Introduction 

The recent Asian and Russian financial crises, the deepening and protracted Japanese economic slump and rising economic volatility in the Latin America  and  Caribbean²  (LAC)  region  have drastically shaken investor confidence in the growth prospects of these areas. But, despite the current investor gloom, opportunities for greater revenue and income growth in these markets still exist. The potential of greater return, however, will come only at higher risk. 

The purpose of this paper is to lay the foundation and the framework for assessing tourism markets of opportunity in the LAC region.  This paper briefly examines the extent and economic importance of inbound and outbound tourism to the LAC region.  It then assesses the prospect of the LAC region becoming a major tourist -generating area and identifies and explores the major pressure points that will constrain the region's growth over the next decade or so. Finally, the paper assesses Canada's ability to capture the region's anticipated growth in outbound tourism. 

Economic Importance of Tourism 

Inbound Travel Activity 

For many LAC countries, international tourism stimulates economic growth, creates jobs, generates badly needed foreign exchange and raises tax revenue. International tourist arrivals in the LAC region reached 52.5 million individuals (8.8% of world total) in 1996. At the same time, international tourism receipts reached U.S. $33 billion (7.8% of world total). Of the world's 40 top tourist destinations, only two countries were from the LAC region. The World Tourism Organization (WTO) ranked Mexico and Argentina, respectively, as the world's 7th and 29th most popular tourist destinations in 1996 (WTO, 1997). 

Meanwhile, three LAC countries ranked in the world's top 40 tourism earners in 1996. Data from the WTO (1997) showed that Mexico earned U.S. $6.9 billion (1.6% of world total) from international tourists in 1996, ranking Mexico as the world's 16th largest earner of international tourism receipts. Likewise, Argentina earned U.S. $4.6 billion (1.1 per cent of world total) and Brazil earned U.S. $2.3 billion (0.5% of world total). This ranked Argentina and Brazil, respectively, as the world's 23rd and 40th largest earners of international tourism receipts in 
1996. 

The LAC's inbound pleasure travel market has strong potential to grow given its abundant natural endowments (including sand, sea and sun), diverse cultures and rich historical heritage. In addition, greater regional economic integration will most likely facilitate increased business travel within and outside the region. The prospect of the creation of a Free Trade Area of the Americas (FTAA) by the year 2005 will support this trend. 

Outbound Travel Activity 

Since the late 1980's, LAC outbound tourism growth has fluctuated considerably.  To a large extent, this reflected the region's uneven and volatile economic performance.  Outbound travel growth was particularly strong in 1992 (up 29%) and in 1994 (up 14%).  In 1996, LAC outbound travel growth remained fairly stable, generating close to 22 million tourists worldwide (4.2% of the world total), 50.6% above 1988. This represented an average annual increase of roughly 6% over the 1988-1996 period. Meanwhile, international travel expenditures by LAC travelers reached almost U.S. $18 billion in 1996 (4.7% of world tourism expenditures),  122.2%  above  1988.    This represented  an  average  annual  increase  of approximately 14% over the 1988-1996 period. 

Within the LAC region, a small number of countries account for a very large share of total outbound travel volumes and spending. In 1996, for instance, the top five LAC tourist generating countries accounted for 83% of the region's total outbound travel.  Mexico, at 41%, was the region's major outbound generating travel market, with Argentina (18%) at a distant second, followed by Brazil (14%), Chile (5%) and Colombia (5%).  In terms of spending on travel abroad, five LAC countries also accounted for 83% of the region's total.  Brazilian travellers outspend their regional counterparts in 1996, spending U.S. $5.8 billion (33% of the total), with Mexico (19%) far behind in second  place,  followed  by  Argentina  (13%), Venezuela (13%) and Colombia (5%). 

Growth of LAC outbound tourism, especially outbound leisure travel flows, will continue to be closely associated with current and future economic development.   As such, LAC outbound travel volumes and spending patterns will be adversely affected by the growing economic and financial volatility in the LAC region and the worsening global slump over the next two years or so.  More worrisome, however, is that most LAC countries will face substantial political, economic and social challenges that will likely limit their long-run growth and tourism potential. 

