly, President Morales will have to negotiate with the opposition. This
could lead to compromise and consensus-building on controversial constitutional
reforms like nationalizing the energy industry, land reform and provincial
autonomy. Or it could provoke the kind of political polarization and
disintegration that have forced recent governments from power. Due to budgetary
and other constraints, the government has had to extend the deadline for
nationalizing the energy industry.
Keys: Deliberations of Constituent Assembly; final terms of energy
nationalization

Ecuador ?
Ecuador's outlook is clouded by the upcoming election. Left-leaning Leon
Roldos is currently leading in the polls, but it is possible that Rafael Correa, a
self-proclaimed admirer of Hugo Chavez, could make it into the run-off. Of
concern is the fate of the oil industry under the next government. Given the
instability of recent governments, there is no guarantee that the next one will last
out its term.
Keys: October 2006 elections; organization and policy priorities of new
administration

Mixed Environments

The business environments in the remaining countries feature varied

combinations of attractive and problematic traits.

*El Salvador#
The economy is performing better but the country has yet to realize gains from the
steps it took to become the most open, competitive economy in Central America.
Because of dollarization, its fate is closely tied to U.S.
Keys: Boost from CAFTA-DR; U.S. growth and interest rates







* Guatemala =
Guatemala has made slow but steady progress in recent years, although its
environment suffers from deep structural weaknesses.
Keys: Demonstrated capacity to take advantage of CAFTA-DR; credible
measures to reduce crime, violence and corruption

* Honduras =
Government must deal with wide range of public protests with little cooperation
from opposition-controlled legislature.
Keys: Executive-legislative relations

* Panama
Expected approval of $5.3 billion proposal to enlarge the Panama Canal in
October referendum and the successful conclusion and ratification of FTA with
the U.S. should strengthen an environment that has made important strides in last
two years.
Keys: FTA negotiations; October canal referendum

* Jamaica =
Electoral politics will increasingly dominate 2007. Voters will look to the new
government for progress in reducing poverty and violence.
Keys: Parliamentary elections; bauxite prices

* Colombia#
With convincing victories in both the congressional and presidential elections,
President Uribe must satisfy very high expectation early in his second term. This
translates into tangible progress on fiscal reform, social programs and a peace
process while sustaining the counter-insurgency and anti-drug campaigns.
Keys: Ratification of FTA with U.S.; progress on second term agenda

* Peru 4
Prospects for sustained growth and strong fiscal outlook facilitate achieving the
promised balance between macro-economic stability and increased social
spending. Failure of the U.S. Congress to ratify the FTA would be a setback.
Regional elections in November are first political test of new government.
Keys: Executive legislative relations; U.S. ratification ofPFTA

* Brazil =
Since Lula is on track to win re-election, the questions become what his second-
term agenda will be. There is no reason to deviate from his widely praised macro-
economic package and it is reasonable to expect interest rates to continue
declining as inflation falls. For Brazil to move toward the coveted investment
grade rating, Lula must negotiate with Congress to secure passage for a series of
reforms (social security, tax, labor markets) that will improve the fiscal balance
and generate higher investment, both public and private. None of this will be easy
given the factious nature of Congress.
Keys: October 2006 elections; policy agenda for second administration; credible
measures to reduce violent crime








* Argentina 0
Although President Kirchner's re-election seems assured, the campaign is likely
to unsettle the business environment. Argentina's relations with its neighbors are
somewhat problematic, particularly on energy issues.
Keys: 2007 election

* Paraguay =
Incremental improvement in marginal environment is the most likely scenario.
Keys: Compliance with IMF agreement.

* Uruguay#
With an educated population and strong institutions, Uruguay has made a solid
recovery from the 1999-2003 economic crisis. But it is a small country with a
narrow economic base. The key to sustained growth will be to effectively
redefine its insertion into the global economy.
Keys: Dispute with Argentina; trade talks with U.S.








TABLES


Table 1 MEMBERSHIP IN MAJOR TRADE AGREEMENTS

Table 2 TERMS OF TRADE, 1996-2005

Table 3 NET FOREIGN DIRECT INVESTMENT, 1996-2005

Table 4 GDP GROWTH, 1996-2006

Table 5 ANNUAL INFLATION, 1996-2006

Table 6 EXPORTS, IMPORTS (GOODS AND SERVICES) AND
CURRENT ACCOUNT BALANCE, 2002-2005

Table 7 GROSS DISBURSED EXTERNAL DEBT, 1996-2005

Table 8 DEBT/EXPORT RATIO, 1996-2005

Table 9 EXCHANGE RATES AND IMF AGREEMENTS, 2006

Table 10 SOCIAL ENVIRONMENT, 2006

Table 11 POLITICAL ENVIRONMENT, 2006

Table 12 FISCAL DEFICIT/SURPLUS, 1996-2005

Table 13 LEGAL ENVIRONMENT, 2006





Table 1
MEMBERSHIP IN MAJOR TRADE AGREEMENTS

NAFTA CACM CAFTA-DR CBI CARICOM CAN ATPA MERCOSUR US-CHILE

NAFTA REGION
Mexico M
CENTRAL AMERICA
Costa Rica M P M
El Salvador M M M
Guatemala M M M
Honduras M M M
Nicaragua M M M
Panama M* M
CARIBBEAN
Dominican M M M
Republic
Jamaica M M
Trinidad & Tobago M M
ANDEAN SOUTH AMERICA
S Bolivia M M A
Colombia M M A
Ecuador M M A
Peru M M A
Venezuela M
SOUTHERN CONE
Argentina M
Brazil M
Chile A M
Paraguay M
Uruguay M
US MEMBERSHIP M M M M M

