a $15 billion low-cost housing program to create jobs and affordable housing. The government recently cut sales taxes on 70 capital goods in an effort to boost investment in that sector, which dropped 14 percent in the first quarter year-on-year.

Pessimists, however, argue the region’s improved fiscal position is largely the result of temporary factors such as high commodity prices, not fundamental economic reforms, Rojas-Suarez said. The pessimists say South American economies are still structurally weak, and worry that political and social tensions could create a backlash against some of the market-oriented reforms already implemented.

Huge disparities in income levels remain, preventing much of the population from joining the consumer economy. Rising unemployment

could create political pressure on governments to take protectionist measures that further reduce trade.

In Brazil, unemployment is projected to rise above 9 percent; in Colombia, it is already 11. 8 percent, and in Chile, 7. 5 percent. In Argentina, where the government of Cristina Fernandez de Kirchner provides aggressive financial subsidies for many troubled companies, the official unemployment rate is about 8 percent, but is widely believed to be much higher.

Even Brazil may not recover as rapidly as anticipated. Mauri-cio Cardenas, senior fellow and director of the Latin America Initiative at the Brookings Institution, said although retail sales in Brazil increased 6. 9 percent in April over a year earlier, industrial production contracted 14. 8 percent in May.

“The figures for other countries show a similar picture,” Cardenas said. “Latin American economies are experiencing a deep contraction, and the evidence does not suggest a significant recovery under way.”

Longer term, the region’s chances for revival also depend on how effectively its governments and private sector stimulate innovative technology, said Alicia Barcena,

executive secretary of the Economic Commission for Latin America and the Caribbean. Only through innovation will the region be in “a better position to face the technological progress and sustainable development that will surge once the economic crisis is over,” Barcena said in a recent report.

Among South America’s largest economies, only Brazil has increased its level of research and development expenditures in the last decade, from 0.5 percent of GDP during the 1990s to more than 1 percent in 2006, she said. South America’s other major economies still spend the same portion of their GDP as a decade ago.

Just as troubling, private-sector spending on R&D accounts for only one-third of all R&D spending in Latin American countries, compared with two-thirds in emerging markets as a whole.

In the absence of a full-fledged strategy to foster innovative technologies, every country except Brazil could remain just as vulnerable to downward swings in global commodity prices and reduced demand for their products in the U. S. as they are today. JOC