Factors Affecting Inbound and Outbound Travel 

High Inflation 

Despite the region's anti-inflation successes, most LAC economies remain highly vulnerable to runaway inflation, with Argentina, Brazil, Jamaica, Mexico, Nicaragua, Peru, Uruguay and Venezuela, the region's most inflation prone economies. The average annual rate of inflation in the LAC region, for instance, was nearly 117% during the 1980-1989 period, 438% in 1990, 209% in 1993 and 13% in 1997.  Sharp budgetary subsidy cuts, excess demand for all types of goods, services and skilled labour, strong money expansion, rapid credit growth, chronic infrastructure bottlenecks and corruption will lead to a surge in regional inflation. The prospect of widespread currency devaluations will further fuel inflationary pressures across the LAC region.³ 

If lower inflation cannot be achieved and sustained, it will lead to higher interest rates and reduced business fixed investments in many LAC countries.  That will constrain regional industrial production and undercut export competitiveness. It will also erode the purchasing power of many LAC consumers. Travel costs will be driven up, making saving for vacations extremely difficult.  As LAC economies slow, consumption spending on goods and services, including travel, generally bought with discretionary income will be postponed or scaled back. The region's outbound tourism growth will be seriously constrained. 

Slower Economic Growth 

The LAC region experienced unimpressive economic growth rates during the last 15 years or 
so.  Not surprisingly, growth in real per capita incomes has been lackluster and continues to vary widely, ranging from a low of U.S. $481 annually in Nicaragua to a high of almost U.S. $6,200 annually in Argentina. Unemployment remains a large and growing problem. 

The LAC's growth rate reached roughly 2% in 1998 and might rise to around 1% in 1999. As current global financial conditions worsen, there is likely to be a further slowing or contraction in most LAC export oriented economies. This will seriously limit output and job growth, reducing prospects for a quick recovery. Real per capita incomes are not expected to change drastically for the vast majority of LAC residents in the years ahead. 

To significantly lift the material well being of the majority of the region's citizens, LAC countries will need to achieve and sustain real growth rates in excess of 6% (Mann, 1998).  Yet, International Monetary Fund {IMF, 1998) statistics show that the region's real gross domestic product (GDP) has never achieved this growth threshold over the last decade and a half. For instance, IMF (1998) data show that the LAC region grew by an average annual real rate of only 2.2% during the 1980-1989 period. The same data also reveals that growth in the region ranged from 0.7% in 1990 to 3.2% in 1992 to 5.1% in 1994 and to 5.0% in 1997, growth rates that were simply too low to have significant impact on poverty alleviation and employment creation efforts. 

The recent Asian financial turmoil together with the flagging Japanese economy will continue to adversely affect many LAC economies. Weaker Asian demand means that LAC countries will export fewer commodities, especially resource based products, to Asia.  On the other hand, cheaper Asian made goods, particularly low-wage, labour-intensive, low-technology products, are likely to flood LAC markets and third country export markets   As well, international tourists will increasingly favour cheaper Asian tourist destinations at the expense of LAC tourist destinations.  International tourist arrivals and receipts in many LAC countries will likely slow down in the next few years, reflecting global economic uncertainty, weak income growth, intensified competitive pressures and rising job insecurity. 

If, as expected, there is another round of Asian currency devaluations, especially the Chinese yuan and Japanese yen, it will force most LAC countries to take similar actions in order to maintain their international price competitiveness and export market shares. That will force faster-than-desired economic and industrial restructuring, even among LAC travel agencies and tour operators. 

The recent Russian financial turmoil also threatens to exacerbate economic difficulties in many LAC countries.  This largely reflects their similar export structures. In order to boost foreign exchange earnings to service ballooning foreign debts, for instance, it is expected that Russian exporters will increasingly dump commodities, such as minerals, oil, metals, steel, and wood products, on world markets.  The combination of global oversupply conditions and weaker global demand means that commodity prices will likely remain flat or decline in the next few years.  This poses a serious competitive challenge to major resource producing and exporting economies in the LAC region and elsewhere. 

As LAC credit conditions tighten, the region's small and medium sized enterprises will find it increasingly difficult to raise funds. Interest-rate hikes  will  force  scores  of  companies  into bankruptcy. In addition, many budget constrained household borrowers will become delinquent on there debt obligations. The region's already fragile financial sector, especially its banking system, will be saddled with more and more non-performing loans and bad debts. This suggests rising debt delinquency - and payment problems.  A smaller portion of the LAC region's gross domestic product {GDP) will be spent on travel over the next two to five years. 

Widening Rich-Poor Gap 

Recent estimates suggest that in the LAC region "The poorest 20 percent of the overall population receives only three percent of total income, while at the other extreme the wealthiest 20 percent holds 60 percent, the same proportions as in the early seventies" (IADB 1997, p. 40).  Still, another worrying estimate indicates that there could be as many as 150 million people, or around one-third of the region's population, that survive on incomes of less than U.S. $2 daily (Lustig and Deutsch, 1998). One recent press report noted that over one-quarter (26.3 million) of Mexico's total population of 95 million people "live in extreme poverty, up from 24 million only a few months ago, and 17 million four years ago" (Scoffield 1998, p. B1). The deepening global economic and financial turmoil will only compound the region's poverty woes. 