A = Associate Member M = Member P = Membership Pending
NAFTA = North American Free Trade Agreement CACM = Central Amerian Common Market
CAFTA-DR = US Free Trade Agreement with Central America and the Dominican Republic CBI = Carbbean Basin Initiative
CARICOM = Caribbean Common Market CAN = Andean Community ATPA = Andean Trade Preference Act
MERCOSUR = Common Market of the South US-Chile = US-Chile Free Trade Agreement





Table 2
TERMS OF TRADE, 1996-2005
(2000=100, except where indicated)


1996 1997 1998


NAFTA REGION
Mexico 90.8


CENTRAL AMERICA
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama

CARIBBEAN
Dominican Republic
Jamaica 2
Trinidad & Tobago 2


102.1
97.1
92.7
145.4
84.4
105.5


103.5
83.4
98.9


ANDEAN SOUTH AMERICA
Bolivia 108.0
Colombia 84.3
Ecuador 80.5
Peru 104.9
Venezuela 67.1

BRAZIL AND SOUTHERN CONE
Argentina 103.5
Brazil 107.1
Chile 89.4
Paraguay 104.7
Uruguay 108.6


LATIN AMERICA AND
CARIBBEAN


92.8


89.5


125.9
95.0
97.9
92.8
82.0
103.9


106.1
89.4
88.3


107.9
93.3
89.1
115.5
70.1


102.2
113.6
94.5
106.2
110.2


90.6


117.5
95.8
115.3
108.9
79.6
104.7


1999 2000 2001


99.3


106.9
99.6
101.9
107.5
95.3
104.6


100.0 97.4


100.0
100.0
100.0
100.0
100.0
100.0


98.4
102.5
96.7
94.8
88.4
102.7


2002 2003


97.9


96.9
101.6
96.8
92.0
87.0
101.6


108.0 105.7 100.0 100.9 101.6
** ** ** ** **


98.8


95.5
97.7
93.0
88.0
84.1
101.5


97.9
**
**


2flfl 2005 1


101.6 104.6


91.9
96.8
92.1
87.2
82.5
95.3


96.7
**


86.6
95.8
89.6
84.7
80.2
93.5


94.4
**


90.0


102.0
81.2
75.8
103.4
51.2


96.6
111.9
91.0
108.0
116.7


95 91.5


97.1
87.2
89.1
100.8
66.1


94.6
97.0
94.2
101.7
106.2


94.6


100.0
100.0
100.0
100.0
100.0


100.0
100.0
100.0
100.0
100.0


95.8
94.2
84.6
95.6
82.2


99.3
99.6
93.3
100.2
103.8


100.0 96.3


96.2
92.5
86.8
98.4
87.6


96.6
98.4
97.2
96.7
104.8


96.6


98.5
95.2
89.8
79.6
137.8


107.2
97.0
102.8
81.4
92.8


987


104.1
108.5
91.5
111.3
118.1


109.2
97.9
124.9
104.3
108.4


109.5
116.7
105.2
118.4
154.4


105.5
98.8
134.1
96.2
99.5


1 3 9 1 08 9


SOURCE: ECLAC, Preliminary Overview of the Economies of Latin America and the Caribbean 2005
1 Year 2005 are preliminary CEPAL estimates
2 Source:lnter-American Development Bank, Facing Up to Inequality in Latin America, 1998 (Index 1980=100)


19 20 .... 20 2005.


**


**




Table 3
NET FOREIGN DIRECT INVESTMENT, 1996-2005
(Millions of US dollars)

1996 1997 1998 1999 2000 2001 2002 2003 2004 20051


NAFTA REGION
Mexico


CENTRAL AMERICA
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama

CARIBBEAN
Dominican Republic
Jamaica
Trinidad and Tobago


9,186 12,831 11,897


421 404 608
-7 59 1,103
77 84. 673
91 122 99
120 203 218
416 1,299 1,203


13,055 16,075


97 421 700 1,338


23,331 16,192 10,966 14,420 11,250


953 1,079


547 557
154 459
131 155
247 293
201 186
792 1,012


613 758
*** ***


472 728 947
2,784 4,753 2,033
500 724 870
3,488 2,054 1,582
1,676 5,645 3,942


BRAZIL AND SOUTHERN CONE
Argentina 5,341
Brazil 11,66
Chile 3,68
Paraguay 14,
Uruguay 13

