# **2. Latin America and the Caribbean’s Stimulus Packages**

As of February 2009, the largest economies in LAC have had announced stimulus packages that commit governments to increase spending on public works.<sup>3</sup> The programs range in size from 0.4 percent to 1.6 percent of each country’s Gross Domestic Product (GDP). Extrapolating these commitments<sup>4</sup> to the region as a whole suggests that governments in the region plan to invest an additional $25 billion in 2009 in public works —which is about 20 percent beyond the originally planned budget allocations. This represents an additional 0.5 to 1.0 percent of GDP in commitments in public works, raising public capital spending levels to somewhere between 3.0 to 4.0 percent of GDP for the region as a whole.<sup>5</sup> Table 1 below summarizes the region’s major commitments to economic stimulus that have been announced in recent weeks and the estimation of region-wide investment levels. The five countries included in the table represent over 75 percent of the region’s population and GDP.

**Table 1:  Stimulus Plans for LAC, 2009**

||2009 S<br>Investment|timulus Pkg<br>in Public Works|Total Pu<br>(2|blic Works<br>009)|Ratio Stimulus vs<br>Total Investment|
|---|---|---|---|---|---|
||$B|% GDP|$B|% GDP||
|Argentina|4.4|1.6%|17.1|6.1%|25.7%|
|Brazil|6.7|0.5%|23.3|1.7%|28.8%|
|Chile|0.7|0.4%|4.7|2.7%|15.0%|
|Mexico|6.9|0.8%|43.6|4.8%|15.8%|
|Peru|1.6|1.3%|5.8|4.6%|27.6%|
|LAC(*)|25|0.5% to 1.0%|125|3% to 4%|20%|

(*) For the LAC estimates, we extrapolated the figures to those countries without information. Source: UNECLAC (2009), IMF, National Legislation Data, Consensus Economics (2009), and Authors’ calculations. Note: Many countries have proposed multiyear packages. These estimates capture the additional investments in public work to be implemented in 2009 in addition to the budget proposed previously for the year 2009. (*) For LAC’s estimates, we extrapolated the figures to those countries without information.

There is a multi-faceted relevance to the region’s decision to sustain or even grow its investment levels in infrastructure in the face of a financial crisis. First, it represents a break with historical practice. In past financial crises, major LAC countries have paid for the largest share of their fiscal rebalancing out of capital investment in infrastructure.<sup>6</sup> This time, many LAC countries have developed a modest scope for countercyclical fiscal policy and they are using it. Although all capital expenditures (including infrastructure, housing, public buildings, schools, jails, and hospitals) represent an average of 20 to 25 percent of total expenditures (i.e. capital, interest and non-interest current expenditures) in LAC, nearly 50 percent of fiscal rebalancing was taken out of the infrastructure sub-components of capital expenditure in the 1990s. Second, it represents an opportunity to correct for a tradition of under-investment in infrastructure as a share of GDP that

> 3 Public Works, in this case, refers to infrastructure investments in transport, energy and water as well as public housing and public edifices such as schools and hospitals.  The division of expenditure expected among categories and sub-sectors is still unclear in many of the pronouncements.

> 4 Despite our efforts to review all the countries in the region, the information was significant fragment when available. In any case, the countries with available information cover 80 percent of the LAC’s GDP. 5 In recent years, the LAC Region has seen additional investments in infrastructure from private sector sources totaling between 1 and 2 percent of GDP per year.  This range includes telecommunications investments which are mostly private throughout the region but does not include private housing stock Serven and Calderon (2004b).

> 6 Calderon, Easterly, and Servén (2004).

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