Before the breakout of the Asian and Russian financial problems, it was estimated that there could be as many as 120 million {23% of region total) middle and upper-class people living in the LAC region by the year 2000 (Abolfathi, 1997). But, if, as seems highly probable, regional per capita incomes and job growth slow, there will likely be fewer numbers of people entering and remaining in the ranks of the region's middle and upper-class income groups in coming years. The reduction or phasing out of most regional subsidy programs for all types of goods and services, including food, fuel and electricity, in conjunction with ongoing deregulation, mass privatization, public sector downsizing and corporate consolidation will further exacerbate already wide and growing gaps between the rich and poor people in most LAC countries. Income and wealth concentrations will accelerate. The region's new democracies will face escalating pressure from its growing and dissatisfied numbers of poorer working people and labour unions. Social and political instability are likely results. 

In the coming decade, economic security will remain paramount for the majority of people throughout the LAC region. Many LAC residents will be forced to spend the bulk of their annual incomes on satisfying basic needs, such as food, clothing and housing.   Consequently, taking vacations abroad is unlikely to become a top priority for these people anytime soon. Tourism marketers will face tougher competition to capture and retain the region's shrinking long-haul pleasure upper market travellers. 

Urban Sprawl 

The LAC region is highly urbanized, with over three-quarters of the area's population living in cities (Rojas, 1997).  In 1996, only five LAC countries had urban populations of less than one half of their total populations: Guyana (37%), Guatemala (42%), El Salvador (48%), Honduras (49%) and Costa Rica (49%).  Limited tourism marketing  and  advertising  resources  will increasingly be targeted at the region's fastest growing cities and markets, in terms of job and personal income growth.  These cities include: Buenos Aires, Mexico City, Rio de Janeiro, Sao Paulo and Santiago.  Ongoing urbanization will exacerbate urban political, economic, social and environmental problems in the next two to five years. 

In the LAC region, "An estimated 300 million city dwellers generate 225,000 tons of solid waste every day, much of which is discharged into water bodies, open dumps and wetlands, contaminating surface and ground water" (World Bank, no date (a) p.1). Worse still, under "5% of cities' sewage is treated.. Urban air is severely polluted by motor vehicles and uncontrolled industrial emissions" (World Bank, no date - (a), p.1). The combination of population growth, persistent poverty and ongoing urbanization will continue to put extra pressure on the region's supplies of food, water, land, air, energy and environment.  Recent forest fires in Brazil, Colombia, Guatemala, Honduras, Mexico and Nicaragua, not only worsened the region's air 
quality problems, they also destroyed over 60,000 square kilometres of forest land (Linden, 1998). To make matters worse, Hurricane Mitch inflicted massive property and human damage regionwide. Historical sites, national parks and other natural treasures were put at increased risk or seriously damaged. This adversely affected efforts to boost the region's tourism business, especially such special-interest travel as eco-tourism. In light of the recent natural and man-made disasters, billions of dollars will be needed to repair and rebuild the region's socioeconomic infrastructure.   Fewer dollars will be left over for tourism development in coming years. This will curtail the growth of the region's tourism industry. 

Safety and Security Threats 

Reportedly, there were some 6,000 kidnappings in the LAC region in 1995, making it the world's most abduction-prone region (Bamrud, 1996). Over two-thirds (4,000) of the region's total kidnappings took place in Colombia. The number of kidnappings were also alarmingly high in Brazil (800), Ecuador (200), Venezuela (200), Guatemala (100) and Peru (100).  (In 1994, 1,400 kidnappings occurred in Mexico (Macko, 1997)).  More recently, it was reported that Latin America and in particular Columbia continue to record the world's largest numbers of kidnappings (Timmins, 1998).  Even more telling, industry security experts estimate that almost one-half of the world's kidnap and ransom insurance covers the LAC region (Bamrud, 1996; Macko, 1997). Should current abduction trends persist, then foreign executives and vacationers will become increasingly vulnerable to serious harm - or injury, extortion, robbery and kidnappings 

Criminal activity against foreign visitors in many LAC countries is a growing problem. One recent press report, for example, observed that in Mexico City "an average of 20 tourists are attacked each day in the city.. with the most common crimes and thefts in the streets, hotels or taxis" (Stevenson, 1998a, p. A14; Gothran and Gothran, 1998). In many countries in the region, chronic poverty, greater income and wealth concentrations, weak social safety net systems, rising unemployment, rampant drug trafficking, lax legal and regulatory regimes, growing foreign investments and continued demobilization of military and guerilla forces will foster   increased   tourism - related  crime opportumties. 