LATIN AMERICA AND
CARIBBEAN 40,30


8 5,507 4,965
7 18,608 29,192
1 3,809 3,144
4 230 336
7 113 155


1 57,599 63,677


1,008 734
1,392 2,069
648 720
1,812 810
2,018 4,180


22,257 9,517
26,886 30,498
6,203 873
89 98
238 274


79,345 68,876


703
2,509
1,330
1,070
3,479


2,005
24,715
2,590
78
291


674
1,258
1,275
2,156
-244


2,776
14,108
2,207
12
180


195 114 103
863 2,909 3,716
1,555 1,160 1,530
1,275 1,816 2,141
1,341 1,866 500


878 3,923 5,200
9,894 8,695 14,000
2,501 6,660 5,195
30 64 64
401 300 312


65,124 43,225 32,600 45,351 47,319


SOURCE: CEPAL, Anuario Estadistico de America Latina y el Caribe, 2005
1 Preliminary estimates for Year 2005 from CEPAL.


ANDEAN SOUTH AMERICA


Bolivia
Colombia
Ecuador
Peru
Venezuela




Table 4
GDP GROWTH, 1996-2006
(% Change)


1996 1997 1998 1999


NAI- IA HMIUIUN
Mexico


CENTRAL AMERICA
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panana

CARIBBEAN
Dominican Republic
Jamaica
Trinidad & Tobago


ANDEAN SOUTH AMERIC
- Bolivia
Colombia
Ecuador
Peru
Venezuela


BRAZIL AND SOUTHERN CONE


Argentina
Brazil
Chile
Paraguay
Uruguay


LATIN AMERICA AND
CARIBBEAN


5.2 6.8 5.0 3.8


0.9 5.6 8.4 8.2
1.7 4.2 3.7 3.4
3.0 4.4 5.0 3.8
3.6 5.0 2.9 -1.9
6.3 4.0 3.7 7.0
2.8 6.4 7.4 4.0


7.2 8.2 7.4 8.1
-1.1 -1.7 -0.3 -0.4
7.0 7.7 8.1 8.0

.A
4.4 5.0 5.0 0.4
2.1 3.4 0.6 -4.2
2.4 4.1 2.1 -6.3
2.5 6.8 -0.7 0.9
-0.2 6.4 0.3 -6.0


5.5 8.1 3.9 -3.4
2.7 3.3 0.1 0.8
7.4 6.6 3.2 -0.8
0.4 3.0 0.6 -1.5
5.6 5.0 4.5 -2.8


3.8 5.5 2.6 0.4


2000 2001


6.6 0.0


1.8 1.1
2.2 1.7
3.6 2.3
5.7 2.6
4.1 3.0
2.7 0.6


8.1 3.6
0.7 1.7
6.9 4.2


2.5 1.7
2.9 1.5
2.8 5.1
2.9 0.2
3.7 3.4


-0.8 -4.4
4.4 1.3
4.5 3.4
-3.3 2.1
-1.4 -3.4


3.9 0.3


2002 2003


0.8 1.4


2.9 6.5
2.2 1.8
2.2 2.1
2.7 3.5
0.8 2.3
2.2 4.2


4.3 -1.9
1.0 2.3
6.9 12.6


2.4 2.8
1.9 4.3
3.4 2.7
4.9 4.0
-8.9 -7.7


-10.9 8.8
1.9 0.5
2.2 3.7
0.0 3.8
-11.0 2.2


-0.8 2.0


Average
2004 2005 1996-2005 20061


4.2 3.0 3.7


4.2 4.4
2.5 2.5
3.2 3.2
4.2 3.3
4.0 4.0
6.0 4.4


2.0 7.0 5.4
0.9 1.4 0.5
6.4 7.0 7.5


3.6
4.0
6.9
4.8
17.9


9.0
4.9
6.1
4.0
12.3


3.8 3.2
4.3 2.1
3.0 2.6
6.0 3.2
9.0 1.8


8.6 2.4
2.5 2.2
6.0 4.2
'3.0 0.9
6.0 1.7


5.9 4.3 2.8


SOURCE: CEPAL, Anuario Estadistico de Am6rica Latina y el Caribe, 2005.
1 Preliminary estimates for 2006 from CEPAL, Estudio econ6mico de America Latina y el Caribe, 2005-2006.





Table 5
ANNUAL INFLATION, 1996-2006
(% variation in CPI, December through December)

1996 1997 1998 1999 2000 2001 2002 2003 2004 20051 2006 2


NAFTA REGION
Mexico

CENTRAL AMERICA
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama

CARIBBEAN
Dominican Republic
Jamaica
Trinidad & Tobago


27.7 15.7 18.6 12.3


13.9
7.4
10.9
25.3
12.1
2.3


4.0
15.8
4.3


ANDEAN SOUTH AMERICA
Bolivia
Colombia 2
Ecuador 2
Peru 1
Venezuela 10


11.2
1.9
7.1
12.8
7.3
-0.5


7.9 6.7
1.6 17.7
5.7 30.6
1.8 6.5
3.2 37.6


BRAZIL AND SOUTHERN CONE
Argentina 0.1
Brazil 9.6
Chile 6.6
Paraguay 8.2
Uruguay 24.3

