Neo-liberal Market Reform in Latin America

Shift Towards Neo-Liberalism in Latin America in 1990s

• International factors made liberal economic policies dominant ideologically in 1980s and 90s

• Regional factors pushed Latin American countries towards liberalization of economies in ’90s

International Factors

• Reagan and Thatcher led charge towards liberal economics in 1980s (smaller role for state in economy)

• Collapse of state socialism and Eastern Bloc, late-1980s

Regional Factors

1. Crisis of ISI across Latin America in 1970s and ’80s

2. Chilean neo-liberal “boom” of late-1970s and early-1980s; “boomlet” after post-Pinochet economic recovery

3. Debt crisis of 1980s – foreign banks had a lot of “petrodollars” b/c of oil boom, LA countries borrowed billions and became stuck with high foreign debt

--IMF offered LA countries exit strategy, but with neo-liberal strings attached (“IMF conditionality”)

What were goals of neo-liberal reforms?

• Tame hyperinflation

• Improve competitiveness of industry

• Open up economy to global markets

• Get prices and wages “right” (supply/demand regulation)

Key Neo-Liberal Policies

1. Eliminate sources of economic inefficiency--subsidies to industries --subsidies to consumers

2. Privatization of state-owned industry3. Austerity Measures

--cuts in govt spending on educ., health, envtl prot

4. Remove tariffs and other trade barriers

Economic Effects of Neo-liberal Policies

1. More connected to international economic system – international investment, openness

Latin American Countries Among Top FDI Recipients

Lower Tariffs and Trade Restrictions

• Average tariff rate in Latin America fell from 42% in 1986 to 14% in 1998

Economic Effects

2. Improved macroeconomic outlook over medium and long-term

Economic Effects

3. Decline in average wages

4. Larger gap between rich and poor, greater concentration of wealth

Political Effects

• Less inclusive public policy that tends not to reflect needs and interests of poor

• Multiple, competing economic demands on state that were ignored under dictatorships hard to meet, given demands of neo-liberalism

• Recent electoral backlash against neo-liberalism – Lula da Silva in Brazil, Gustavo Noboa in Ecuador, Chavez in Venezuela

Cultural Effects

1. Loss of communitarianism and solidarity

--greater emphasis on the individual, as opposed to working together to achieve common good

2. Weakened national identity – in context of U.S. hegemony, integration can spell the decimation of a national culture