Consumer Confidence in Latin America

Recently, economic policies throughout Latin America are shifting from fiscal overspending and protectionism to fiscal austerity, privatization and market-oriented, export-based approaches. As a result, Latin America has become one of the most rapidly growing regions of the world. However, this apparent growth has been uneven among the countries of Latin America. While some countries have experienced phenomenal growth, other countries stagnate or even regress.

The performance of the economy of a country is reflected in macro-economic variables, such as the gross national product, external debt, interest rates, foreign exchange rates, imports, exports, stock market prices, inflation rates, real wages, unemployment rate, and so on. The state of the economy is also reflected in the micro-behavior of the consumers. The attitudes and behaviors of individual consumers affect the performance of the economy. For example, if they believe that the economy is heading in a certain direction, then they would make their savings or spending plans according.

In Los Medios y Mercados de Latinoamérica, we asked a question about consumer confidence, whose exact wording is as follows:

We are interested in how people are getting along financially these days. Would you say that you and your family are better off, or worse off, or about the same financially than you were a year ago?

This question is used by the Survey Research Center at the University of Michigan over the years to track consumer confidence in the United States. Usually, the cited statistic is an index that is constructed as follows: The percentage of "worse off" answers is subtracted from the percentage of "better off" answers, and then added to the number 100. Therefore, an index of less than 100 implies pessimism, an index of 100 implies neutrality and an index greater than 100 implies optimism.

During the survey period (September-November 1995), across the 19 countries, the consumer confidence index is 96. In general terms, the consumers of Latin America believe that they are slightly worse off than one year ago. But there are significant differences across countries, as shown in the following table:

Here are some key facts to help interpret these indices:

Countries with the highest Consumer Confidence indices

Colombia: To some people, Colombia is known for the drug-related violence. But what is less well-known is the fact that Colombia is the only major country in Latin America that was able to sustain growth through the debt crises of the 1980s. Historically, Colombia has preferred economic gradualism over shock-policy programs, which meant less headline news. In 1990, a set of economic measures known as the apertura was introduced, encouraging trade through attracting foreign investments and reducing import tariffs and foreign exchange controls. The government has also been successful in arresting a number of major cocaine smugglers.

Dominican Republic: One year ago, an armada was poised to invade neighboring Haiti. In fact, many Haitians crossed the border into the Dominican Republic to avoid the possible war. Consequently, there was a great deal of uncertainty at that time. Since then, this country has actually been experiencing a health economic recovery, with the promise of a democratic election in 1996.

Costa Rica: Within Central America, this country is the most politically and economically stable, with the highest standard of living and literacy rate. In truth, this country is perhaps better known for its differences from its less-well-off neighbors.

Guatemala: Democratic presidential elections were held in Guatemala, and the prospects appear to be good for this country to put the civil war behind. A significant symbolic act of national reconciliation is the return of the body of exiled former leader Jacobo Arbenz Guzmán in December 1995. The civil war had lasted several decades, and has devoured national resources and cost many lives.

Peru: When Alberto Fujimori became the President of Peru in 1990, he was faced with an annual inflation rate of 7650% and terrorism from the Shining Path guerrillas. The inflation is down in the low teens, and the terrorist activities have been reduced through tough military and police actions. In 1995, the Peruvian economy grew by 6%, which has slowed down from the world-leading 12% in 1994.

Countries with the lowest Consumer Confidence indices

Ecuador: At the beginning of 1995, Ecuador was drawn into a border war with Peru. It was estimated that the war cost Ecuador about 3% of its gross domestic product. During the rest of the year, the economy was stagnant and the citizenry was subject to hardships such as routine power blackouts. Several political scandals broke out, with Vice President Alberto Dahik fleeing to Costa Rica over corruption charges and the President Sixto Durán Ballén under investigation by the Supreme Court over financial misconduct.

Mexico: In December 1994, the Mexican peso collapsed soon after President Zedillo took office. Over the next few months, the Mexican peso lost half its value versus the US dollar and unemployment soared as many businesses failed. The so-called Tequila crisis caused short-term investment capital to flee the Latin American region, thereby causing mild recessions in other countries such as Argentina and Uruguay as well.

Nicaragua: Many of the economic problems of Nicaragua can be traded to the devastation due to the civil war of the 1980s. Unemployment has been estimated to be as high as 60% at this time, without any immediate prospects for improvement in sight. In the summer of 1995, there were incidences of dengue fever and leptospirosis in Nicaragua. These diseases were supposed to have been eradicated and their re-emergence is believed due to lax sanitation procedures, overcrowding and poverty.

Panama: Under the terms of the Panama Canal Treaties of 1977, the United States will be leaving the Panama Canal Zone by December 31, 1999. According to a poll published in mid-October 1995 by the newspaper El Panamá América, 86% of Panamanians want the United States military bases to remain, both for national security as well as the economic benefits that are estimated to be more than US$300 million annually. This is especially significant for those persons who are employed in the Canal Zone and who are paid US wages as opposed to the lower local wages for the same work on the outside.

Venezuela: Early in 1994, a number of banks including the country's largest bank, Banco Latin, collapsed and had to be placed under state ownership. Foreign investment, imports and spending were frozen through extremely strict price and exchange controls. As a result, the economy practically came to a halt.

(posted by Roland Soong on 11/29/97)

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