LATIN AMERICA AND


0.3
5.2
6.0
6.2
15.2


12.4
4.2
7.5
15.7
18.5
1.4


7.8
7.9
5.6


4.4
16.7
43.4
6.0
29.9


0.7
1.7
4.7
14.6
8.6


10.1
-1.0
4.9
10.9
7.2
1.5


5.1
6.8
3.4


3.1
9.2
60.7
3.7
20.0


9.0


10.2
4.3
5.1
10.1
9.9
0.7


9.0
6.1
5.6


3.4
8.8
91.0
3.7
13.4


4.4


11.0
1.4
8.9
8.8
4.7
0.0


4.4
8.7
3.2


0.9
7.6
22.4
-0.1
12.3


10.5 42.7
7.3 14.1
4.3 3.0


2.4
7.0
9.3
1.5
31.2


41.0
12.5
2.8
14.6
25.9


3.9
6.5
6.1
2.5
27.1


5.2


13.1
5.4
9.2
9.2
8.9
1.5


28.7
13.7
5.6


4.6
5.5
1.9
3.5
19.2


2.9


14.2
4.6
9.2
7.7
10.5
4.0


3.7


12.0
3.6
7.0
7.3
10.0
2.0


4.8
15.9 11.0
6.8 8.3


12.0
6.2
3.6
12.3
4.8


12.7
5.4
3.0
9.8
6.2


18.6 10.7 10.0


9.0 6.1 12.2


8.5 74 3


SOURCE: CEPAL, Anuario Estadistico de America Latina y el Caribe, 2005.
1 Twelve-month variation up to November 2005


CARIBBEAN 3


2 Preliminary estimates for 2006 from CEPAL, America Latina y el Caribe: Proyecciones 2006, April 2006.
3 Does not include the Bahamas, Barbados, Grenada, Guyana, St. Vincent & the Grenadines, St. Lucia or Cuba.


9.0 6. 12. 85 74 30




Table 6
EXPORTS, IMPORTS AND CURRENT ACCOUNT BALANCE, 2002-2005
(Millions of US dollars)


2002


2003


2004


2nn001


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


NAFTA REGION
Mexico 173,454 185,419
CENTRAL AMERICA
Costa Rica 7,140 7,719
El Salvador 3,803 5,914
Guatemala 3,964 6,857
Honduras 2,511 3,508
Nicaragua 907 1,953
Panama 7,567 7,625
CARIBBEAN
Dominican Republic 8,236 10,151
Jamaica ** **
Trinidad & Tobago
ANDEAN SOUTH AMERICA
Bolivia 1,555 2,072
Colombia 14,182 15,409
Ecuador 6,121 7,828
Peru 9,267 9,946
Venezuela 27,841 17,329
BRAZIL AND SOUTHERN CONE
Argentina 28,684 13,135
Brazil 69,913 61,749
Chile 22,509 20,909
Paraguay 2,426 2,488
Uruguay 2,693 2,492
LATIN AMERICAN AND
CARIBBEAN I393,194 383,735


-13,792

-916
-412
-1,235
-219
-870
-92

-798
**



-352
-1,452
-1,358
-1,127
7,599

9,627
-7,637
-885
73
322


164,766 170,546


6,163 7,294


-8,615 187,999 196,810


-929


** **


1,050 2,021 -749
5,049 6,162 -437


5,471
**



1,598
13,825
6,381
9,091
27,170

29,939
73,084
21,524
2,175
2,281


7,627




1,616
13,258
6,294
8,255
10,687

13,134
48,290
18,002
2,450
2,098


-13,571 378,206 333.513


1,036
**



62
-987
-340
-935
11,448

8,019
4,177
-1,102
122
-58


6,370 7,833


** **


1,363 2,452
5,886 7,471


5,748
**



2,146
17,246
7,910
12,617
38,748

34,550
96,475
32,025
2,706
3,025


7,844




1,844
15,878
7,497
9,824
17,318

21,311
62,809
23,006
3,116
2,990


8.5711464.362 406.002


... 9 768 47 086


SOURCE: CEPAL, Anuario Estadistico de America Latina y el Caribe, 2004 and 2005
1 Preliminary estimates for Year 2005 from CEPAL.