The extent and severity of the current international economic and financial crises only supports the trend toward increased numbers of people being kidnapped in the LAC region and elsewhere. Throughout the LAC region, the further erosion of law and order will also make public administration and governance very hard. National security and public safety will be put at increased risk. Enclave tourism development efforts will be jeopardized ⁴ (Gothran and Gothran, 1998). Left unaddressed, "adverse publicity about safety or security in any tourism destination will tend to reduce demand for that destination, especially since there are usually plenty of alternatives on offer" (Brayshaw 1995, p. 70).  This will reduce the relative long-run competitiveness of many LAC countries as business and leisure travel locations. 

As the economic significance of tourism increases in many LAC countries, "the damage which can be caused to the livelihood of millions who depend on it by security-related collapses in demand also rises" (TTA, 1994, p.69). To counter the negative image of high-risk destinations, regional LAC tourism officials will need to undertake stepped-up "actions to fight the fear of crime, and actions to prevent actual crime" (Brayshaw 1995, p. 67).   These, inter alia, include: greater law enforcement, closer working relationships with the media, intensified promotional campaigns and increased  dissemination  of  safety  literature (Brayshaw, 1995). In the current fiscal climate, this will put extra strains on already fragile budgets in many LAC countries. 

Public Health Hazards 

The World Bank estimates that there could be over 30 million people infected with the human immune deficiency virus (HIV) globally (World Bank, no date (b). Of these, 1.6 million (5.3%) of HIV-infected people live in the LAC region. Within the LAC region, it is reckoned that over one half of the countries "have concentrated HIV / AIDs epidemics, meaning that HIV has risen to high levels among those practicing the riskiest behaviours and is set to spread more widely in the rest of the population" (World Bank Group, no date, p.1). Meanwhile, six LAC countries have "low HIV prevalence whereas Guyana and Haiti have generalized epidemics" (World Bank Group, no date, p.1). 

It is believed that "the high prevalence of HIV among injecting drug users, homosexual and bisexual men -and sex workers in Latin America suggest that in many of these countries the virus is poised to spread to the low-risk sexual partners of people who engage in high-risk behavior" (World Bank Group, no date, p. 1).  To make matters worse, "Epidemiological data suggest that young people (particularly females) aged fifteen to twenty five are the most vulnerable to infection" (World Bank, 1996, p.1). This has serous implications for the spread and incidence of HIV / AIDs since "It is this group that tends to be highly mobile or involved in tourism or commercial sex industries but are typically the least accessible to government or international HIV /  AIDs programs" (World Bank, 1996, p.1). 

Public  health  officials  estimate  that  in developing countries it costs around (U.S.) $10,000 to $15,000 annually to treat AIDs-victims with triple drug anti-retroviral therapy (Ainsworth, 1998, Gatti, no date; Picard, 1998).   Cost estimates of tuberculosis treatments are not readily available for developing countries.  For comparison purposes, however, it is estimated that the cost of treating tuberculosis in developed countries is roughly (U.S.) $2,500 to $12,000 per patient and rises to some (U.S.) $25,000 to $300,000 for antibiotic-resistant tuberculosis (Pirages, 1996; Jacobs, 1997). 

Chronic poverty, worsening water supplies, poor sanitation facilities, massive urban overcrowding, growing budget and funding problems, weak health care  infrastructures  and  escalating  disease treatment costs will hinder regional efforts to detect and treat infectious diseases. That will facilitate the spread and incidence of communicable and highly infectious diseases, including cholera, tuberculoses and HIV / AIDs, regionwide and elsewhere. 

In this context, there is a strong possibility that the health of foreign executives and leisure tourists travelling to high-risk LAC areas might be endangered.  Prime LAC tourist destinations will suffer negative international media coverage and declining consumer demand.   It is widely acknowledged that negative international media coverage "can wipe out several years of growth and development in tourism, and cause a destination to lose several more years of 'trend' growth until either the cause of the disruption is dealt with or tourists' memories fail them" (TTA 1994, p.70). That would take a heavy financial toll on the region's already cash-strapped economies. 

Inadequate Infrastructures 

Decades   of   civil   conflict,   massive underinvestment  and  fiscal  adjustment  and consolidation have left the region's physical and social infrastructures in very poor condition. Most LAC countries will need to significantly upgrade and modernise  their  infrastructures  to  support socioeconomic progress and tourism development. 

The World Bank estimates that investment in the region's infrastructure, namely power generation  sector,  transportation  networks,  water  and sanitation systems and telecommunication sector, will need to reach some U.S. $60 billion annually until the year 2005.  Many LAC countries will therefore need to borrow tens of billions of dollars from international capital markets. 

