A rchive Date
[ 30-08-2002 ]
Category
[ International Relations ]
sub-Categoy
[ Latin America ]
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http://www.chron.com/cs/CDA/story.hts/editorial/outlook/1554113
Rethinking the free markets of Latin America
By GUSTAVO WENSJOE
Aug. 29, 2002, 6:22PM
It is becoming increasingly clear to the people of Latin America that while their governments, as well as the international community, are deeply concerned with recurring financial crises buffeting most Latin American countries, their response in focusing exclusively on fixing immediate economic disruptions is grossly inadequate. There is a need to take a second look at the market-oriented economic models that were implemented in the last decade. The implications of ignoring this need are extremely serious, for both Latin America and the United States.
These implications go beyond the economic collapse experienced by Argentina, and possibly Brazil in the near future; it could unleash a rash of political conflict and instability. For the United States, it could translate into new hot spots, adding to its already crowded foreign policy agenda. The viability of the market-driven economic model, as presently instituted in Latin America, is compromised, and it now constitutes a barrier, rather than a path, for sustained economic development.
While Argentina and Brazil, two of the largest countries in the region, have commanded the most attention, other Latin American countries -- with the possible exceptions of Chile and Mexico -- also face uncertain futures.
The two major components of the market-reform process that began in the late 1980s included, first, the downsizing of the scope of government, which allowed greater space for the private sector through privatization of state-owned enterprises and deregulation. Second was the external reorientation of Latin American economies by reducing their barriers to trade and foreign investment while promoting their own exports.
Because of the massive dislocations associated with the 1980s debt crisis, most Latin Americans were willing to endure extreme hardship during the reform period because of their expectations for future economic growth. The question then becomes: What benefits have been realized as a result of the market reforms instituted throughout the region?
The primary accomplishments of the market-oriented economic model occurred in three areas. Although achieved at a great cost, first was the dramatic reduction of inflation rates, which are currently single digit for most countries. Second, for a number of countries, the outward orientation provided a stimulus for their export sectors. For example, Mexico has witnessed tremendous growth and diversification in this area. Lastly, today most governments abide by strict macroeconomic and monetary principles that have severely curtailed their historical budget deficits. In most cases, excluding foreign debt payments, almost all Latin American national governments enjoy budget surpluses.
It is also crucial to address the major drawbacks associated with the free-market model. Notable are the extremely low levels of economic growth, which represent a fraction of rates achieved prior to the 1980s under the import substitution industrialization model. Low growth translates into unemployment and lower incomes.
In Mexico, real wages in 1997 were 58.7 percent of what they were in 1980. And, the level of unemployment and underemployment in most countries are the highest since the Depression in the 1930s. This is the situation despite the stimulus from substantial foreign exchange derived from large-scale privatization and foreign loans.
Between 1994 and June of 2002, the Brazilian public sector debt almost doubled from 30 percent to 58.6 percent of gross domestic product. Flows of speculative portfolio capital have added to financial instability, as witnessed throughout the 1990s up until now. In addition, with the exception of Chile, poverty rates throughout Latin America have increased and inequality has been accentuated in all countries. The exodus of the professional class from Latin America is indicative of the lack of employment opportunities across all socio-economic groups.
We need to move away from what Nobel laureate Joseph Stiglitz refers to as the "ideology of market fundamentalism." While we cannot deny the urgent needs of financially strapped economies, there is also a need to consider the long term and design an economic model that will yield stable and inclusive economic development. For instance, countries such as South Korea and Taiwan have experienced remarkable economic development over the last several decades. This success was achieved partly because they did not always heed the advice of international financial institutions or G-7 countries.
There is a temptation to disregard warnings signs. However, we cannot afford to dismiss critiques of a nonsustainable economic model as alarmist. In the last few years, presidential candidates in Latin America have promised reactivation of economic growth and job creation. Once elected, however, they have reverted to the rigidities associated with the current economic model and as a consequence now suffer low approval ratings.
The people of Latin America are increasingly demanding -- through the ballot box and popular mobilization -- a departure from strict market principles.
Wensjoe is a Peruvian-born professor of international studies at the University of St. Thomas. He specializes in Latin American affairs.
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