-7,2711 210,470 220,513


7,090 8,968

** **


1,543 2,912
6,592 8,592


-732
-1,104

1,088




285
-967
-155
-10
13,830

3,332
11,738
1,390
30
-105


5,988
**



2,575
22,075
9,888
16,907
55,410

40,078
117,700
39,711
2,761
3,539


9,542




2,268
20,006
9,297
12,084
24,418

27,704
73,487
30,598
3,428
3,588


18.2991 552.76R 477 O~fi


-9,300

-1,031


-865
-1,515

-240




50
-341
-122
1,342
24,471

4,655
14,976
269
-169
-197

29,670





Table 7
GROSS DISBURSED EXTERNAL DEBT, 1996-2005
(Millions of US dollars)
1996 1997 1998 1999 2000 2001 2002 2003 2004 20051
NAFTA REGION
Mexico 157,200 149,028 160,258 166,381 148,652 144,526 134,728 132,021 130,531 131,737

CENTRAL AMERICA
Costa Rica 2,859 2,640 2,872 3,057 3,151 3,175 3,281 3,733 3,884 3,633
El Salvador 2,517 2,689 2,646 2,789 2,831 3,148 3,987 4,717 4,778 4,922
Guatemala 2,075 2,135 2,368 2,631 2,644 2,925 3,119 3,467 3,844 3,766
Honduras 4,121 4,073 4,369 4,691 4,711 4,757 4,922 5,143 5,792 5,608
Nicaragua 6,094 6,001 6,287 6,549 6,660 6,374 6,363 6,596 5,391 5,280
Panama 5,070 5,051 5,349 5,568 5,604 6,263 6,349 6,504 7,219 7,200

CARIBBEAN
Dominican Republic 3,807 3,572 3,546 3,661 3,682 4,177 4,536 5,987 6,380 6,448
Jamaica 3,232 3,278 3,306 3,024 3,375 4,146 4,348 4,192 5,120 4,952
Trinidad & Tobago 1,876 1,565 1,471 1,585 1,680 1,666 1,549 1,553 1,351

U ANDEAN SOUTH AMERICA
o0 Bolivia 4,643 4,532 4,659 4,574 4,460 4,412 4,300 5,042 4,951 4,802
Colombia 31,114 34,409 36,681 36,733 36,130 39,109 37,336 38,065 39,460 37,045
Ecuador 14,586 15,099 16,401 16,282 13,564 14,411 16,288 16,595 17,010 17,603
Peru 33,782 28,864 30,142 28,586 27,981 27,196 27,873 29,587 31,117 30,141
Venezuela 34,117 37,242 35,087 37,016 36,437 35,398 35,460 39,672 44,546 45,104

BRAZIL AND SOUTHERN CONE
Argentina 114,423 129,964 147,634 152,563 155,015 166,272 156,748 164,918 171,115 118,663
Brazil 179,935 199,998 223,792 225,610 216,921 209,934 210,711 214,930 201,373 191,309
Chile 26,272 29,034 32,591 34,758 37,177 38,538 40,675 43,359 43,283 44,333
Paraguay 1,801 1,926 2,133 2,697 2,819 2,652 2,866 3,086 2,994 2,944
Uruguay 11,595 12,485 13,582 8,261 8,895 8,937 10,548 11,013 11,593 11,217

LATIN AMERICA AND
CARIBBEAN 653,665 687,896 751,080 762,744 738,382 744,082 733,112 758,126 760,376 679,183
SOURCE: CEPAL, Anuario Estadistico de America Latina y el Caribe, 2005
CEPAL, Balance Preliminar de las Economias de America Latina y el Caribe, 2004 and 2005
1 Preliminary estimates for Year 2005 from CEPAL.




Table 8
DEBT /EXPORT RATIO, 1996-2005
(as a percentage of exports of goods and services)
1996 1997 1998 1999 2000 2001 2002 2003 2004 20052
NAFTA REGION
Mexico 147 123 124 112 83 84 78 74 65 58
CENTRAL AMERICA
Costa Rica 59 49 42 37 41 46 46 46 45 37
El Salvador 114 92 87 88 77 88 105 118 111 106
Guatemala 74 67 68 76 69 75 79 84 83 74
Honduras 214 186 180 210 189 196 196 191 189 172
Nicaragua 842 666 666 680 604 570 557 505 326 282
Panama 68 60 65 78 72 78 84 86 84 75

CARIBBEAN
Dominican Republic 61 51 47 46 41 50 55 67 69 65
Jamaica 97 96 98 87 94 124 135 119 131 123
Trinidad & Tobago 0 52 50 46 35 34 34 26 18

ANDEAN SOUTH AMERICA
^ Bolivia 354 321 344 349 303 290 276 257 194 161
Colombia 236 242 273 263 229 260 263 242 202 150
Ecuador 260 250 328 305 227 255 268 228 193 163
Peru 462 345 400 372 330 321 301 274 214 158
Venezuela 135 148 183 166 105 126 127 141 112 80

BRAZIL AND SOUTHERN CONE
Argentina 403 420 473 546 498 533 542 483 430 255
Brazil 343 348 381 409 366 311 301 257 185 143
Chile 130 133 161 165 160 172 180 164 114 94
Paraguay 41 48 51 93 96 108 118 112 91 86
Uruguay 301 296 327 238 243 274 392 357 289 237

LATIN AMERICA AND
CARIBBEAN 215 203 221 214 174 183 179 170 141 118
SOURCE: CEPAL, Anuario Estadistico de America Latina y el Caribe 2005
1 Gross disbursed external debt includes the public-and-private sector external debt. Also includes International Monetary Fund loans.
2 Preliminary estimates for Year 2005 from CEPAL.




