The economy shrugged off the reversal and continued its pace-setting growth. Bolivia and Uruguay are also at a relatively advanced stage in the reform cycle, and both are growing at rates of 4 percent annually. Bolivia's recently completed privatization and pension reform programs, and the eventual completion of the natural gas pipeline to Brazil, will help boost the country's rate of growth and its efforts to reduce the gap in per capita income with wealthier neighbors. Uruguay's challenge is to follow through on its present program of de-indexation, pension reform and government downsizing. Despite its relative stability, Uruguay's inflation was more than double the regional average in 1996, a problem that is gradually being corrected.
Brazil faces yet a different set of challenges.
The country is now in its third year of a reform process that succeeded in reducing inflation from 5,000 percent in 1994 to 11 percent in 1996. Today, Brazil is seeing a sharp upswing in domestic spending, with the result that the current account deficit increased from balance in 1993 to 3.3 percent of GDP in 1997 typical signals of the expansion phase in the cycle identified by the IDB report. In contrast, Argentina, Chile, and Mexico felt the Asian financial crisis to a much lesser degree. Brazil has reduced fears of a banking crisis by tightening credit, which in turn is cooling off the economy, a move that reduces the danger of a sharp cyclical swing further down the road. The main challenge for Brazilian policymakers is to address the fiscal imbalance that has accompanied stabilization.