Third, the increase in national income has increased domestic demand. In recent years, the growth rate of national income of Latin American countries has exceeded the growth rate of GDP. In 2004, the growth rates of national income and GDP were 7.1 percent and 5.9 percent, respectively, and those in 2005 were 5.9 percent and 4.5 percent, respectively. As a result, the domestic demand of Latin American countries in 2004 and 2005 increased by 4.2 percent and 5.3 percent, respectively. The fact that the growth rate of domestic demand lags behind that of national income shows to some extent that the national savings rate in Latin American countries is increasing.

But the investment rate (21.6 percent in 2005) has not recovered to the level prior to the East Asian financial crisis in 1997, and is unable to provide enough jobs. In most Latin American countries, creating enough job opportunities is one of the requisites to resolving social problems.

The negative effects of inadequate investment have been very obvious for a long time. For instance, Latin America boasts the second largest reserves of oil and natural gas in the world. But due to less investment in the energy sectors, some Latin American oil producers could not increase their output by a large margin against the background that world energy prices have skyrocketed in recent years.

The only exception may be Brazil. The country's national oil company has greatly increased its output in 2006, a result of increased investment in the previous years, which makes the country basically able to meet its own energy needs.

Fourth, the debts of Latin American countries decreased greatly. Compared with 10 years before, the proportion of debt to export income has been reduced by half, and the proportion of short-term debt to foreign exchange reserves has been reduced by one third.

Fifth, the fiscal status of Latin American countries has been improving. In recent years, a relatively high economic growth rate has driven production activity, which has resulted in a revenue increase. On the other hand, fiscal expenditures have not increased very much.

Sixth, in the eyes of many international investors, the risks of investment in Latin America are declining. That forecast is based on the following factors: the Latin American economy has entered a new growth period, and the economic situation appears optimistic for the foreseeable future; the balance of payments is improving; the macroeconomic situation is getting better and the margin of exchange rate fluctuation is narrowing.

Relations with other countries

In 2006, relations between Latin American countries and China continued to develop in a positive direction. Many Chinese leaders visited Latin America and several Latin American heads of state visited China. People-to-people contact has been increasing.

It is estimated that the bilateral trade volume between Latin American countries and China is very likely to reach or exceed $60 billion this year (it was $50 billion in 2005).

But, behind this, there are also some negative elements. Some Latin American countries have taken anti-dumping measures on the pretext that products made in China have hit their domestic markets. Despite this, more and more Latin Americans believe that China's rapid economic development provides good opportunities for Latin America, rather than being a threat.

From April 12-15, China and the United States held consultations on Latin American affairs, the first of its kind. The two countries exchanged views and opinions on their relations with Latin American countries, their policy toward Latin American countries, the situation in Latin America and Sino-U.S. cooperation in the region. It was part of the Sino-U.S. strategic dialogue started in 2005. It shows in a certain sense that the development of China-Latin America relations has drawn Washington's attention.

Relations between Latin American countries and the United States showed signs of confrontation. Being concerned that Latin American countries will continue to "turn left," the United States tried its best to prevent Daniel Ortega from being elected Nicaragua's president. When Cuban President Fidel Castro was hospitalized, the United States said it hoped for a transition toward democracy in Cuba, instead of a succession by Raul Castro, Fidel's brother. At the same time, relations between the White House and Venezuelan President Hugo Chavez and Bolivian President Morales have not been good.

The United States' construction of a barrier along its border with Mexico has aroused intense opposition from Mexico. Mexican President Vicente Fox said on October 26 that the plan brings shame on the United States and is a nearsighted decision.