Table 9

EXCHANGE RATES AND IMF AGREEMENTS, 2006


EXCHANGE RATE
August 8, 2005 August 24, 2006


% change Exchange RateRegime


II IMF Agreements (Dates)


NAFTA REGION
Mexico peso


10.93 -3.11% Independent Float


CENTRAL AMERICA
Costa Rica col6n
El Salvador col6n/U.S. dollar
Guatemala quetzal
Honduras lempira
Nicaragua c6rdoba oro
Panama balboa/U.S. dollar

CARIBBEAN
Dominican Republic peso
Jamaica Jamaican dollar
Trinidad & Tobago Trin. dollar

ANDEAN SOUTH AMERICA
Bolivia boliviano
Colombia peso
Ecuador sucre/U.S. dollar
Peru nuevo sol
Venezuela bolivar

BRAZIL AND SOUTHERN CONE
Argentina peso
Brazil real
Chile peso
Paraguay guarani
Uruauav Deso


481.42
8.75
7.59
18.93
16.84
1.00


29.07
62.20
6.27


8.08
2307.69
1.00
3.25
2147


2.87
2.33
545
5975
24.40


457.00
8.75
7.91
18.56
14.93
1.00


49.26
61.32
6.14


7.99
2320.00
1.00
3.31
2149


3.09
2.16
536
6274
26.74


5.07% Managed Float
0.00% Dollarized
-4.22% Managed Float
1.95% Managed Float
11.34% Managed Float
0.00% Dollarized


-69.45% Managed Float
1.41% Independent Float
2.07% Independent Float


1.11% Managed Float
-0.53% Independent Float
0.00% Dollarized
-1.85% Independent Float
-0.09% Managed and Licensed


-7.67% Independent Float
7.30% Independent Float
1.74% Independent Float
-5.00% Independent Float
-9.59% Managed Float


PRGF1 (2/04-2/07)
PRGF1 (12/02-12/06)


Stand-by (1/05-5/07)





Stand-by (5/05-11/06)









Stand-by (5/06-8/08)
Stand-by (6/05-6/08)


SOURCES: Latin American Weekly Report, 16 August 2005; Exchange Rate Homepage ; Central Banks for Jamaica and
Trinidad & Tobago; IMF Homepage
Key for IMF Agreements:
Stand-by is the most common type of credit arrangement designed to provide short-term financial assistance
1: PRGF (Poverty Reduction and Growth Facility) is a concessional arrangement providing credit at an interest rate of 0.5% to eligible low-income members


Currency


V J


10.60




Table 10

SOCIAL ENVIRONMENT, 2005
GDP PER CAPITAL


POPULATION
(Millions)
2005


NAFTA REGION
Mexico


AVG. POP.
GROWTH

2003-15
2003-15


106.2


CENTRAL AMERICA
Costa Rica 4.3 1.5
El Salvador 6.9 1.6
Guatemala 12.7 2.3
Honduras 7.3 2.0
Nicaragua 5.5 1.9
Panama 3.2 1.6
CARIBBEAN
Dominican Republic 9.1 1.3
Jamaica 2.7 0.4
S Trinidad and Tobago 1.3 0.3
ANDEAN SOUTH AMERICA
Bolivia 9.4 1.7
Colombia 46.0 1.4
Ecuador 13.2 1.4
Peru 27.9 1.4
Venezuela 26.6 1.6
BRAZIL AND SOUTHERN CONE
Argentina 38.6 1.0
Brazil 187.6 1.2
Chile 16.3 1.0
Paraguay 6.2 2.2
Uruguay 3.5 0.6


ILLITERATE
POP.

2003
2003


(PPP $U.S.)*
2003


GROWTH

1990-2003
1990-2003


INCOME
INEQUALITY

GINI index**


46.5
53.2
59.9
55.0
43.1
56.4


47.4
37.9
40.3


44.7
57.6
43.7
49.8
49.1


52.2
59.3
57.1
57.8
44.6


HDI
(World rank)***
2003


9.7 $9,168


4.2
20.3
30.9
20.0
23.3
8.1


12.3
12.4
1.5


13.5
5.8
9.0
12.3
7.0


2.8
11.6
4.3
8.4
2.3


$9,606
$4,781
$4,148
$2,665
$3,262
$6,854


$6,823
$4,104
$10,766


$2,587
$6,702
$3,641
$5,260
$4,919


$12,106
$7,790
$10,274
$4,684
$8,280


POPULATION IN
POVERTY

(Year) %


(2002) 39.4%


(2002) 20.3%
(2001) 48.9%
(2002) 60.2%
(2002) 77.3%
(2001) 69.3%
(2002) 34.0%


(2002) 44.9%
(1998) 15.9%
(1997) 22.0%


(2002) 62.4%
(2002) 51.1%
(2002) 49.0%
(2001) 54.8%
(2002) 48.6%


(2002) 45.4%
(2001) 37.5%
(2003) 18.8%
(2001) 61.0%
(2002) 15.4%


UNEMPLOYMENT
RATE
%
2004


6.7
6.3
(2003) 3.4
8.0
(2003) 10.2
(2003) 15.6


17.0
13.0
7.8


(2003) 9.5
15.6
11.0
9.5
15.3


13.8
11.5
8.8
(2003)11.2
13.0


SOURCES: UNDP, Human Development Report 2005; Population in poverty and unemployment rates are from CEPAL, 2004.
* GDP per capital (Purchasing Power Parity in $U.S.). 1 PPP dollar has the same purchasing power in the domestic economy as 1 U.S. dollar has in the U.S. economy
** The Gini index measures inequality over the entire distribution of income or consumption. A value of 0 represents perfect equality, and a value of 100 perfect inequality