But, the recent global economic and financial turmoil have made international investors extremely skittish and borrowing very costly. This will delay much-needed  infrastructure  upgrading  and development in many LAC countries and elsewhere. As regional economic and tourism infrastructures further deteriorate, it will reduce the attractiveness of many LAC countries as international tourist destinations.  In turn, that will have a negative impact on regional economic and employment growth, further complicating poverty alleviation efforts. 

It was recently reported that the rapid rise in car ownership  together  with  inadequate  road transportation networks and weak traffic law enforcement would lead to rising health (traffic deaths and injuries) and environmental costs (greenhouse gas emissions) (Gee, 1998, p. A15). A recent study on traffic accidents found that "a country such as Mexico can expect to lose up to 1 per cent of Gross Domestic Product a year through medical costs and lost productivity" (Gee, 1998, p. Al 5). Again, this will decrease the attractiveness of these countries as tourist destinations. 

Equally important, the failure of the region's hotel industry to keep pace with increased tourist demands for modern facilities and conveniences, including first class, middle grade and budget hotels, will constrain tourism development in prime LAC sites.  Fewer tourist arrivals mean reduced foreign exchange receipts which, in turn, increases the likelihood of further foreign debt accumulation and greater debt -servicing burdens. Cash-strapped LAC countries are more likely to become delinquent on their foreign contractual commitments. 

Aviation Capacity Constraints 

In the LAC region, average air travel growth rates are forecasted to reach over 8% in South America and in excess of 5% in Central America during the 1998 - 2007 period {Boeing Commercial Airplane Group, 1998). Yet, the LAC region still has one of the world's smallest and oldest aircraft fleets, with the average age of the region's aircraft fleet over 18 years and a fleet size of slightly more than 800 airplanes as at mid-1996 (Skapinker, 1996). To put this into perspective, in Brazil, for instance, "there are 1m (million) people for every operating jet; in the 
US there is one jet for every 50,000" (Dyer, 1998a, p. 7). The cost of air travel will be beyond the reach of most ordinary people in many LAC countries.  Currently, "air travel in Brazil has reached only 20 per cent of the level in South Korea" (Dyer, 1998a, p.7). Without sharp air travel cost reductions,  the development of regional air passenger and freight traffic will be seriously hampered. 

Air travel safety remains a serious regional concern.  A study by the U.S. Flight Safety Foundation on airplane accidents, for example, concluded that during the 1984-1995 period "airports in Latin America averaged 32 accidents per million landings" (Associated Press, 1996), making it the world's most accident-prone region.   In comparison, airports in Africa registered 30 accidents per million landings, followed by Eastern Europe (20), Asia Pacific (18), Middle East (11), Western Europe (9) and North America (4) (Associated Press, 1996) If these rates of airplane landing accidents persist, it will further undercut public confidence over air safety and lead to reductions in passenger and freight traffic within and outside the LAC region.  The region's old aircraft fleet will also heighten domestic and international concern over engine emissions and their contribution to global greenhouse gases and global warming. Environmentalist groups can be expected to intensify their lobbying efforts for stricter emission controls. 

The cost of replacing and expanding the region's aircraft fleet and upgrading airport and air traffic control systems will be immense, with Brazil, Argentina, Mexico and Chile having the region's largest aviation capital requirements. However, the severity of the current global financial turmoil strongly suggests that fewer government resources will be devoted to modernising the region's outdated aviation infrastructure. To recapitalize its aviation industry and develop new markets, LAC authorities will continue to aggressively pursue strategic alliances, code sharing or joint service agreements, privatization,   industry   restructuring  and consolidation and foreign investment. 

As airline capacity expands in many LAC countries, heightened competition will lead to lower flying costs in the short to medium term. This will in turn make air travel more affordable  for a larger number of LAC people. Better flight service in terms of flight connections and non-stop flights will also bolster tourism growth to new and old tourist destinations within and outside the region Longer term, the forces and trends that will largely drive change in the regional aviation industry "include world economic expansion, airline cost developments (labour, capital, land and fuel), airport congestion, airline deregulation, globalization and environmental regulation." (ICAO, 1997). 

Debt Trap 

The latest World Bank (1998) data show that foreign debt levels for many LAC countries remain very high despite years of painful structural reforms and debt-restructuring agreements.⁵  In 1996, the region's foreign debt level totalled some U.S. $616 billion relative to roughly U.S. $242 billion in 1980, up over 154%. Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela accounted for about 90% (or U.S. $551 billion) of the region's total foreign debt. The balance (U.S. $65 billion) was held by the region's smaller debtor countries.  The recent Asian and Russian financial crises and the deepening economic volatility across the LAC region will seriously limit access for heavily indebted LAC countries to international capital markets, thereby raising their borrowing costs. 

