This year’s edition of the Economic Survey of Latin America and the Caribbean is the fifty-eighth in the series. It is divided into two parts: the first analyses the main features of the regional economy, while the second examines the situation in the individual countries of Latin America and the Caribbean. A full statistical appendix is included, containing regional and national data. The introduction of the first part outlines the relatively favourable performance of the region’s economy as a whole in recent years and analyses the factors which could jeopardize that performance. It underlines the growing uncertainties in the global economy, which could endanger the prospects for growth in the region. Nonetheless, it draws attention to improvements in a number of economic indicators, reflecting the reduced vulnerability of the region’s economies to any adverse developments in the global situation. The following chapters are devoted to the international situation, macroeconomic (fiscal, exchange-rate and monetary) policy, and the region’s performance internally (level of economic activity, inflation, employment and wages) and externally (trade balance, transfers and income, capital flows and external debt). A statistical appendix illustrates trends in the main indicators at the regional level. One of the principal challenges facing the region is export diversification, especially the need to offer more knowledge-intensive goods. The special chapter in this edition of the Economic Survey provides an analysis from the macroeconomic viewpoint of the ways in which that process is affected by levels of, and trends in, investments and real exchange rates. The second part of the document provides overviews of macroeconomic policies and trends in the Latin American and Caribbean countries in 2005 and the first half of 2006. The country reports include tables on the main economic indicators. The statistical information contained in this publication has been updated to 30 June 2006.