*** The Human Development Index (HDI) measures a country's achievements in three aspects of human development: longevity (life expectancy at birth), knowledge
(combination of literacy rate and enrollment ratio), and a decent standard of living (GDP per capital PPP in $U.S.)


----- --2004


.v


_.v




Table 11
POLITICAL ENVIRONMENT, 2006


Level of Democratic Consolidation1


Election Inaugurating


Unscheduled


Democracy Head-of-State Changes


NAFTA REGION
Mexico
CENTRAL AMERICA
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
CARIBBEAN
Dominican Republic
Jamaica
Trinidad & Tobago


ANDEAN SOUTH AMERICA
o Bolivia
Colombia
Ecuador
Peru
Venezuela
BRAZIL AND SOUTHERN CONE
Argentina
Brazil
Chile
Paraguay
Uruguay


Political Civil
Rights2 Liberties3


2000

1949
1984
19854
1982
1984
1994

1963
1962
1962

19804
1958
19784
19804
19584

19834
1989
1989
1993
1985


Current Government


President / PM


Control of Legislature


Calder6n 2006-2012


Arias
Saca
Berger
Zelaya
Bolafos
Torrijos

Fernandez
Simpson-Miller
Manning


Morales
Uribe
Palicio
Garcia
Chivez


Kirchner
Lula da Silva
Bachelet
Duarte
Vizquez


2006-2010
2004-2009
2004-2008
2005-2009
2002-2007
2004-2009

2004-2008
2006-2007
2002-2007

2006-2010
2006-2010
2005-2007
2006-2010
2001-2007

2003-2007
2003-2007
2006-2010
2003-2008
2005-2010


Opposition
Govt. Coalition
Govt. Coalition
Opposition
Opposition
Government

Government
Government
Government

Govt. Coalition
Government
Opposition
Opposition
Government

Government
Govt. Coalition
2 Houses Split
Opposition
Government


1 As measured in Freedom in the World 2005: Civic Power and Electoral Politics. (www.freedomhouse.org/ratings)
2 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
3 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.
4 Interrupted democracies
+ + Up or down indicate, respectively, an improvement or a worsening of the political environment from 2004.





Table 12
FISCAL DEFICIT/SURPLUS, 1996-20051
(% of GDP)
1996 1997 1998 1999 2000 2001 2002 2003 2004 20052
NAFTA REGION
Mexico -0.2 -1.1 -1.4 -1.6 -1.3 -0.7 -1.8 -1.1 -1.0

CENTRAL AMERICA
Costa Rica -4.0 -2.9 -2.5 -2.2 -3.0 -2.9 -4.3 -2.9 -2.8 -2.8
El Salvador -1.8 -1.1 -2.0 -2.1 -2.3 -3.6 -3.1 -2.7 -1.1 -0.6
Guatemala 0.0 -0.8 -2.2 -2.8 -1.8 -1.9 -1.0 -2.3 -1.0 -1.8
Honduras -3.5 -2.8 -1.3 -3.7 -5.0 -6.0 -5.3 -5.6 -3.1 -3.0
Nicaragua -0.9 -0.8 -1.1 -3.3 -4.7 -7.5 -2.5 -2.8 -2.2 -2.0
Panama 0.2 -0.3 -4.2 -2.0 -1.1 -1.7 -1.9 -3.8 -5.6 -3.3

CARIBBEAN
Dominican Republic -1.6 -1.6 -1.0 -1.8 -2.1 -2.4 -2.7 -5.2 -3.0 -0.8
Jamaica *
Trinidad and Tobago ** *

ANDEAN SOUTH AMERICA
Bolivia -1.7 -3.6 -4.0 -3.4 -3.9 -7.4 -9.0 -7.9 -5.7 -3.5
Colombia -3.4 -3.7 -4.8 -6.1 -5.4 -5.3 -4.9 -4.7 -4.3 -5.5
Ecuador -1.7 -1.2 -4.1 -2.9 0.1 -1.1 -0.8 -0.4 -1.1 -1.4
Peru -1.4 -0.8 -1.1 -3.2 -2.8 -2.8 -2.1 -1.8 -1.3 -1.2
Venezuela 0.6 2.0 -4.0 -1.7 -1.7 -4.4 -4.0 -4.4 -2.0 -1.5