Since a large portion of LAC country foreign debts is denominated in U.S. dollars, the region is heavily exposed to abrupt U.S. interest rate fluctuations and sudden changes in financial market perceptions.  In a higher interest rate environment, there is a greater risk of widespread debtor delinquencies and massive financial losses among the region's most heavily dollar - indebted countries.  That could potentially destabilize the entire international financial system. U.S. banks would suffer the heaviest financial losses given their current high loan exposure to the region. Recent estimates indicate that U.S.  banks' exposure in the LAC region reached U.S. $76.4 billion, with Brazil accounting for U.S. $27.2 billion of the total (Beckett, 1998). 

Other indicators of the region's foreign debt burden, including debt service ratio, debt to GDP ratio and debt to export ratio, are also close to or well above their internationally considered warning lines (Strizzi and Meis, 1998; Strizzi and Kindra, 1998). As country risk ratios further deteriorate, heavily dollar-indebted LAC countries, particularly Argentina, Brazil, Mexico and Venezuela, could face serious debt servicing problems in the next one to two years. Sharp currency devaluations will also drive up foreign debt servicing costs.  This will squeeze the region's financial and productive sectors of badly-needed resources..  The burden of the -region's large and growing education, healthcare and pension obligations will put additional pressure on already shaky fiscal balances. 

Resource-based LAC exporters, especially of copper, oil and farm products, will be most susceptible to declining commodity prices. These countries will therefore experience lower foreign exchange earnings, decreasing government revenues and swelling current account deficits. For instance, it is estimated that "Commodities account for 60 per cent of Chile's exports and oil for 40 per cent of the Mexican government's revenue" (Chote and Dombey 1998, p. 17).  This, in conjunction with global overcapacity, sluggish world demand, rising world interest rates, massive financial restructuring, mounting non-performing bank loans, growing fiscal pressures and declining aid flows will further weaken the ability and willingness of heavy LAC debtors to fully service their foreign debt obligations as contracted. 

Brazil recently received an IMF-bailout package totaling U.S. $41.5 billion. ^6,7  The IMF,  the World Bank and the IADB also granted Argentina U.S. $5.7 billion to cover the country's near term funding requirements (Warn, 1998; McKenna,  1998). Meanwhile, talks are currently underway between Ecuador and the IMF, the World Bank and the IADB for financial assistance which could total around U.S. $1.2 billion (Newsome, 1998). Further, Bolivia recently received loan repayment relief of some U.S. $760 million from the IMF and the World Bank (Bowen, 1998). The possibility of another round of even more costly IMF - led multibillion financial bailouts for heavily-indebted LAC countries should not be ruled out given that tens of billions of dollars in foreign debts will be maturing in the next one to two years. Capital demand by already financially-troubled  LAC  countries  will  be  enormous.. International rescue packages will temporarily alleviate recipients' rising funding requirements and payments problems.⁸  The downside, however, is that these multibillion dollar bailouts will contribute to further foreign debt buildup and greater debt -servicing costs, exacerbating concerns over moral hazard problems. In the absence of additional debt relief, greater foreign aid and new lending, it can be increasingly expected that cash-strapped LAC countries will resort to non-debt-creating finance mechanisms, such as barter and countertrade, to conserve limited foreign exchange reserves and overcome external financing constraints (Strizzi et. al., 1997). 

Investor Perceptions 

The LAC region is increasingly being perceived as a very risky place to do business. This is clearly reflected in the region's mediocre and low credit rating rankings. In a recent survey conducted by Institutional Investor; which ranked 136 countries, most international bankers viewed many LAC countries as very risky (Shapiro, 1998).  Of the LAC countries, Chile was seen as the most creditworthy country (25th position out of the 136 countries surveyed). At the same time, Colombia (49), Mexico (50), Uruguay (51), Argentina (58), Panama (61) and Brazil (62) received low to average credit -rating rankings. Meanwhile, Ecuador (94), Honduras (104), Cuba (122) and Nicaragua (123), were seen as some of the survey's least credit worthy countries. Other surveys on country credit worthiness conducted by Euromoney (1998) and Standard & Poor's (1998) show similar findings.  The deepening regional economic volatility will continue to negatively influence investor's perceptions of the region's risk profile. 

