The Latin American and Caribbean region will remember 1998 as one of the most problematic years of recent times. The severe effects of the international financial crisis that broke out in Asia in mid-1997 restricted the region's access to external financing. Tumbling export prices translated into the first drop in the value of the countries' exports to be recorded so far this decade, and this in turn led to a further deterioration in the current account of the balance of payments. Faced with this bleak outlook on the external front, economic authorities displayed a strong determination to confront the crisis head on and to build confidence by applying tough monetary, fiscal and exchange-rate policies.
The year's events also included adverse weather conditions on a perhaps unrivaled scale. First there was El Niño, which affected the entire region. Then came a series of hurricanes that ravaged a number of Central American and Caribbean countries.
In view of these upheavals, the economies of Latin America and the Caribbean performed reasonably well, especially considering the fact that macroeconomic policy was primarily focused on achieving and maintaining stability. Nonetheless, the average growth rate for the region was halved, falling from 5.2% to 2.3%. Unemployment rose, although moderately, while the region's average inflation rate leveled off at slightly over 10%. Prudent policy management enabled the region to avoid the turbulent sorts of exchange-rate adjustments experienced by some of the emerging Asian economies in 1997 and by Russia in 1998. Be that as it may, an important conclusion to be drawn from this eventful year is that, all the virtues of the decade's structural reforms and macroeconomic policy measures notwithstanding, the region has made little progress in reducing its external vulnerability .