BRAZIL AND SOUTHERN CONE
Argentina -2.8 -1.4 -1.8 -3.0 -2.1 -3.8 -0.3 0.3 2.0 1.3
Brazil -2.6 -2.6 -5.4 -6.8 -3.1 -3.7 -6.4 -2.5 -1.3 -1.7
Chile 2.2 2.1 0.4 -2.1 -0.6 -0.5 -1.2 -0.4 2.2 3.4
Paraguay -1.2 -1.6 -1.1 -3.8 -4.6 -1.2 -3.2 -0.4 1.6 -0.5
Uruguay -1.8 -1.6 -1.2 -3.9 -3.5 -4.5 -4.9 -4.6 -2.5 -2.5

LATIN AMERICA AND
CARIBBEAN -1.4 -1.3 -2.3 -3.1 -2.7 -3.3 -3.3 -3.0 -1.8 -1.7
SOURCE: CEPAL, Balance Preliminar de las Econom[as de Amdrica Latina y el Caribe, 2005
1 Reflects deficits or surpluses of either National Administration, Central Administration, or Central Government
2 Preliminary estimates for Year 2005 from CEPAL.




Table 13
LEGAL ENVIRONMENT, 2006


NAFTA REGION
Mexico


CENTRAL AMERICA
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama

CARIBBEAN
Dominican Republic
Jamaica
Trinidad & Tobago

ANDEAN SOUTH AMERICA
Bolivia
Colombia
Ecuador
Peru
Venezuela

BRAZIL AND SOUTHERN CONE
Argentina
Brazil
Chile
Paraguay
Uruguay


Rule of Law1 Corruption Perception2
Percentile Rank Index Rank


45.9


65.7
42.5
18.8
33.8
30.4
52.7


38.2
43.5
56.0


37.2
29.5
28.5
31.9
12.6


28.5
46.9
85.5
13.5
61.8


Days Required to
Start a Business3


3.5 +


4.2
4.2
2.5
2.6
2.6 +
3.5 +


Economic Freedom4 Crime Victimization5
Index Rank I % Yes


I Index Rank I %Yes


2.83


2.69
2.35
3.01
3.28
3.05
2.70


3.39
2.76
2.50


2.96
3.16
3.30
2.86
4.16


3.30
3.08
1.88
3.31
9fiQ


26 9 7


2.5
4.0 #
2.5
3.5
2.3


2.8
3.7 +
7.3 '
2.1 4
5.9 +


75.7


35.7
34.2
41.5
34.2
34.6
28.7


67
91
107
63
152


33.8
37.4
40.4
37.8
44.2


47.1
35.6
36
46
27 7


1: As measured by the World Bank's Governance Indicators: 1996-2004 . The percentages measure the extent to which agents have confidence in and abide by the rules of society, including perceptions
of the incidence of crime, the effect
2: As measured by Transparency International, Corruption Perceptions Index 2005 . Focuses on corruption in the public sector and defines corruption as the abuse of public office for private gain. The
country ranks measure the corruption level in 159 countries as perceived by business people, risk analysts, investigative journalists and the general public. The scores used range from 10 (country perceived as virtually
corruption-free) to almost 0 (country perceived as almost totally corrupt).
4+ Up or down indicate, respectively, an improvement or a worsening of the environment from 2004.
3: As measured by the World Bank Group's report "Doing Business in 2005: Removing Obstacles to Growth"


4: As measured by the Heritage Foundation's 2006 Index of Economic Freedom. Scores are based on a 1-5 scale, 1 being the best, 5 being the worst. Countries are also ranked in order of economic freedom.
5: As measured by Latinobarometro 2002. "Have you, or someone in your family, been assaulted, attacked, or been the victim of a crime in the past 12 months?" Those who response "Dont know" or did not provide an answer
were excluded from the results.









SELECTED SOURCES ON LATIN AMERICAN BUSINESS NEWS

Print

Latin American Weekly Report (London)
LatinFinance
Latin Trade
Wall Street Journal

On-line
BBC Mundo.com
http://news.bbc.co.uk/hi/spanish/news/
Brazil Focus: Weekly Report
fleischer@aol.com.br
Clarin (Buenos Aires)
www.clarin.com
Council on Hemispheric Affairs Report
http://www.coha.org/
El Espectador (Bogota)
http://www.cepal.org/default.asp?idioma=IN
El Mercurio (Santiago)
http://www.emol.com/
El Nuevo Herdld. (Miami)
www.elherald.com
El Universal (Mexico City)
http://www.cepal.org/default.asp?idioma=IN
La Reputblica (Lima)
www.larepublica.com.pe/
Lanic
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
Listen Dario.com.do (Santo Domingo)
www.listin.com.do
Miami Herald
www.herald.com
New York Times
www.nytimes.com
O Globo (Rio de Janeiro)
http://oglobo.globo.com/
The Tico Times On-Line (San Jose)
www.ticotimes.com
Tal Cual (Caracas)
http://ww.talcualdigital.con/

Primary Data Sources
International Monetary Fund
http://www.imf.org/
U.N. Economic Commission for Latin America and the Caribbean
http://www.cepal.org/default.asp?idioma=IN









































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 x808
Fax: (352) 392-7682
www.latam.ufl.edu/labep.html