It is anticipated that most LAC countries will stay the course on economic reforms, including privatization, deregulation and greater market access, over the next two to five years. It is also expected that the speed and magnitude of the region's economic reforms will remain the principal focus of heated policy debates in many countries in the region, possibly leading to a slowing of the reform process.  Without international pressure from the IMF, the World Bank and the United States, there is a strong possibility that there would be waning support for deeper fiscal, administrative, financial and institutional reforms among the LAC region's business and political leadership. This, it is feared, would lead to major policy flip flops in many LAC countries especially against the backdrop of mounting political, economic and social pressures. 

In the longer term, a stronger commitment for greater   transparency   and   accountability, independent legal and regulatory Institutions and government and leadership changes will improve investor risk perceptions. This will bolster country creditworthiness and lower borrowing costs for many LAC countries on international capital markets. 

Political Fragility 

LAC democracies will remain fragile and extremely susceptible to rising political, economic and social pressures. A failure to provide improved living standards and redress chronic unemployment and massive income and wealth differences, for instance, will result in reduced public support for continued macroeconomic stabilization and deeper structural reforms. This will most likely stall the region's transition process. 

Similarly, ongoing leftist guerrilla insurgencies, lingering hostilities with indigenous people (Chiapas state), long-standing border and territorial disputes (Ecuador and Peru), inadequate land reform, ongoing abuses  by paramilitary forces and politically-motivated violence (Colombia, Paraguay) will likely intensify investor uncertainty and macroeconomic volatility.  This poses a serious threat to the legitimacy and credibility of many of the region's fledgling democracy   A return to populist-authoritarian governments in many of the region's poorest and most vulnerable countries should not be ruled out. 

Conclusion 

In many countries in the region, economic development is uneven and poverty remains a chronic problem.  Worsening income and wealth disparities will limit growth in LAC travel volumes and spending. Price-sensitive LAC travellers will increasingly favour cheaper and closer tourist destinations. Poor infrastructures, environmental degradation and rising public health hazards will reduce the attractiveness of many LAC countries as tourist -destinations. At the same time, the erosion of governance and public administration, rising crime and corruption and weak legal and enforcement regimes will raise tourism - related security and health concerns. Security-conscious travellers are more likely to postpone or curb their travel plans to high-risk LAC destinations. 

Canadian Implications 

In  1997,  according  to  provisional  WTO estimates, Canada attracted some 17.6 million international tourists (2.9% of the world total), an increase of 1.6% from the year before. This ranked Canada as the world's 9th most attractive tourist destination, up from-its 10th place showing in 1996. Meanwhile, Canada earned over U.S. $8.9 billion (2% of the world total) in 1997 from international tourists, excluding transport,  0.7% above 1996. This ranked Canada as the world's 11th largest earner of international tourism receipts, the same as the final ranking recorded in 1996. 

Despite its overall success in attracting international tourists, Canada has made limited inroads in capturing LAC tourist arrivals and receipts.  The total number of LAC tourists to Canada and their total spending during the 1990-1997 period remained relatively small.   For instance, tourist arrivals from the LAC region reached 327,000 in 1997, 25.3% above 1990, representing an average annual growth of roughly 3.2% over the 1990-1997 period (Statistics Canada, various years). As a percentage of Canada's total visitors, the LAC region accounted for just 1.7% in 1990 and almost 1.9% in 1997. On the other hand, spending in Canada by LAC visitors increased from almost $224 million (almost 3.8% of the total) in 1990 to around $391 million (4.0% of the total) in 1997. 

A closer look at the overnight travel figures from the LAC region to Canada reveals that the major purpose for travel is pleasure. Of the 340,000⁹  trips made by LAC residents to Canada in 1997, other pleasure, which includes recreation or holiday, accounted for 157,000 trips {46%), followed by 90,000 trips {27%) for visiting friends or relatives in Canada {Statistics Canada, forthcoming). Business travel accounted for slightly more than one-fifth (70,000) of the total LAC trips to Canada, largely reflecting the small current economic relationship between Canada and the LAC region.  Other purposes, at 24,000 (17%), comprised the smallest share of total LAC trips to Canada. 

If, as anticipated, the LAC region experiences slower economic and export growth in coming years, will lead to weaker regional income and job growth.  Lower personal incomes translate into lower consumer buying power and lower demand for such discretionary spending as travel. A decrease in real disposable income 'will result in fewer international visits as LAC residents curtail discretionary spending.  As regional income and wealth differences worsen, a large and growing number of LAC people will not be able to afford international travel. Given that economic security will remain a major concern for most LAC residents, the volume of long-haul pleasure travellers will likely decrease. In addition, weaker LAC currencies will encourage LAC residents, including middle-class  individuals,  to  take  fewer  visits  to international tourist destinations in favour of cheaper and closer tourist destinations. 

