AFTER years of economic chaos in Latin America, 1991 has been a turning point in creating a fragile stability in the region, according to a new United Nations report.Per capita economic output is up for the first time in four years, hyperinflation has been firmly capped, and there are encouraging signs of foreign and domestic investment returning to the region, says the regional economic report, put out annually by the UN Economic Commission for Latin America and the Caribbean. "The years of stagnation seem to be over," says Isaac Cohen, director of ECLAC's Washington office. While reflecting this same optimism, the report also was cautious about other economic indicators. High debt remains a drain on economies, the report says, and so far this year no country has made progress in reducing its debt with creditor banks. Economic adjustment programs that aimed to slow inflation and reduce bloated statist institutions have helped stabilize the economies, but have been painful to most Latin Americans and have curtailed public spending on social services for the poor. ECLAC's study focuses on Argentina, Brazil, Colombia, Chile, Ecuador, Mexico, Peru, Uruguay, and Venezuela, which together account for 90 percent of the region's population and gross domestic product. The report predicts that by year-end these countries will have a combined annual growth rate, in real terms, of at least 2 percent. Without the influence of Brazil and Peru's protracted recessions included in the average, the growth would be around 4 percent - higher than 1990 despite the slackening in the growth of world trade. Inflation - measured by the weighted average annual increase in consumer prices in the region - stood at 1,200 percent in 1989 and 1990, but has now been reduced to less than 300 percent. The report attributes substantial new flows of private investment to the privatization of public enterprises and the differences between real Latin American interest rates and declining international rates. Poverty is the region's biggest challenge, says ECLAC executive secretary Gert Rosenthal, interviewed in Santiago, Chile. "Income distribution is worse than in Africa or Asia," and income gaps between rich and poor widened in the 1980s, he says. "This is a problem that democratic governments are going to have to address. I'm not sure that sustained growth is enough. It's a real black mark on the region, and you can't ignore it." Mr. Rosenthal divides the region into three categories. Nations in the first, such as Mexico, Colombia, Chile, and Venezuela, "have assimilated the cost of adjusting and now are on the threshold where they can start fast growth," he says. "The social cost was very high but they assimilated it. They have a more diversified export structure. They undertook some major reforms and ... they're on their way." The second group, he says, consists of countries such as Argentina, Brazil, and some medium-sized countries, which are "also on their way, but with a lot more fragility." Finally, there is a small group of countries that "have not advanced very much in undertaking major changes," such as Nicaragua, Peru, and Haiti. These, Rosenthal says, "will probably have a rough time of it and will need greater international cooperation." Otto Reich, former US ambassador to Venezuela, says the economic changes in the region are deep-rooted, that the debt crisis of the 1980s left Latin Americans no choice but to reform their protective, isolationist economies. "The turnaround in Mexico, Venezuela, and Argentina is almost as dramatic as the change in the Soviet Union," says Mr. Reich, who now acts as a private consultant to companies investing in Latin America. The report "confirms expectations of most people that after years of adjustments the region is reaching some kind of stability," says Carlos Paredes, a Brookings Institution research associate. While he says the balance of positive and negative economic indicators points to a "mild recovery," Mr. Paredes notes that there is "widespread fear" among Latin American political leaders that the opening of East Europe and the Soviet Union would be a drain on resources for the region. Paredes and other regional experts discount this fear, however. The evidence of increased foreign investment already suggests Latin America can compete, they say. Reich notes: "In Mexico it's hard to exaggerate the extent to which [investment] is up. There was $4.5 billion in foreign investment last year, and an equal amount in domestic return flows - $9 billion coming in is phenomenal." In many Latin American nations, however, outside investment is hard to come by. Many countries are still burdened by debts incurred since the 1970s, when foreign bankers lined up to lend to the region. Countries should "make a more serious effort to mobilize domestic savings" for investment, Rosenthal says. Net foreign inflows of funds "have been very low and and even negative in the last few years," because of the external debt-service payments, he says, costing countries from 2 to 5 percent of gross domestic product. "That problem has still not been resolved, although it has been somewhat attenuated," he says.