The region's travel growth to Canada will most likely remain at a similar, and possibly even slower, pace as in previous years. Competition to attract new LAC outbound tourists and encourage repeat travellers to Canada will get tougher. 

Canada's tourism industry will continue to be heavily dependent on domestic travel. In 1997, for instance, spending of Canadian and non-resident visitors on goods and services reached 43.9 billion (Statistics Canada, 1998). Over 70% ($31.2 billion) of industry receipts were derived from domestic travellers, with the rest being international travellers (Statistics Canada, 1998).  Of these, around three quarters came from the United States. Growth in international travel arrivals will continue to largely come from the United States, especially given continued financial and economic instability in most emerging economies, as well as slower economic  growth  and  persistent  structural unemployment in most other mature industrialized countries, such as Japan and Germany. 

In Canada, almost three quarters of fluctuations in travel receipts are explained by the Canadian business cycle. A recent report prepared for the Canadian Tourism Commission, for instance, found that "Most of the cyclical variation in tourism demand in Canada and the supply of total tourism commodities can he explained by the cyclical variation in the overall Canadian economy; 73% and 86% of the cyclical variation in tourism demand in Canada and in the supply of tourism commodities can be statistically explained by the cyclical variation in Canadian GDP" (Wilton, 1998, p.5). This means that Canada's tourism industry is relatively protected from the direct effects of potentially destabilizing external economic and financial shocks, including the most recent Asian and Russian financial meltdowns and the deepening economic volatility in the LAC region. 

¹This paper is a modified version of An Analysis of Developments in Tourism Markets in Latin America and Caribbean Region, Occasional Research Report 1998-1, Canadian Tourism  Commission, Ottawa, Canada by the same authors. This report was accepted for presentation at the upcoming international conference 'Improving Safety and Security at Tourism Destinations in Kalmar, Sweden, August 18-22, 1999. An abstract of this paper was also published in Statistics Canada's Travel-log, Spring 1999, Volume 18, Number 2, Catalogue no. 87-003-XPB. A modified version of this paper entitled An Assessment of Tourism Potential for Key Latin American Markets appeared in the University of Ottawa's Faculty of Administration Working Paper Series 98-47, December 1998.  As usual, the views, and remaining errors, expressed in this paper are the sole responsibility of the authors and do not necessarily reflect those of the Canadian Tourism Commission (CTC), the CTCs Marketing Programs or any institutions with which they are associated. 
²  For purposes of this study, the Latin America and Caribbean region couprises: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela 
³ Colombia was the first LAC country to devalue its currency (September 2, 1998) and was followed shortly thereafter by Ecuador (September 14, 1998) and Brazil (January 13, 1999).  The immediate concern is that Venezuela and other LAC countries will also be forced to devalue their currencies given rising financial and economic pressures. 
⁴ Cothran and Cothran (1998, p.485) recently noted that There arc risks-to both enclave and non-enclave tourism. Enclave developments may face less daily crime but a greater risk of a major terrorist attack on an inviting target, while non-enclave tourism faces a greater danger of day-by-day crime. 
⁵For a detailed discussion on the foreign debts in Asia Pacific and the LAC region, see (Strizzi and Kindra, 1998). 
⁶Brazil's foreign exchange reserves declined by some U.S. $25 billion between August 1998 and October 1998, largely attributed to massive capital flight to safety and rising fears of currency -devaluation -(Dyer, 1998c).  It is estimated that Brazil represents around 45% of the LAC region's GDP and a 'loss of confidence in Brazil would prompt a sharp downturn in countries from Argentina to Mexico" (Dyer, 1998b, p.8). 
⁷It was recently reported that "As of the end of June 11998], Brazil's private sector owed a whopping $140-billion (U.S.) overseas, the most by far of any country in the developing world. Of that, $32-billion is due in less than a year, while $108-billion matures in more than a year. The overseas debt of Brazil's public sector stood at $86 billion in June" (Fritsch and Murray, 1998, p. B7).  Equally disturbing, Argentina faces debt amortisations totalling U.S. 11.5bn (billion) next year..."(Wam, 1998, p. 3). 
⁸Since 1997, the IMF has arranged country rescue packages worth some U.S. 140 billion: Indonesia ($43 billion, Russia ($22 billion) South Korea ($58 billion) and Thailand ($17 billion).  The IMF bailout packages arranged for Mexico and Argentina after the Mexico Peso Crisis in 1994 reached U.S. $50 billion (Mexico) and U.S. $7 billion (Argentina). The United States recently approved additional funds for the IMF totalling U.S. $18 billion (MeKenna, 1998). 
⁹This number also includes one or more nights person trips for St. Pierre and Miquelon (12,200 visitors) and Greenland  (I,300 Visitors). 
 

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